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TMI Blog2010 (3) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... t of service tax, whichever is higher (Section 76) 2. The learned senior counsel Shri N. Venkataraman submits that the appeals relate to the agreement dated 1-7-2003 between the appellants and M/s. TCS and the agreement dated 6-7-2005 between the appellants and M/s. Infosys. In regard to these agreements he submits as follows:- (A) Essence of Agreement with Infosys:- (1) Clause 1B defines Agreement "Agreement" means the sub-contracting Agreement, the appendices hereto, any Task Orders, and any duly executed amendments thereto". (2) Clause 1D defines deliverables "Deliverables" means all of the Object Deliverable works materials, software, documentation, methods, apparatus, systems and the like prepared, developed, conceived or delivered as part of or in connection with the services, and all tangible embodiments thereof the Consultant is required to deliver under the relevant Task Orders. (3) Clause 1G defines services "Services" shall mean the software development, modification or other tasks, including Deliverables to be performed by the Consultant for Infosys, which are generally detailed in Appendix "E" to this Agreement and shall be specifically detailed in relevant Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifications and documentation set forth in the relevant task order (Clause 8-II). (9) Appendix E - Sample Task Order: * The appellants agree to provide services as set forth in the task order. Clause 1 of the Task Order identifies the services to be provided, scope of services, location of services, deliverables, milestone, acceptance procedures, reporting, the commencement and completion dates etc. (10) Clause 12 - Terms & termination: * What is sought to be terminated in case of failure to perform services, are only the task orders and not any staff, personnel or representatives. (Clause 12D). (B) Essence of Agreement with M/s. Tata Consultancy Services "Appellant willing to provide services in the nature of development, implementation, enhancement and maintenance works undertaken by TCS from its various clients by deputing its employees to TCS/TCS client locations to work on the project along with TCS Project Team." (1) Clause 3 - Scope of activities * Appellants to render services through its selected employees to work on computer software application development, implementation and maintenance of specific projects to be identified and allocated by TCS at its sole and ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement (Para 7.3). The learned senior counsel states that the above findings are not at all supported by any of the provisions of the relevant agreements between the appellant and M/s. Infosys and M/s. Tata Consultancy Services. In regard to the finding that Focus are paying service tax on the same activity rendered to IBM and Capgemini, the learned senior counsel states as follows:- Since service tax has been collected, the same has been paid to the Government. No tax can be collected without the authority of law (Article 265 of the Constitution of India). There is no estoppel in taxation matters. 4. He does not press the issue of limitation in regard to these two appeals. 5. The learned senior counsel has also made the following additional submissions:- (1) Criteria to identify whether the contracts under question should be classified as "Consulting Engineer" or "Manpower Supply". The contractual obligations may arise under any one of the following categories: (a) A contract for rendition of a specified computer software service. This would get classified under "Consulting Engineer". (b) A contract which obligates supply of certain number of people either temporarily o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of a computer software service, such a provision of service cannot be classified as "Manpower supply", as it moves out of the said definition. As a matter of fact it is self-evident that all the contracts on record clearly indicate that the deliverables are not mere supply of manpower, but provision of computer software services. [Clause 1(d)), (g), (h), Appendix E of Infosys Agreement/Clause 3(a), (b) of TCS Agreement.] (b) Responsibility:-Service Tax law is a contract driven legislation. It is the scope of the contract that would determine also its classification. For an agency which is involved in manpower recruitment and supply, the contractual responsibility can only be recruiting people or supplying people. The responsibility would end once the requisite people as agreed upon are supplied. On the other hand, if the responsibility is to render a specified service, which in the instance cases is computer software services, will it be open to the revenue to still classify the services as manpower supply. Contractual responsibilities are determinative of the classification of service. If the responsibility is for supply of manpower if would be a "manpower supply agency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of such service providers, classifying the services as "Consulting Engineer". (e) Defect Liability:-The agreements on record very clearly evidence the fact that the end obligation is to provide computer software services. Failure to provide such a service or ineffective or defective provision of such a service, would contractually allow the service recipient to demand from the appellants, re-working the services to the absolute satisfaction of the service recipient. The agreements have even conceived an eventuality of termination of the service contract in case the defects are not cured to the satisfaction of the service recipients. On the other hand, if it is a manpower supply contract, such a contract can neither conceive nor envisage a defect liability clause towards provision of service. (Clauses 3A, 3B, 9A of Infosys/Clause 4.6 of TCS). In short, defective supply of manpower is distinct from defective provision of service. The former will fall into the category of manpower supply while the later would get classified only as "Consulting Engineer". (f) Termination:-The contracts on record would evidence the fact