2023 (6) TMI 1080 - AT - Service Tax

Classification of services - manpower recruitment or supply agency service or not - cane harvesting labourers and execution of the agreement and other related work. Allotting certain agricultural areas for procurement of sugar cane cultivated by the agriculturists within the said jurisdiction - farmers within the earmarked areas who intend to cultivate sugar cane shall sell their sugar cane to the above factory only - Wherever harvesting labourers were arranged by the factory, the cane cutting charges will be recovered from the cost of the sugar cane supplied. HELD THAT - The facts indicate that Kankhanis / Gang Leaders who supervise the work of cane harvesting labourers are registered with the appellant and it is seen that as per the requirements of the farmers, the services were made available for cane harvesting. However, utilisation of these services of the Kankhanis / Gang Leaders is optional as all the sugar cane farmers though registered with the factory for supply of sugar cane, have not utilized the services of the Kankhanis / Gang Leaders for cane harvesting. Even the service charges that are payable to these cane harvesting labourers is determined by the farmers in negotiation with the Kankhanis / Gang Leaders. There is nothing on record to suggest that the cane cutting labourers are the employees of the appellant. No employer and employee relationship exists between the appellants and the Kankhanis / Gang Leaders. The labourers are not supplied on per hour or per day basis. Cane harvesting charges are reportedly negotiated with the Kankhanis / Gang Leaders by the farmers themselves. Reportedly, some farmers are not utilizing the services of the appellant for obtaining the labourers. As such, the demand raised on the appellant under manpower supply is not maintainable. In a catena of decisions rendered by the Tribunal Chennai, the issue was decided in favour of the appellants holding that the supply of cane harvesting labourers, in similar facts, would not be falling under the manpower recruitment or supply agency service - reliance can be placed in M/S. ARIGNAR ANNA SUGAR MILLS VERSUS COMMISSIONER OF GST CENTRAL EXCISE, TRICHY 2018 (9) TMI 387 - CESTAT CHENNAI where it was held that Being a Government undertaking, it can be seen that all appointments are to be made in the muster roll of the sugar mill. From the facts on record, it cannot be said that the appellants have provided harvesting labourers to the sugarcane growers for harvesting the sugarcane. The services of the appellant would not be classifiable under manpower recruitment or supply agency service - Appeal allowed.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Existence of employer-employee relationship.
3. Applicability of Service Tax under manpower recruitment or supply agency service.
4. Validity of demand and penalties imposed.

Summary:

1. Classification of Services Provided by the Appellant:
The main allegation against the appellant, a sugar manufacturer, was that it engaged in supplying manpower for cane harvesting to farmers. The Revenue classified this activity under "manpower recruitment or supply agency service" as defined in Section 65(68) of the Finance Act, 1994, and demanded Service Tax accordingly.

2. Existence of Employer-Employee Relationship:
The appellant contended that the cane harvesters, known as Kankhanis or Gang Leaders, were independent contractors and not employees of the sugar mill. The Tribunal found no evidence of an employer-employee relationship between the appellant and the cane harvesters. The farmers negotiated and paid the cane cutting charges directly to the Kankhanis, indicating no direct control by the appellant over the labourers.

3. Applicability of Service Tax:
The Tribunal examined whether the appellant's services fell under "manpower recruitment or supply agency" service. It concluded that merely facilitating the availability of cane harvesters and recovering charges from the farmers did not constitute manpower supply. The cane cutting charges were negotiated on a per tonne basis, not on a per hour or per day basis, further supporting the absence of manpower supply.

4. Validity of Demand and Penalties:
The Tribunal referred to several precedents, including the decisions of the Hon'ble High Court and CESTAT, which supported the appellant's case. It held that the appellant's activities did not fall under the taxable category of manpower recruitment or supply agency service. Consequently, the demand for Service Tax and the penalties imposed were set aside.

Conclusion:
The Tribunal allowed the appeal, ruling that the appellant's services did not qualify as "manpower recruitment or supply agency" service under the Finance Act, 1994. The demand for Service Tax and penalties were annulled, providing consequential relief to the appellant. The order was pronounced in the open court on 23.06.2023.