2010 (3) TMI 190 - AT - Service Tax

Manpower recruitment or supply agency- The appellant had entered into agreements with TCS and Infosys, two renowned IT Companies. The Commissioner found that the employees of the appellant performed the services at customers premises as per the requirements and directions of TCS and Infosys; that the role of appellant was limited to supply of skilled manpower to TCS and Infosys; that per se, appellant had not undertaken any software development in its own premises and that appellant had no control whatsoever, on the technical nature of activities carried out by its employees. The Commissioner therefore took the view that services rendered by the appellant were in the nature of manpower supply . The Commissioner had, thus, raised demands for service tax for the relevant period with interest, and penalties under section 76 and 78. In instant appeal, the contention of the appellant was that it rendered information technology software service to its clients, and during the period covered in the proceedings, services rendered in the field of software development did not attract service tax. The appellant further contended that since the practice was adopted and because of adoption of such mode for charging the clients, it was not correct to hold the services rendered as amounting to mere manpower supply and charge service tax accordingly. Held that- the appellant was supplying skilled manpower for which it was liable to pay service tax for supply of manpower services. Thus demand, interest and penalty u/s 76 confirmed. But penalty imposed u/s 78 is liable to be set aside.

Issues Involved:
1. Classification of Services: Whether the services rendered by the appellant fall under "Consulting Engineer" or "Manpower Supply" services.
2. Scope of Agreements: Analysis of the agreements between the appellant and TCS/Infosys.
3. Taxability and Exemptions: Whether the services are exempt from service tax.
4. Value Determination: Inclusion of salary in the gross value for service tax.
5. Time-bar and Limitation: Whether the demand is time-barred.
6. Penalty: Imposition of penalties under sections 76 and 78.

Issue-wise Detailed Analysis:

1. Classification of Services:
The primary issue was whether the services provided by the appellant should be classified as "Consulting Engineer" or "Manpower Supply." The appellant argued that their contracts involved delivering IT software services, which should classify under "Consulting Engineer." However, the Department contended that the agreements did not assign any specific software project to the appellant and were primarily for supplying skilled manpower. The Tribunal concluded that the appellants were supplying skilled manpower, as evidenced by the terms of the agreements and the nature of the work performed under the supervision of TCS and Infosys.

2. Scope of Agreements:
The agreements between the appellant and TCS/Infosys were scrutinized to determine the nature of services. The appellant highlighted various clauses to argue that their obligation was to deliver services, not just supply manpower. However, the Tribunal noted that the agreements were staff-specific and did not assign any specific software project to the appellant. The agreements required the appellant to replace personnel who left the job, indicating a focus on supplying manpower rather than delivering a specific project.

3. Taxability and Exemptions:
The appellant argued that their services fell under "Information Technology Software Services," which were not taxable at the material time. The Department countered that the services rendered were taxable under "Manpower Supply" services. The Tribunal agreed with the Department, noting that the appellants had paid service tax under the "Manpower Supply" category for similar services rendered to IBM and Capgemini.

4. Value Determination:
The appellant contended that the gross value for service tax should exclude the salary component. However, the Tribunal upheld the Department's stance that the value for service tax purposes is the gross value charged, including all expenditures and costs incurred for rendering the service.

5. Time-bar and Limitation:
The appellant did not press the issue of limitation. The Tribunal noted that the returns had been filed, and the demand was not time-barred as per section 73(6)(i)(a) of the Finance Act, 1994.

6. Penalty:
The Tribunal confirmed the imposition of penalties under section 76 for both appeals. However, for Appeal No. S/173/2008, the Tribunal set aside the penalty under section 78, noting that penalties under sections 76 and 78 are mutually exclusive. The Tribunal emphasized that the penalty under section 76 sufficed to meet the ends of justice.

Conclusion:
The Tribunal concluded that the appellants were liable to pay service tax for supplying skilled manpower under the "Manpower Supply" category. The demand for service tax, cess, and interest was confirmed, along with the penalty under section 76. Appeal No. S/173/2008 was partly allowed by setting aside the penalty under section 78, while Appeal No. ST/220/2009 was rejected.

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