SC on Services Tax Exemption on man power or job work services

1. SCONSERVICESTAXEXEMPTIONONMANPOWERORJOB WORKSERVICES • AUTHOR:CSDEEPAKP.SINGH • https://taxguru.in/service-tax/sc-services-tax-exemption-man-power-job-work-services.html • AdirajManpowerServicesPvt.Ltd.VsCommissionerofCentralExcise(SupremeCourtofIndia),Civil AppealNo. 313 of 2021,Date of Judgment: 18/02/2022 • Whetherservicesprovidedaremanpowerservicesorjobworkservicessoastobeexemptedunderthe relevantnotifications issued under FinanceAct, 1994. • BRIEFFACTS: • The appellant obtained service tax registration under the category of ‘Manpower Recruitment or Supply Agency Service’. On 1 January 2012, theappellant entered into an agreement with Semco Electric Pvt. Ltd. (later known asSigma Electric Manufacturing Corporation Pvt. Ltd.) and was required to providepersonnel for activities such as felting, material handling, pouring and supply ofmaterial to furnace. Similarly, on 1 January 2013and 1January 2014,fresh agreementswere enteredinto betweenthe appellantand Sigma. • 4 On 26 September 2014, a notice to show cause was issued by the Commissioner of the erstwhile Pune-I Central Excise Commissionerate demanding service tax along with interest and with a proposed penalty of Rs. 10,50,23,672. • Theallegationsintheshowcausenoticewerethat: • TheappellanthadfailedtopaytheirservicetaxduesonorbeforetheduedatefortheperiodfromApril 2012to March 2014; • The appellant had failed to assess and discharge service tax liability on the service value in accordance with their sales ledgers relating to Sigma for the period from September 2012 to March 2014 regarding the supplyof manpower; • The appellant had suppressed the facts and made a misrepresentation by filing incorrect ST-3 returns fortheaboveperiodand didnotdeclarethetrue andcorrecttaxablevalueand servicetaxthereonand; • The appellant had filed ST-3 returns for the period between April 2013 to September 2013 after the due date as stipulated under Section 70(1) of the Finance Act 1994 and Rule 7 of the Service Tax Rules 1994. • Theallegationsintheshowcausenoticewerebasedonmaterialcollectedduringthecourseofan investigationby the Department, indicating that: • The appellant had obtained service tax registration under the category of ‘Manpower Recruitment or SupplyAgency Service’;

2. The bills were raised by the appellant on their customers on a monthly basis for providing manpower supplyservices and service taxwas charged thereon; • ThesupplyofmanpowerservicesbytheappellantconformedtotheprovisionsoftheContractLabour (Regulationand Abolition) Act 1970; • In respect of the services of manpower supplied by the appellant to their customer, namely Sigma, the appellanthad charged and paidservice tax up toJuly 2012; • From 1 August 2012, based on an agreement dated 1 January 2012, the appellant had termed the service activity as ‘job work with tonnage rates’ and had not charged and paid service tax, classifying the provisionofthesaidservicesasbusinessauxiliaryservices,claimingthebenefitofaservicetax exemptionspecifiedatSerialNo.30(c)ofNotificationNo.25/2012-ServiceTaxdated20June2012; • The invoices raised by the appellant and its agreement dated 1 January 2012 and 1 January 2013 indicated that the services provided by the appellant were of supplying skilled/unskilled manpower for carryingoutactivitieslikematerialhandling,assembly,pouring,supplyofcastmachinepartsand painting within the factory premises of Sigma which wasconfirmed by the director of the appellant in his statementrecorded on 6 February2014; • ThenatureoftheservicesprovidedbytheappellantwassimilarbeforeandafterAugust2012; • Theappellanthadnotsubstantiatedtheirclaimofjobwork;and • The appellant had not obtained service tax registration under the category of business auxiliary servicesfor the period fromSeptember 2012 toMarch 2014 • TheshowcausenoticewasadjudicateduponbytheCommissionerofCentralExcisePune-I, Commissionerateby an order dated 24February 2015. • Theadjudicatingauthorityheldthat: • TheappellanthabituallydelayedpayingservicetaxeverymonthfromApril2012toMarch2014; • The appellant did not have any machinery or equipment of its own and was using the equipment and machineryof Sigma at the latter’spremises; and • The supply of labour by the appellant to Sigma for doing the work of fettling, material handling, assembly and pouring on ‘piecemeal basis’ did not alter the characteristics of the manpower services provided by the appellant to Sigma. The adjudicating authority confirmed the demand of service tax and interestbesides imposing penalty. • The order of the adjudicating authority was challenged in an appeal before the CESTAT, WZB, Mumbai. By its judgment dated 15 July 2019, the Tribunal held that the service provided by the appellant to Sigma was not in the nature ofjob work services exempted under the Notification bearing No.25/2012-ServiceTax dated 20 June 2012. The Tribunal held, after considering the terms of theagreement between the appellant and Sigma and the relevant provisions of the Contract Labour (Regulation and Abolition) Act 1970, that the services provided by theappellant were in thenature of contract labourand not job work. • TheTribunalheldthat;

