2009 (9) TMI 386 - AT - Service Tax

Manpower recruitment or supply agency- The assessee entered into a contract with a cement company for providing the work which included loading of cement bags into closed wagons, wagon door cleaning, sealing and riveting etc. The Commissioner held that the assessee had rendered taxable services classifiable under the category of Manpower recruitment or supply agency but had not followed the statutory formalities including payment of service tax. He therefore, confirmed demand of service tax along with interest against the assessee and imposed penalty. Held that- the assessee did not supply manpower or charge for the labour provided on man-day basis or man hour basis. It carried out the work as a contractor employing its own labour. Such an activity was not classifiable as Manpower recruitment or supply agency . Thus, the impugned is liable to be vacated.

Summary

Issues:
Demand of service tax for "Manpower recruitment and supply agency" services rendered without following statutory formalities.

Analysis:
The appeal sought to vacate the demand of service tax amounting to Rs. 20,90,772, along with applicable interest and penalties under sections 77 and 78, for services provided by the appellant from 16-6-2005 to 31-8-2006. The Commissioner found that the appellant had undertaken various activities for M/s. India Cements Ltd. as per the contract rates. The issue revolved around whether these services fell under the category of "Manpower recruitment or supply agency" as defined under section 65(68) of the Finance Act, 1994.

The Commissioner concluded that the appellant had indeed provided taxable services falling under the category of "Manpower recruitment or supply agency" without fulfilling statutory requirements, leading to the demand and penalties. The appellant contended that the services should be classified differently, with cleaning as a separate category and stenciling under "business auxiliary services." The appellant argued that service tax and education cess were paid before the show-cause notice, making the imposition of penalty and interest unjustified. The appellant requested a reevaluation of the services involved and the correct quantification of service tax liability.

Upon hearing both parties, the Tribunal found that the appellant had performed various activities for M/s. India Cements Ltd. under a contract, being compensated at separate rates for each task. It was noted that the appellant did not provide manpower on a labor basis but operated as a contractor with its own labor force. Consequently, the Tribunal determined that the appellant's activities did not fall under the classification of "manpower recruitment or supply agency." As a result, the impugned order was vacated, and the appeal was allowed for remand to reassess the appellant's liability after a fresh hearing, directing the original authority to conduct a new determination of the liability.

This judgment highlights the importance of correctly classifying services for taxation purposes and the necessity of adhering to statutory requirements to avoid demand and penalties for service tax liabilities. The decision emphasizes the distinction between providing labor as a service agency and operating as a contractor with an independent labor force, impacting the categorization of services under relevant tax laws.