Classification of Services

PJ/Case Laws/2011-12/1316

Case: DIVYA ENTERPRISES v/s COMMISSIONER OF CENTRAL EXCISE, MANGALORE

Citation: - 2010 (19) S.T.R. 370 (Tri. - Bang.)

Issue:- Classification of services - When a job/lump-sum-work given for execution- Whether fall under “manpower recruitment & supply agency”?

Brief Facts:- Appellants entered into a contract with M/s. Aspin Wail & Co. for the purpose of rendering services of loading, standardization, unloading, stacking, weighing etc. On a specific intelligence, the Excise officers visited their premises and resumed documents. On scrutiny of said documents it was noticed that appellants were to provide all the service as enumerated above, had supplied labourers to M/s. Aspin Wail & Co. & CWC.

Department concluded that the services rendered by appellant would fall under ‘manpower recruitment & supply agency’ and having not discharged the Service tax liability, appellant were liable to pay Service tax for the period from June, 2005 to September, 2006. Accordingly, show cause notice was issued to the appellant.

The appellant filed detailed wherein the main ground taken was that the contract which was given by M/s. Aspin Wail & Co. was a works contract and not for supply of labourers. It was also argued that the show cause notice is hit by limitation.

The Commissioner (Appeals) relied upon Circular No. B1/6/2005-TRU, dated 27.07.2005 and upheld the classification of the services rendered by the appellant under the category of ‘manpower recruitment and supply services’ and confirmed the demand, interest under Section 75 of the Finance Act. Penalties were imposed under Sections 76, 77 & 78 and also under Rules 7C of the Service Tax Rules. Aggrieved by such an order, the appellant filed appeal before the Tribunal.

Appellant’s Contention:- The definition of manpower recruitment or supply agency as contemplated under Section 65(105)(k) of the Finance Act does not envisage a situation where there is a contract for completing a job ad hoc, handling and transportation of the goods within the warehouse of M/s. Aspin Wail & Co. It was submitted that the works order issued by M/s. Aspin Wail & Co. are specific and the scope of work to be executed is handling of bulk goods, bagging of fertilizers, feeding of bags for filling fertilizers, stacking, destacking etc. Attention was also drawn to the various terms and conditions specified in the work order.

It was further submitted that the contractors i.e. appellants were required to arrange to do work round the clock in the plant as regards execution of work and were responsible for the complete execution of work. Appellants have received compensation as per the quantity of the work executed by them under each head of work and the rates specified for each item of works in the work order.

It was submitted that the findings of the Adjudicating Authority relying upon the Board Circular dated 27-7-2005 to conclude that the staff/labourers are employees of the appellant and the employer and employee relation exists between the manpower supply agency and labourers and not between the labourers and recipients of services (Aspin Wail & Co. and CWC), hence the service is of manpower, is erroneous on the ground that the work order do not contain any reference, whatsoever, for supply of manpower. The pith and substance of the Works Orders was “execution of work”. The contractors i.e. appellants herein had executed the work in terms of work orders appellant would rely upon the following decisions for the proposition that the essence or substance in a contract is material for determination of the nature of transaction :

(a)        Super Poly Fabriks Ltd. v. CCE, Punjab - 2008 (10) S.T.R. 545 (S.C.).

(b)        State of AP v. Kone Elevators (India) Ltd. - 2005 (181) E.L.T. 156 (S.C.)

(c)        Union of India v. Mahindra & Mahindra Ltd. - 1995 (76) E.L.T. 481 (S.C.)

It is also submitted that the reliance placed by the Adjudicating Authority on the CBEC circular dated 27-7-2005 is out of context as the said circular had only clarified the distinction between Manpower Recruitment Agency and Manpower Supply Agency. The appellant has got himself registered with the Assistant Labour Commissioner and registered with licensing authority under the Contract Labour Act and for doing the work of loading and unloading in the establishment of M/s. Aspin Wail & Co, it cannot be interpreted that the said registration with the Assistant Labour Commissioner would directly indicate that appellants are contractors and supplying labour. The Service tax registration was taken by appellants under the categories of provider of cargo handling services and GTA services and Department was aware of the activities undertaken by the appellant in the godown of M/s. Aspin Wail & Co.

