2024 (6) TMI 847 - AT - Service Tax

Classification of services - manpower recruitment or supply agency service or not - relationship of employer and an employee between the appellant - HELD THAT - This question has come up before Constitutional courts in the past on how to determine whether a person is an employee or not. The Supreme Court in various cases have stated that no one test of universal application can be depended upon to give the correct result. This is not an exhaustive list of tests to discern the relationship between the parties. For example, from the textbook scenario of complete control to complete independence lies a variety of circumstances involving a wide range of initiative and discretion being enjoyed by the worker - Mere reference to invoices raised or payments made, without reference to the specific provisions of a contract or working arrangement, will not be indicative of employer-employee relationship. In the light of the non-examination of the true nature of relationship between the parties a conclusion of the appellant being the employer of the workers cannot be fastened by assumptions and presumptions. Revenue has not proved its case regarding the true nature of the disputed activity provided by workmen to the appellants customers. Hence the question of examining the correctness of the extended period invoked or imposition of penalty does not arise. There are no hesitation in setting aside the impugned order - appeal allowed.

Summary

Issues Involved:
The issue involves the classification of services provided by the appellant under the category of 'Manpower Recruitment or Supply Agency Service' as per Section 65(68) of the Finance Act, 1994, and the determination of the relationship between the appellant and the persons engaged in fixing doors at the buyers' premises.

Classification of Services:
The Appellant, a small-scale unit manufacturing flush doors, faced a Show Cause Notice for raising labour charge invoices for door fixing, alteration, designing, and carpentry work at customer sites, which was deemed to fall under 'Manpower Recruitment or Supply Agency Service.' The Adjudicating Authority confirmed a demand for service tax and imposed penalties under relevant sections. The Appellant contended that the activity was incidental to the sale of doors, and the carpenters engaged were independent contractors, not under their control. They cited legal judgments and circulars to support their argument. The Tribunal found that the impugned order lacked reference to the terms of engagement or tests to determine the relationship, leading to the conclusion that the Appellant was not the employer of the workers, thereby setting aside the order and allowing the appeal.

Determination of Relationship:
The Tribunal examined the nature of the relationship between the Appellant and the workers engaged in fixing doors at buyers' premises. Various tests were cited, including the Control and Supervision Test, Organisation Integration Test, Mutual Obligation Test, Provision of Equipment Test, and Control and Supervision Test, to determine the existence of an employer-employee relationship. The Tribunal emphasized the need to analyze the specific provisions of a contract or working arrangement to ascertain the relationship accurately. It was noted that the impugned order did not provide details of the engagement terms or apply any tests to determine the relationship. As a result, the Tribunal concluded that the Revenue had not proven the true nature of the disputed activity, and the question of the extended period invoked or penalty imposition did not arise. Consequently, the impugned order was set aside, and the appeal was allowed, with the Appellant eligible for consequential relief as per the law.