Contract for execution of work not classifiable as Manpower Supply.

Case: - RITESH ENTERPRISES VERSUSCOMMISSIONER OF C. EX., BANGALORE

Citation: - 2010 (18) S.T.R. 17 (Tri.- Bang.)

Brief facts:- By this common order, we propose to dispose off the following appeals as the question involved in these appeals is the same.

(i)     ST/590/08
(ii)    ST/591/08

The relevant facts that arise for consideration are the appellants herein had entered into a contract with M/s. Aspin Wall & Co. and Central Warehousing Corporation (CWC) for the purpose of rendering services of feedings bags, for filling bulk, stitching, shifting back cargo, stacking, destalking, loading back cargo to the trucks, destalking and loading on trucks for wagon loading and transportation of the goods within the premises. The said contract was entered between the appellants and M/s. Aspin Wall & Co. and CWC, for handling various cargoes at Central Warehouse. On a specific intelligence, the lower authorities visited the premises of the appellants and resumed documents. On scrutiny of the said documents it was noticed by the officers of the revenue that the appellants were to provide all the service as enumerated above, had supplied labourers to M/s. Aspin Wall & Co. & CWC. On conclusion of the investigation and scrutiny of the documents and after recording the statements of various persons, the lower authorities felt that the services rendered by the appellant would fall under ‘manpower recruitment & supply agency’ and having not discharged the service tax liability, appellant are liable for discharging Service tax liability for the period 16-6-05 to 13-12-2006 in Appeal No. ST/590/08 and for the period 16-6-2005 to 28-2-2007 in Appeal Nos. ST 591/08. Coming to such a conclusion, show cause notices were issued to the current appellants. The appellants filed a detailed reply to the show cause notice and contested each and every allegation made in the show cause notice. The main ground of the appellants before the adjudicating authority was that the contract which was given by M/s. Aspin Wall & Co. and CWC was a works contract and not for supply of labourers. It was also argued that the show cause notices are hit by limitation. The learned adjudicating authority after considering the submissions made by the appellant before him during the personal hearing and also considering the reply filed by both the appellants, came to the following conclusion :

“To summarize the issues involved, it is clear that, the taxable event in respect of ‘manpower recruitment end supply agency’ is when a service is provided or to be provided to a client, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower temporarily or otherwise, in any manner. The services of supplying man power in any manner, automatically is covered under the said service. In the present issue, even though the contract entered into between the concerned parties does not specifically indicate the term supply of man power, the main thrust of activity undertaken by the service provider is found to be supply of labourers employed by them to M/s. Aspinwall and M/s. CWC for handling certain jobs and to receive remuneration towards the said service of supply of labourers and this fact of supplying of man power has not been disputed by both the service provider and the recipient, clearly establishing the service tax liability for such service rendered. As regards invoking of extended period, the same is justified by the actions of the assessee such as non payment of Service tax and for having suppressed the facts from the department. The Service tax provider is bound to discharge the interest liability and pay the penalties as statutorily required. The apex court in the case of Madhumilan Syntex Ltd., v. Union of India - 2007 (210)E.L.T. 484 (S.C.) has held that once a statute requires to pay tax and stipulates period within which such payment is to be made, the payment must be made within that period and if the payment is not made within that period, there is default and an appropriate action can be taken under the Act.”

Coming to the above reproduced conclusion, the adjudicating authority classified the services rendered by both the appellants under the category of ‘manpower recruitment and supply services’ and confirmed the demand, demanded interest under Section 75 of the Finance Act, imposed penalties under Sections 76, 77 and 78 and also under Rules 7C of the Service Tax Rules. Aggrieved by such an order the appellants are before this Tribunal.

Appellant’s contention:- Learned counsel appearing on behalf of both the appellants would submit as under :-
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 the CWC and or M/s. Aspin Wall & Co. The appellant would draw attention to the said definition of the manpower recruitment and supply agency and also to the taxable services, provided by manpower recruitment and supply agency. It is his submission that the works order issued by M/s. CWC and M/s. Aspin Wall & 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. The appellant also draws our attention to the various terms and conditions specified in the work order. It is his submission that the contractors i.e. appellants were required to arrange to do the work round the clock in the plant as regards the execution of work and were responsible for the complete execution of the work. It is his submission that 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 is his submission that the findings of the learned 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 Wall & 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 he 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 his submission that the reliance placed by the learned 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. It is his submission that both the appellants have got themselves 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 Wall & Co., it cannot be interpreted that the said registration with the Assistant Labour Commissioner would directly indicate that the appellants are contractors and supplying labour. On limitation it is his submission that the service tax registration was taken by the 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 or warehouse of M/s. Aspin Wall & Co. and M/s. CWC. It is prayed that the impugned orders be set aside and appeal be allowed.

