2015 (3) TMI 483 - HC - Service Tax

Classification of service - Manpower Recruitment or Supply Agency Services - agreement between two parties was in essence to harvest the sugarcane of the members of the Karkhana from their fields, load them in various vehicles and deliver them at factory site - Held that - The package deal which is involved in this case was not subjected to service tax in the year 2005 and so, the Revenue was really not able to demand service tax to the respondent. The provisions of Finance Act did not give them sufficient leeway. So the notice and demand was uncalled for. After the notice was issued and the demand was made, it became a difficult endeavour for the Revenue to bring the service provided by the respondent within the definition of Manpower Recruitment and Supply Agency. In our view, it was not possible for them to do so then. - Decided against Revenue.

Summary

Issues:
1. Whether the services provided by the respondent fall within the definition of Manpower Recruitment or Supply Agency Services as per Section 65(105)(k) of the Finance Act, 1994.
2. Whether the Revenue was justified in demanding service tax from the respondent based on the nature of services provided.

Analysis:

Issue 1:
The case involved a contract between the respondent, a private limited company, and a sugar factory for harvesting sugarcane, loading it into vehicles, and delivering it to the factory. The appellant issued a notice to the respondent to pay service tax under Section 65(105)(k) of the Finance Act, 1994, claiming the services provided were Manpower Recruitment or Supply Agency Services. The Tribunal concluded that the respondent's work did not fall under this category based on the nature of the contract and the definitions provided in the Act. The appellant argued that the respondent's services constituted the supply of manpower, but the Court disagreed. The Court emphasized that the nature of the work, although involving labor-intensive activities, was a package deal for supplying raw material to the factory, and the manner in which the work was done was not the factory's concern. The Court referred to a Supreme Court judgment to support its interpretation that the agreement's terms and conditions determine the nature of the services provided.

Issue 2:
Regarding the Revenue's demand for service tax, the Court noted the historical context of service tax inclusion in different categories over time. The Court highlighted that the services provided by the respondent were not taxable at the time of the demand in 2008, as labor contract services were only made taxable in 2005. The Court observed that the Revenue faced challenges in bringing the respondent's services under the definition of Manpower Recruitment and Supply Agency, indicating that the demand for tax was unwarranted. The Court mentioned that subsequent amendments made all services taxable except those in the "negative list," clarifying that the services rendered by the respondent were not taxable at the relevant time. Consequently, the Court dismissed the appeal challenging the Tribunal's decision.

In conclusion, the Court upheld the Tribunal's decision, ruling that the respondent's services did not qualify as Manpower Recruitment or Supply Agency Services and that the Revenue's demand for service tax was unjustified based on the historical context and legal provisions at the time.