2025 (2) TMI 800 - AT - Service Tax

100% EOU / STPI - Classification of service - Manpower Recruitment and Supply Agency service or Consulting Engineer Service - time and material project - suppression of facts or not - invocation of extended period of limitation penalty. Classification of service - HELD THAT - The issue is no more res integra in as much as the agreements with M/s. Philips Electronics India Ltd. in the present case was similar to the agreement entered by M/s. Aztecsoft Ltd. with M/s. Philips Electronics India Ltd. in 2024 (7) TMI 312 - CESTAT BANGALORE and this Tribunal on examination of these agreements had clearly held that the services rendered by the appellant is nothing but a Manpower Recruitment and Supply Agency service . There are no reason to disagree with the decision and therefore the demand of service tax as manpower supply service is upheld. Extended period of limitation - suppression of facts or not - penalty - HELD THAT - Since the ST-3 returns placed on record categorically show that they had declared the services rendered by them as exempted services under Consulting Engineer Service and in view of the fact that the services were exempted till 16.05.2008 under consulting Engineer Service the same cannot be considered as mis-declaration or suppression of facts. Hence the impugned order is modified to the extent of confirming the demand for normal period and the penalties imposed under Section 76 and 77 are upheld and penalty imposed under Section 78 is set aside. Conclusion - i) Time and Material Projects provided by the appellant constituted Manpower Recruitment and Supply Agency Service subject to service tax. ii) The appellant s classification of services as Consulting Engineer Service was based on a bona fide interpretation of the law and there was no willful suppression or mis-declaration. The extended period of limitation was not applicable due to the absence of willful suppression. iii) The penalties under Sections 76 and 77 were upheld but the penalty under Section 78 was set aside. Appeal allowed in part.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the services provided by the appellant under the category of "Time and Material Projects" should be classified as "Manpower Recruitment and Supply Agency Service" or as "Consulting Engineer Service".
Whether there was suppression of facts or mis-declaration by the appellant, justifying the invocation of the extended period of limitation and imposition of penalties under the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Classification of Services

Relevant legal framework and precedents: The Tribunal examined agreements between the appellant and M/s. Philips Electronics India Ltd., comparing them to previous cases such as Aztecosoft Ltd. and Future Focus Infotech (P) Ltd., where similar services were classified as "Manpower Recruitment and Supply Agency Service".
Court's interpretation and reasoning: The Tribunal analyzed the Master Services Agreement, distinguishing between "Fixed Price Projects" and "Time and Material Projects". The former involved specific deliverables controlled by the appellant, while the latter involved providing personnel with control by the client, Philips, and no specified deliverables.
Key evidence and findings: The Tribunal noted that in "Time and Material Projects", payments were based on man-hours and personnel supplied, indicating a service characteristic of manpower supply rather than consulting engineering.
Application of law to facts: The Tribunal concluded that the appellant's services under "Time and Material Projects" were indeed "Manpower Recruitment and Supply Agency Service" due to the nature of personnel supply and payment terms.
Treatment of competing arguments: The appellant argued that both project types were related to computer software and should not be classified as manpower supply. However, the Tribunal found this argument unconvincing given the contractual terms and payment structures.
Conclusions: The Tribunal upheld the classification of "Time and Material Projects" as manpower supply services, confirming the service tax demand.

Suppression of Facts and Extended Limitation

Relevant legal framework and precedents: The Tribunal considered precedents such as Densons Pultretaknik and Continental Foundation Joint Venture, which discuss the criteria for invoking extended limitation due to suppression of facts.
Court's interpretation and reasoning: The Tribunal examined the appellant's ST-3 returns, noting that the appellant declared services as exempt under "Consulting Engineer Service" and claimed exemptions based on existing notifications.
Key evidence and findings: The appellant's belief in classifying services under "Consulting Engineer" was deemed bona fide, supported by consistent declarations in their ST-3 returns.
Application of law to facts: The Tribunal found no evidence of willful misstatement or suppression, as the appellant's classification was based on a reasonable interpretation of the law and existing exemptions.
Treatment of competing arguments: The Revenue argued for extended limitation due to mis-declaration. However, the Tribunal found the appellant's declarations were consistent with their understanding of applicable exemptions and definitions.
Conclusions: The Tribunal modified the impugned order, limiting the demand to the normal period and setting aside penalties under Section 78, while upholding penalties under Sections 76 and 77.

3. SIGNIFICANT HOLDINGS

The Tribunal held that "Time and Material Projects" provided by the appellant constituted "Manpower Recruitment and Supply Agency Service", subject to service tax.
It was determined that the appellant's classification of services as "Consulting Engineer Service" was based on a bona fide interpretation of the law, and there was no willful suppression or mis-declaration.
The Tribunal stated: "The 'Time Material Projects' clearly proved that it is only a 'man power supply' and the decisions relied upon by the Revenue... clearly proves that the activities undertaken by the appellant fall under the man power supply."
The Tribunal concluded that the extended period of limitation was not applicable due to the absence of willful suppression, modifying the order to confirm the demand for the normal period only.
The penalties under Sections 76 and 77 were upheld, but the penalty under Section 78 was set aside.
The appeal was partially allowed.

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