We are sharing
with you an important judgement of the Hon’ble CESTAT in the case of M/s. Shri Bileshwar Khand Udyog Sahakari Mandali
Limited Vs. CCE [(2013) 36 Taxmann.com 8 (Ahmedabad - CESTAT)] on the
following issue:
Issue:
Whether work
carried out on lump sum basis as a contractor, exigible to Service Tax
under the Supply of Manpower Services?
Facts & Background:
M/s. Shri Bileshwar Khand Udyog Sahakari Mandali
Limited (“the Appellant” or “the
Co-operative Society”) is a sugar co-operative society of farmers.
The farmers of the area, after cultivating the crop
of sugarcane, are supplying the said sugarcane to the Appellant's factory for producing
sugar. Further the Appellant pays
the farmer, a specified amount as per metric tonne for the cost of sugarcane
procured by them.
The farmers were facing difficulty in arranging the
labourer to cut the sugarcane crop, load the same into the trailer, unload it
and put the same in sugar factory and accordingly had approached the Appellant
for solving their problem. Since the farmers were facing difficulty in
arranging the labourers to carry out the above work, the Co-operative Society
on request of the farmers had got in touch with various labourers to cut sugarcane crop, load same into
trailer, unload it and put it in its sugar factory.
The Appellant was paying
price for purchase of sugarcane after deducting Rs. 300 per MT for work done by
it i.e. charge of the labours paid by the Co-operative Society.
The Department argued
that Rs. 300 per MT was sum (consideration) towards manpower supply agency services
provided by the Appellant to farmers.
The Appellant
contended that –
·
The Appellant are not supplying any labour. Further
the Co-operative Society is charging an amount as lump sum amount from the
farmers.
·
An identical issue has been decided by the Bench in
the case of K. Damodarareddy Vs.CCE
[2010] 25 STT 69] {“ K. Damodarareddy Case”} wherein it has been
held that when there are multiple
services included and the charges are lump sum charges, it could not be covered
under the category of man power recruitment or supply agency services. Also
the same view has been reiterated by the Tribunal in the case of Ritesh
Enterprises Vs. CCE [(2010) 24 STT 283] {“Ritesh Enterprises
Case”}.
·
The farmers of the area are the members of the Appellant's
sugar factory and hence they cannot be identified separately, which
would result in the proposition that the Appellant is rendering the services to
himself and the said services cannot be considered as services rendered to his
clients.
Held:
The
Hon’ble CESTAT granted stay to the Appellant and all the applications
for waiver of pre-deposit of the amounts involved are allowed and recovery
thereof stayed till the disposal of appeals. In the instant case, the Hon’ble
CESTAT observed the following:
Ø The Appellant has
arranged for cutting of sugarcane crop from the field of farmers who are their
members.
Ø As evident from invoices the Appellant is
charging lump sum amount of Rs.300/- per metric tonne for the help provided by
them to farmers for cutting, loading and unloading of sugarcane from the field
of farmers.
Ø Relied on decision in
case of K. Damodarareddy Case
and Ritesh EnterprisesCase. In both these cases, the issue
involved was identical except that bagging of cement, loading and unloading of
the cement exist instead of sugarcane.
For
your reference brief of the above relied on cases are as under:
K. Damodarareddy Case:
Under
a contract with a cement company, the Assessee carried out activities of
loading of cement bags into closed wagons, cleaning, sealing and riveting,
etc., wagon door complete spillage recovery of total quantity, drawing of bags
to stenciling floor, and wagon door opening/wagon cleaning - It was compensated
for different items of work at separate rates prescribed in contract. The Assessee
did not supply manpower or charge for labour provided on man-day basis or
man-hour basis and carried out work as a contractor
employing its own labour. The CESTAT held the Assessee carried out
the work as a contractor employing its own labour is not classifiable as
‘Manpower recruitment or supply agency’.
Ritesh Enterprises Case:
The Assessee entered into
a contract with different part for lump sum cargo handling for granite export
and also for the purpose of rendering services of handling of bulk goods,
bagging of fertilizers, feeding of bags for filling of fertilizers, stacking,
destacking, etc. The Adjudicating Authority concluded that the above services
rendered by the Assessee would fall under the category of ‘Manpower recruitment
or supply agency’ in terms of Section 65(68) of the Finance Act,1994 (“the Finance
Act”) while the Assessee submitted
that the contract in question was a works contract and not for supply of
labour.