that a termination would arise for failure to provide t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith identification of the work force. It defines the scope of work and also defines who should perform the scope of work, it nowhere defines that such scope of work by such people should be performed under the exclusive control of the client. If so the entire contract contemplating deliverables, attaching responsibilities, fastening accountability, making the appellants work on defects, leading to termination for failure to perform work would all become redundant and superfluous. To strengthen the stand further appellants rely on clause 4.6 in the case of Future Focus. The same is extracted hereunder:- "Should TCS be involved in the selection of employee of BA to perform Services, such involvement shall not obligate TCS to accept any liability whatsoever for the work performed by said selected employees, and the obligations of performance and the liability arising, therefrom, including the acceptability of Deliverables shall rest solely with BA. In the event any work performed by a BA Employee is not accepted by TCS/Client, the concerned BA Employee shall rework the deliverable and BA shall not be entitled to charge for the number of days such BA Employee works on the reworks." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the specific description of "Consulting Engineer" and not a general description "Manpower Supply". (7) There is one more reason in classifying under consulting engineer. Section 65 of the Finance Act, 1994 is a definition clause, defining various notified services. There are several services which are identified and specifically noted, which are performed through human agency. To name a few are:- (i) Section 65(105)(h) - custom house agent. (ii) Section 65(105)(j) - clearing and forwarding agent. (iii) Section 65(105)(q) - interior decorator. (iv) Section 65(105)(w) - security agency. The appellants also placed on record services rendered by human agency in the form of advise, consultancy or technical assistance. These have been identified as specific services under:- (i) Section 65(105)(g) - Consulting engineer. (ii) Section 65(105)(r) - Management or business consultant. (iii) Section 65(105)(v) - Real estate agent (iv) Section 65(105)(za) - Scientific or technical consultancy. (v) Section 65(105)(zzzze) - Information Technology Software Services. In the light of the above, in terms of section 65A(2)(a) specific description namely 'Consulting Engineer' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'any body corporate or any other firm'. The words 'professionally qualified', and 'advice, consultancy or technical assistance' are words of significance and importance, they have to be given due importance, while interpreting the scope of 'consulting engineer's service'. The agreements have not engaged/employed or assigned any project to the appellant for execution. Nor do they specify the projects for implementation of which, the assistance of the appellant was sought. Hence, it is necessary to see whether the persons deployed could be considered as 'consulting engineers'. To come under the category of 'consulting engineer's service', the person must be professionally qualified, with a minimum degree in the specific field of engineering from a recognized university. Thus, when the appellant claims that services rendered by them were in the field of computer software engineering, they must first establish that the persons employed possessed degree in computer science/engineering. Whereas, perusal of the agreement with TO would reveal that the educational qualification of even MBA, CA and M.Sc were included; vide condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l assistance' on matters not designed, developed or on which, he has no rights. It may be pointed but that TCS/Infosys were to execute the projects with their employees and the manpower supplied by the appellant, and nothing existed for the appellant to render technical assistance. Supply of technically qualified men is not the same as rendering technical assistance. The Chennai Bench has held in Spic-Smo Ltd. v. CCE [2005] 2 STT 73 (Chennai - CESTAT), that only technical manpower was supplied and Consulting engineer's service was not rendered and hence service tax was not payable. Mere transfer of staff does not amount to providing consulting engineer's service CCE&C v. Ambalal Sarabhai Enterprises Ltd. [2009] 18 STT 582 (Ahd. - CESTAT). The definition of consulting engineer's service, contemplates advice, consultancy or technical assistance as a service 2007 (5) STR 281 (Trib. - Delhi). The agreements with TCS/Infosys do not require the appellant to render any, advice, consultancy. The appellant has projected that they have a pool of highly skilled and specialized employees and expressed their willingness to provide them to TCS on sub-contract basis to work along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services during the project, TCS will deduct an amount not exceeding 2 months fee relating and attributable to the default from the compensation payable to them." A look at the instructions contained in paragraph 3.3 of the Instructions F. No. B 43/5/97-TRU, dated 2-7-1997 (copy enclosed) will throw light on the scope of the services rendered by a consultant. Though the list is not exhaustive, it is illustrative. Hence, the services rendered by the appellant would not fall within the scope of 'consulting engineer's service'. If as claimed by the appellant they have executed any project, then they cannot be considered as having tendered advice, consultancy or technical assistance. When the agreements do not even indicate the type/nature of project, it is not clear as to what type of technical assistance could have been rendered. On this ground also, the claim of the appellant appears to be without any merits. The invoices raised on Infosys mention the name of the person, while the invoices raised on TCS is for programme support. (Not for technical assistance). Point (ii) Whether falls under the category of Business Auxiliary Service? To come within this service, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly