2022 (2) TMI 858 - SC - Service Tax

Supply of manpower services or job work contract - suppression of facts or not - filing of incorrect ST-3 returns - filing of ST-3 returns for the period between April 2013 to September 2013 after the due date - Section 70(1) of the Finance Act 1994 and Rule 7 of the Service Tax Rules 1994 - benefit of N/N. 25/2012-Service Tax dated 20 June 2012. Whether the appellant is a job worker within the meaning of the exemption notification dated 20 June 2012 or is merely a supplier of contract labour for the work of the establishment? - HELD THAT - The substratum of the agreement between the appellant and Sigma deals with the regulation of the manpower which is supplied by the appellant in his capacity as a contractor. The fact that the appellant is not a job worker is evident from a conspicuous absence in the agreement of crucial contractual terms which would have been found had it been a true contract for the provision of job work in terms of Para 30(c) of the exemption notification. The decisions of CESTAT relied upon by the appellant in OM ENTERPRISES VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2016 (10) TMI 1234 - CESTAT MUMBAI and BHAGYASHREE ENTERPRISES, SONAWANE INDUSTRIAL VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2017 (3) TMI 786 - CESTAT MUMBAI also do not help their submissions as they are fact-specific and based on a reading of the contracts in those cases. In this case, though ostensibly, the agreement contains a provision for payment on the basis of the rates mentioned in Schedule II, the agreement has to be read as a composite whole. On reading the agreement as a whole, it is apparent that the contract is pure and simple a contract for the provision of contract labour. An attempt has been made to camouflage the contract as a contract for job work to avail of the exemption from the payment of service tax. The judgment of the Tribunal does not, in the circumstances, suffer from any error of reasoning. There is no merit in the appeal - Appeal is dismissed.

Summary

Issues Involved:
1. Classification of services provided by the appellant as 'Manpower Recruitment or Supply Agency Service' vs. 'Job Work'.
2. Eligibility for exemption under Notification No. 25/2012-Service Tax dated 20 June 2012.
3. Compliance with the Contract Labour (Regulation and Abolition) Act 1970 (CLRA).
4. Allegations of suppression of facts and misrepresentation by the appellant.

Issue-wise Detailed Analysis:

1. Classification of Services:
The appellant had obtained service tax registration under 'Manpower Recruitment or Supply Agency Service' but later claimed that their services were 'job work' exempt under Notification No. 25/2012-Service Tax. The agreements between the appellant and Sigma Electric Pvt. Ltd. (Sigma) involved providing personnel for activities such as felting, material handling, pouring, and supply of material to the furnace. The Commissioner and the Tribunal both concluded that the services provided were in the nature of manpower supply rather than job work, as the appellant did not possess machinery or equipment and used Sigma's premises and equipment. The Tribunal noted the similarity in the nature of services before and after August 2012 and rejected the appellant's claim of job work.

2. Eligibility for Exemption:
The appellant sought exemption under Notification No. 25/2012-Service Tax, which exempts "carrying out an intermediate production process as job work in relation to any goods on which appropriate duty is payable by the principal manufacturer." The Tribunal held that the agreements were for the supply of manpower services, not job work. The agreements lacked specific details about the nature of the work, quality maintenance, delivery schedules, and consequences of breach, which are typical of job work contracts. The Tribunal and the Supreme Court concluded that the appellant's agreements were pure labour contracts rather than job work contracts, thus disqualifying them from the exemption.

3. Compliance with CLRA:
The Tribunal noted that the agreements required the appellant to obtain a license under the CLRA and imposed responsibilities for wage payments and statutory dues on the appellant. The appellant argued that the definition of 'contractor' under the CLRA includes both job workers and suppliers of manpower, suggesting that their registration under the CLRA did not necessarily indicate they were mere manpower suppliers. However, the Supreme Court found that the agreements primarily regulated the manpower supplied by the appellant, reinforcing the conclusion that the services were manpower supply rather than job work.

4. Allegations of Suppression and Misrepresentation:
The show cause notice alleged that the appellant failed to pay service tax on time, did not assess and discharge service tax liability correctly, suppressed facts, and filed incorrect ST-3 returns. The Commissioner confirmed these allegations, noting habitual delays in service tax payments and misclassification of services to avoid tax. The Supreme Court upheld these findings, agreeing that the appellant's attempts to classify the services as job work were an effort to evade service tax.

Conclusion:
The Supreme Court dismissed the appeal, affirming the Tribunal's judgment that the services provided by the appellant were in the nature of manpower supply and not job work. Consequently, the appellant was not entitled to the exemption under Notification No. 25/2012-Service Tax. The appellant's agreements were found to be labour contracts, and the allegations of suppression and misrepresentation were upheld. The appeal was dismissed with no merit.