Respondent’s contention:- Learned SDR on the other hand would submit that the contentions of the appellants cannot be accepted as the adjudicating authority has taken into consideration the entire facts of the case in both the appeals. It is her submission that the activities rendered by the appellant is for supply of labourers to M/s. Aspin Wall & Co. and to M/s. CWC for handling specific items of work. It is her submission that it can be seen from the works order that the 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 nothing but supply of manpower. She would draw attention to the scope of entry “Manpower Recruitment Agency” and submit that the doctrine of ‘contemporanea expositio’ may be invoked to call out the intendment by removing ambiguity in its understanding of the statute by the executive. She relies upon the decision of the Supreme Court 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. She would draw attention to the Master Circular dated 23-8-2007 more specifically to Paragraph No. 010.02 which is in respect of supply of man power. She would read extensively from the said clarification.
It is her submission that the above said clarification was given by the Board by issuing a circular combining all the Board Circulars issued till date. It is her submission that it is on record that 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 Wall & Co and CWC. She would reiterate the findings of the adjudicating authority.

Reasoning of judgment:- After considering the submissions made at length by both sides and perused the records, the question that arises for consideration is whether the services rendered by the appellants are classifiable under the heading “manpower recruitment & supply agency”?

The definition of the manpower recruitment or supply agency under Section 65(105) reads as under :-

“any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to a client.”

The taxable service liable for Service tax is also defined under Section 65(105)(K) which is as under :

“any service provided to a client, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner.”

From the plain reading of the above reproduced definitions in the Finance Act, 1994, the Tribunal find 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.

The find from the records that M/s. Aspin Wall & Co. had given the contract as under :

“Work Order No. 005/RE/2004-05 dated 20-11-2004

M/s. Ritesh Enterprises,
Vjaya Mahal
Surathkal 594158.

Dear Sir,

Godown handling operation at our Bagging Plant, Maroli

We refer to work order of even number dated 20-11-2003 and further Discussions had with you on the handling of bulk bagged fertilizers in our Bagging Plant. We have pleasure in awarding you the handling job for a period of further two years as per the following rates, terms and conditions :
Inside the Plant :-

Feeding bags for filling bulk, stitching shifting bagged cargo and Stacking
	Rs. 13.75 per mt
De stacking and loading bagged cargo on to long trucks	Rs. 06.00 per mt
De stacking and loading onto trucks for wagon loading	Rs. 09.00 per mt
High stacking above 15 tier	Rs. 03.00 per mt
Employment of casuals for tipper cleaning, and in the plant, Providing shovels buckets etc	Rs. 03.00 per mt
Service charges	Rs. 03.50 per mt

Side godowns :

Unloading and stacking wagon cargo	Rs. 12.75 per mt
Dc stacking and loading	Rs. 10.00 per mt
Re standardization of c/t bags	Rs. 25.00 per mt
Casuals for sweeping collection	Rs. 00.50 per mt
Service Charges	Rs. 03.00 per mt

Gunny handling

Unloading HDPE Bales	Rs. 04.00 per bale
Reloading of HDPE ales	Rs. 04.00 per bale

1. The rates given above shall be firm without any escalation during the tenure of this work order. However the company reserves its right to extend the same for further period on mutual agreement.”
2.   The company is at liberty to enter into parallel contract with any other party, if required.
3.   The overall interest of the company should be safeguarded by you and loss/damage to the company due to your negligence/fault shall be recovered from you.
4.   Proper accounts of the cargo/empty bags shall have to be furnished to us on completion of each operations.
5.   You have to arrange round the clock work in the Plant and keep in touch with our officials, supervisors for better coordination in arrival of bulk prompt standardization etc.,
6.   The labour utilized by you for the handling operations under this work order shall be treated as your employees and the company shall have no responsibility whatsoever in this regard. You shall comply with all statutory requirements, government regulations etc. and shall fully indemnify the company against any claims arising as a result of your failure to comply with such formalities.
7.   Only 90% of the charges at the maximum will be paid to you for the completed work on weekly basis. The balance shall be released on satisfactory completion of the work shipwise/commodity wise and on your submitting the relevant bills. The company shall deduct 5% from your bills towards security deposit and the same shall be kept in your running account till a total security of 1.5 lakhs is maintained.
8.   The Company reserves its right to terminate this work order without assigning any reason by giving you one week’s notice.

Please sign and return duplicate copy of this work order as a token of your acceptance of the rates terms and conditions mentioned hereinabove.”
Contract awarded by Central Warehousing Corporation is as under :

“No. H-700 (22) MLR-RI/2005/6473

Date 28-12-2004

M/s. Ritesh Enterprises
Vijay Mahal,
Suratkal-574158.

Sub : Appointment of H&T contract on adhoc basis at CW. Mangalore - Reg.