3. clause10,11and17oftheagreementrequiredtheappellanttoobtainalicenceundertheCLRA;clause10,11and17oftheagreementrequiredtheappellanttoobtainalicenceundertheCLRA; • the agreement imposed the responsibility for the payment of wages to the employees/workmen and for making payments under the Employees’ State Insurance Act 1948 and ProvidentFund in respect of the employeesof the contractor on theappellant. • TheTribunalaccordinglyheldthattheagreementbetweentheappellantandSigmaisa contract labour agreement executed for the purpose of providing requisitemanpower and is not a jobworkcontracttoextendthebenefitof Notification25/2012-ServiceTaxdated20June2012. • SUPREMECOURTHELDTHAT: • TheSupremeCourtinthiscasewasdealingwiththequestions; • whether the appellant in this case had provided job work services which were exempted in terms of SerialNo30(c)Notification No25/2012dated 20thJune,2012 issuedunderFinance Act,1994or • manpowerserviceswhichwerefullytaxable. • The substratum of the agreement between the appellant and Sigma deals with the regulation of the manpower whichissuppliedbytheappellantinhiscapacityasacontractor.Thefactthattheappellantisnotajobworker 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 interms of Para 30(c) of the exemption notification. • TheCourtrelyingontheagreemententeredintobetweenthepartiesbyobservingthatthereisa completeabsence in the agreementof any reference to: • Thenatureoftheprocessofworkwhichhastobecarriedoutbytheappellant; • provisionsformaintaining; • thequalityofwork; • thenatureofthefacilitiesutilised;or • theinfrastructuredeployedtogeneratethework; • thedeliveryschedule; • specificationsinregardtotheworktobeperformed;and • consequenceswhichensueintheeventofabreachofthecontractual obligation. • The decisions of CESTAT relied upon by the appellant also do not helptheir submissions as they are fact- specific and based on a reading of thecontracts in those cases. In this case, though ostensibly, the agreement containsaprovisionforpaymentonthebasisoftheratesmentionedinScheduleII,theagreementhasto beread asa composite whole.

4. On reading the agreement as awhole, 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 thecontract as a contract for job work to availoftheexemptionfromthepaymentofservicetax.ThejudgmentoftheTribunaldoesnot,inthe circumstances,suffer from any errorof reasoning. The absence of the above terms and conditions which are determinative of the nature of the services which are performed, led the court to dismiss the appeal by holding that the appellant was trying to camaflouge the agreementas Job workagreement and thus wasliable to paythe service tax. CONCLUSION:This judgement will be helpful in similar disputes where the job work services or man power services are subject matter of dispute. The Apex Court in this case depends on terms and conditions of the agreementbetweenthepartiesandfoundthatthereiscompleteabsenceofintheagreementwithreferenceto the nature of the process of work which has to be carried out by the appellant and provisions of maintaining variousworks and hence thecontract is not ofnature of Job-Work. DISCLAIMER:The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use ofsuch information.