The Hon’ble CESTAT held
that the Assessee were intimated about
the berthing of vessels at various ports and they were given a lump sum
contract for cargo handling, i.e., loading and unloading of the goods into the
said vessels. Further, the invoices issued
by the Assessee showed that they were raised for ‘cargo handling for granite
export and loading of Indian rough granite blocks’ for a lump sum amount,
charged per Metric Tonne.
The
contract which had been given to the Assessee was for the execution of the work
of loading, unloading, bagging, stacking, destacking, etc. Further, in the
entire records, there was no whisper of supply of manpower to the concerned
parties or any other recipient of the services. It was clear from the contracts and the invoices issued
by the Assessee that the entire essence of the contract was an execution of
work as understood by the Assessee and the recipient of the services. Further
the entire tenure of the agreement and the purchase orders issued by the service recipient clearly indicated the
execution of a lump sum work. That
lump sum work would not fall under the category of providing of service of
‘supply of manpower temporarily or otherwise either directly or indirectly’.
Conclusion:
In view of above case laws, it can be concluded
that no service tax is payable on work carried out on lump sum basis does not
amount to manpower supply services.
POINTS TO REMEMBER:
Ø Prior to July 1, 2012, Manpower Recruitment
or Supply Agency was exigible to service tax as being a taxable service defined
under Section 65(68) and under Section65(105)(k) of the Finance Act respectively,
which are reproduced as under:
“Section 65(68) of the Finance Act with
effect from May16, 2008 provides as under:
Manpower
Recruitment or Supply Agency means any person engaged in providing any service,
directly or indirectly, in any manner for recruitment or supply of manpower,
temporarily or otherwise, to any other person.
Section
65(105)(k)of
the Finance Act with effect from May 16,2008 provides
as under:
Taxable
service means any service provided or to be provided to any person, by a
manpower recruitment or supply agency in relation to the recruitment or supply
of manpower, temporarily or otherwise, in any manner;
Explanation.
— For the removal of doubts, it is hereby declared that for the purposes of
this sub-clause, recruitment or supply of manpower includes services in
relation to pre-recruitment screening, verification of the credentials and
antecedents of the candidate and authenticity of documents submitted by the
candidate”
Ø With effect from July 1, 2012,
Section 65(68) and under
Section65(105)(k) rescinded and new definition of supply of Manpower inserted under
Rule 2(1) (g) of the Service Tax Rules, 1994 (“the STR”), which is reproduced
here in below:
“Supply of Manpower means
supply of manpower, temporarily or otherwise, to another person to work under
his superintendence or control.”
Difference between Old definition and New
Definition of Supply of Manpower:
There is specific departure of Manpower recruitment,
which is not included in the new definition and any supply of manpower,
temporarily or otherwise, in any manner was covered in erstwhile definition
where as new definition is very specific i.e. Supply of Manpower means supply
of manpower, temporarily or otherwise, to another person to work under his superintendence or control.
In
view of above definition, where supplied manpowers are working under
supervision or control of service recipient then it will fall under the ambit
of “Supply of manpower” and thus exigible to service tax under the stated
category.
Supply of Manpower is one
of the categories under Partial Reverse charge w.e.f 1-7-2012:
In
certain specified circumstances, both service provider and service recipient
would be liable to pay service tax in specified percentage under partial
reverse mechanism in terms of Rule 2(1)(d) of the STR read with
Notification No. 30/2012-ST dated June 20, 2012 (“the Notification”) as under:-
|
S.No
|
Description of a service
|
Percentage of service tax payable by the
service provider
|
Percentage of service tax payable by the
service recipient
|
|
8
|
Supply of Manpower Services for any
purpose provided or agreed to be provided by an any individual, HUF or partnership firm, whether registered or
not, including AOP, located in the taxable territory to a business
entity registered as body corporate, located in the taxable territory
|
25%
|
75 %
|
Hope
the information will assist you in your Professional endeavours. In case of any
query/ information, please do not hesitate to write back to us.
Thanks & Best Regards
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile:
+91 9810604563
E-mail: bimaljain@hotmail.com
E-mail: bimaljain@hotmail.com
Released a Book - "Guide to Service
Tax Voluntary Compliance Encouragement Scheme, 2013", authored by Bimal
Jain, FCA, FCS, LLB
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