Respondent’s Contention:- Revenue contended that the activities rendered by the appellant is for supply of labourers to M/s. Aspin Wail & Co for handling specific items of work. It can be seen from the works order that appellants were awarded the handling job and the appellant as a labour contractor working under license issued by Department of Labour, would directly indicate that the handling job was nothing but supply of manpower. Revenue referred to the scope of entry “Manpower Recruitment Agency” and submitted that the doctrine of ‘contemporanea expositio’ may be invoked to cull out the intendment by removing ambiguity in its understanding of the statute by the executive. Reliance was also placed upon decision in the case of Indian Metals & Ferro Alloys Ltd. v. Collector of Central Excise [1991 (51) E.L.T. 165 (S.C.)] for the proposition that decisions up to date and applied the doctrine to the understanding by the revenue of provisions in the Income Tax Act. Attention was also drawn to the Master Circular dated 23-8-2007 more specifically to paragraph No. 10.02 which is in respect of supply of man power.

It was further submitted that it is on record at the individuals are not contracted with the service recipient and neither the service recipient pays salary to the individuals but pays lump sum amount to the appellants herein who maintain employer and employee relations with the persons who are working in the godown and warehouse of M/s. Aspin Wail & Co.

Reasoning of Judgment:- The Tribunal perused the definition of manpower recruitment or supply agency under Section 65(105) as well as the taxable service liable for Service tax defined under Section 65(105)(k) and found that the activity should be providing of any service directly or indirectly in any manner for recruitment or supply of man-power temporarily or otherwise to a client in order to get covered under the said definition. There should be either a recruitment or supply of manpower temporarily or otherwise.

From records of the appellant, it was found by the Tribunal that the contract which has been given to the appellants is for execution of work of loading, unloading, bagging, stacking destacking etc., In the entire records, there is no whisper of supply manpower to the M/s. Aspin Wail & Co. or any other recipient of the services. The entire essence of the contract was an execution of work as understood by the appellant and the recipient of services. Reliance was placed on the judgment given in the case of Super Poly Fabriks Ltd. v. CCE, Punjab wherein the ratio laid down was that

“There cannot be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive”.

Reliance was also placed on the judgment in the case of State of AP v. Kone Elevators (India) Ltd and UOI v. Mahindra and Mahindra. It was noted that the ratio of all the three judgments of the Supreme Court, is that the tenor of agreement between the parties has to be understood and interpreted on the basis that the said agreement reflected the role and understanding of the parties. The said ratio applies to the current case. The entire tenor of the agreement and the purchase orders issued by the appellants’ service recipient clearly indicates the execution of a lump-sum work. Lump-sum work would not fall under the category of providing of service of supply of manpower temporarily or otherwise either directly or indirectly.

With regard to the Master Circular dated 23.08.2007 relied upon by the Revenue, it was held Master Circular that it is in respect of supply of manpower which is engaged for specified period or for completion of particular projects or tasks. The clarification, is in case of supply of man power, it can be seen that the clarification specifically needs that the agency agrees for use of services of an individual to another person for a consideration as supply of manpower. In the cases in hand, there is no agreement for utilization of services of an individual but a job/lump-sum work given to the appellants for execution. The said clarification issued by the Board would be appropriate in the case where services of man power recruitment & supply agency, had been temporarily taken by the Business or the industrial association for supplying of manpower and may not be for execution of a specific work.

It was held that the said Circular was not applicable in the present case. Accordingly, impugned order was set aside.

Decision:- Appeal allowed.

Comment: - This is very important decision because whenever a specific job is assigned to any contractor then the department contends that it is “manpower recruitment or supply agency”. But this is being given for completing a particular task and hence the service tax is not payable under this category.

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PJ/Case Laws/2011-12/1316

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