or otherwise, in any manner. The expression 'in relation to' has wide connotation. In Doypack Systems (P.) Ltd. v. Union of India 1988 (36) ELT 201 (SC), the Apex Court have ruled that, 'in relation to' would mean 'pertaining to'. Thus, the service of supply of manpower will fall under this service. The scope of this service is found explained in paragraph 22 of Service Tax Instructions F. No. B1/6/2005-TRU, dated 27-7-2005. Paragraph 22.2 is extracted below for ready reference. "A large number of business or industrial organizations engage the services of commercial concerns for temporary supply of manpower which is engaged for a specified period or for completion of particular projects or tasks. Services rendered by commercial concerns for supply of such manpower to clients would be covered within the purview or service tax." Service tax is on the service rendered. The taxability has to be decided with reference to the activity undertaken. The principal purpose ot the agreements is for supply of manpower, and following the judgment of Kerala High Court in Kerala Colour Lab Association v. Union of India [2007] 8 STT 353, the services rendered by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive chart showing the various staff-specific clauses in the agreements entered by the appellant with TCS/Infosys is enclosed to substantiate that these are only for supply of manpower. 7. The learned special counsel prays that the appeal be rejected and makes the following additional submissions:- (1) The contention of the appellant is that they rendered the service as consulting engineers, falling under clause (31) of section 65 of the Finance Act, 1994, in the field of software development by rendering technical assistance to their clients, and during the period covered in the proceedings, services rendered in the field of software development did not attract service tax. In support of this contention, reference was made to the various clauses in the agreements between the appellant and Tata Consultancy Services (TCS), and Infosys Technologies (Infosys). It was further submitted that with effect from the department has also registered the services under Income-tax Software service. A copy of the Task Order dated 3-7-2006 from Infosys was submitted during the re-hearing to buttress the stand of the appellant, that the services were rendered as technical assistance, in the field ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whereas, they talk of only the staff and staff related issues. If the appellant were to render technical assistance, there was no need to mention the name of the resource persons, as is found in the invoices. (4) Various clauses in both the agreements were referred in support of the Revenue's contention. On a query from the Bench whether a 'firm' is not included in the definition of Consulting Engineer's Service from 1-5-2006, and whether the qualification of the individual employees mattered, it was clarified that since the appellant, as a firm, has not been assigned the task of rendering any technical assistance, a reference was made to the qualification of the staff supplied by the appellant. The MBAs, CAs, and M.Scs supplied by the appellant do not fall in the category of engineer', much less professional engineers, to get covered under the category of 'consulting engineers'. (5) It was further submitted that a consulting engineer renders the 'consultation, advice or technical assistance' as a service, and reliance was placed on the judgment of the Principal Bench of CESTAT reported in 2007 (5) STR 281 (Trib. - Delhi) - para 19. If the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal provisions applicable at the relevant time; any position prior to or subsequent to the period of providing the service is not relevant. 8. We have carefully considered the detailed submissions made from both sides. The learned senior counsel appearing for the appellants has mainly argued that the contracts executed between the appellants and their clients, namely TCS and Infosys, go to show that the obligation under these two contracts is to deliver services and not to supply manpower. To demonstrate this, he has taken us to various clauses of the agreements. Further, he submits that in terms of the agreements, for deficiency in service, the obligation is to rework and deliver the service. Further, he argues that the measurable consideration for the service provided is in terms of manhour per diem. According to him, that by itself does not indicate supply of manpower. He has also emphasized that the contracts do not provide for payment of overtime. It is the case of the appellants that they have supplied the information technology software services to their clients TCS and Infosys which were not taxable under service tax law at the material time and hence, the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects undertaken by TCS and Infosys from their respective clients has been sub-contracted to the appellants or that the appellants are working on any such project on their own. What has emerged clearly is that the appellants have deputed skilled personnel including computer engineers to work under the supervision and control of TCS and Infosys personnel in-charge of projects undertaken by TCS and Infosys. The appellants are getting paid in terms of the man-hours for the persons deputed to work under the control and supervision of TCS and Infosys. 13. No doubt there are clauses relating to deliverables and quality of work in the contracts but these by themselves do not indicate that the appellants are providing information technology software services to TCS and Infosys. Any person or organization obtaining skilled personnel has to ensure that such men deliver work of standard quality. No one would employ a person who is not skilled enough and no one would pay for shoddy work even if done by a skilled man. The relevant clauses in the contract in this regard on which much emphasis was sought to be put by the learned senior counsel for the appellants have to be viewed in the light tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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