Ref:      1. Tender No CWC/BLR/H-700(22)/04 dated 7-10-2004
2. Telegram dated 27-12-2004.

Sir,

Please refer to your tender referred above submitted and opened on 18-10-2004 and negotiations had on 23-12-2004 at this office for adhoc handling and transport contract at Central Warehouse, Mannangudda, Mangalore.

We are pleased to award the contract at the above centre with effect from 1-1-2005 for a period of 3 (three) months with a provision to extend for a further period of three months at the following negotiated rate :-
1.     Handling Services, Above Schedule of Rates (Appendix VI) : 162% (one hundred sixty-two percent);
2.     Transportation to and from goodshed to Warehouse and vice versa: Rs. 54/- (Rupees fifty four only) per MT ONLY ON POINT TO POINT BASIS.
3.     Internal Transportation : Rs. 20/- (rupees twenty only) per MT only on point to point Basis.
You are advised to comply with the following requirements by 31-12-2004 :-
1.     Execute an agreement on a stamp paper of appropriate value but not less than Rs. 100/- as per the latest stipulation of Government of Karnataka along with two witnesses to the agreement.
2.     The Security Deposit of Rs. 60,000/- (Rupees sixty thousand only) in the form of Demand Draft.
3.     Obtain the license under Contract Labour (R&A) Act, 1970 from the concerned - RLC(C)/ALC(C) in case 20 or more labourers are engaged on any day during the tenure of the contract.”

As regards the works executed by the appellant M/s. Karwar Dock & Port Labour Cooperative Society Ltd., the Tribunal find from the records and the documents produced before them that they 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. They perused the invoices issued by the appellant M/s. Karwar Dock & Port Labour Cooperative Society Ltd., which is annexed at Page Nos. 170 and 171 of the appeal memoranda and noted that the invoices are raised as “cargo handling for granite export loading of Indian rough granite blocks” for a lump sum amount, charged per Metric Tonne.

On a careful consideration of the above reproduced facts from the entire case papers, they find that the contract which has been given to the appellants is for the execution of the work of loading, unloading, bagging, stacking destacking etc., In the entire records, they find that there is no whisper of supply manpower to the said M/s. Aspin Wall & Co. or to CWC or any other recipient of the services in both these appeals. As can be seen from the reproduced contracts and the invoices issued by the appellants that the entire essence of the contract was an execution of work as understood by the appellant and the recipient of the services. They find that the Hon’ble Supreme Court in the case of Super Poly Fabriks Ltd. v. CCE, Punjab (supra) in paragraph 8 has specifically laid down the ratio which is as under :

“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.”

An identical view was taken up by Hon’ble Supreme Court in the case of State of A.P. v. Kone Elevators India Ltd. (supra) and UOI v. Mahindra and Mahindrain a similar issues. The ratio of all the three judgments of the Hon’ble 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 of parties. The said ratio applies to the current cases in hand. They find that 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. In our opinion this lump-sum work would not fall under the category of providing of service of supply of manpower temporarily or otherwise either directly or indirectly.

On perusal of the records and the submissions of learned SDR on the Master Circular dated 23-8-2007, they find that the issue is raised at clause 010.02 is as under :

Business or industrial organizations engage services of manpower recruitment or supply agencies for temporary supply of manpower which is engaged for a specified period or for completion of particular projects or tasks.

Whether Service tax is liable on such services under manpower recruitment or supply agency’s services?

In the case of supply of manpower individuals are contractually employed by the manpower recruitment or supply agency. The agency agrees for use for the services of an individual, employed by him to another person for a consideration. Employer-employee relationship in such case exists between the agency and the individual and not between the individual and the person who uses the services of the individual.

Such cases are covered within the scope of the definition of the taxable service Section 65(105)(k) and, since they act as supply agency, they fall within the definition of “manpower recruitment or supply agency” Section 65(68) and are liable to service tax.

It can be seen from the above reproduced portion of the 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 reads 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/may not be for execution of a specific work. They are of the considered view that the reliance placed by the learned SDR and the learned Commissioner on the circular will not carry the case of the Revenue any further.

Accordingly in view of the above findings, they are of the view that the impugned orders are liable to be set aside and they do so. The appeals are allowed with consequential relief if any. Since they have disposed of the appeals on merits itself, no findings are recorded on other submissions made by both sides in these appeals.

Decision:- Appeal allowed.

Comment:- The substance of this case is that if the contract entered by the parties clearly indicate that it is for execution of work, then service tax demand cannot be raised under the category of ‘Supply of Manpower Services’. The terms of consideration payable to the contractor are in proportion to work undertaken and not on the basis of man hours/man days which also confirms the fact that the agreement is for execution of work and not for supply of labour.

Prepared by:-Kushal Shah

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