Whether agreement for providing labourers for harvesting of sugarcane and its transportation classifiable under “manpower supply services”?

PJ/CASE LAW/2014-15/2451

Case:- SAMARTH SEVABHAVI TRUST VERSUS COMMR. OF C. EX., AURANGABAD

Citation:-2014 (36) S.T.R. 83 (Tri. - Mumbai)

Brief facts:-The appeal is directed against Order-in-Original No. 22/ST/Commr/2009, dated 13-4-2009 passed by Commissioner of Central Excise, Customs & Service Tax, Aurangabad.
The appellant, M/s. Samarth Sevabhavi Trust, Ankushnagar, Dt. Jalna, entered into an agreement dated 2-1-2006 with M/s. Samarth Sahakari Sakhar Karkhana Ltd., Ankushnagar for the cutting/harvesting of sugarcane and transportation of the same from the farmers’ fields to the sugar factory. The farmers had already entered into a contract with the sugar factory for sale of sugarcane. Samarth Sevabhavi Trust (Trust, for short) entered into agreements with truck/tractor/trailer owners along with their team of labourers. As per the agreement, the transporters, by engaging labourers, would harvest the sugarcane and transport the same to the sugar factory either by truck or tractor or by engaging labourers for carrying head loads. The sugar factory agreed to pay charges for the services rendered based on the tonnage of sugarcane supplied and different rates were agreed to be paid for sugarcane cutting and transportation by various means. The sugar factory paid commission to the contractors at rates ranging from 15 to 20% of the charges for harvesting and transportation. All these payments were made through the Trust and the Trust, in turn, distributed the amounts to the contractors. For the services rendered by the Trust to the sugar factory, the sugar factory paid them supervision charges to meet the expenses incurred by the Trust for undertaking these transactions. The department was of the view that the activity undertaken by the Trust conforms to the definition of taxable service of “manpower supply” and the appellant was liable to discharge service tax liability on the whole of the consideration paid to them, excluding the transportation charges and accordingly a notice dated 14-1-2008 was issued to the appellant demanding Service Tax of Rs. 1,34,16,595/- for the period 2005-06 to 2007-08 along with interest thereon and also proposing to impose penalties. The notice was adjudicated upon vide the impugned order and the Service Tax demand of Rs. 1,34,16,595/- was confirmed along with interest thereon and also by imposing equivalent amount of penalty under Section 78 of the Finance Act, 1994 and a penalty of Rs. 5,000/- under Section 77 of the Finance Act, by classifying the service under “manpower supply services” as defined under Section 65(105)(k) of the Finance Act, 1994. Hence the appellant is before tribunal.

Appellant’s contention:- The learned counsel for the appellant makes the following submissions. The agreement between them and the sugar factory was for cutting/harvesting of sugarcane and transportation of the same from the farmers’ fields to the sugar factory. It was not for supply of any labour and the consideration was paid for the activity undertaken on the basis of tonnage of sugarcane supplied and different rates were prescribed for sugarcane cutting, transportation of sugarcane by various means, loading of the sugarcane on to the truck, etc. The Trust received only supervision charges and nothing else. The payment for the work undertaken was routed through the appellant who disbursed the same to the persons/contractors who actually undertook the work. For undertaking the work of sugarcane harvesting and transportation, the appellant Trust entered into agreements with transport operators along with their team of labourers and as per these agreements, it was the transporters’ responsibility to harvest the sugarcane and reach it up to the sugar factory. The Trust did not engage any labour for this purpose, but got the work done through contractors. Thus, the activity undertaken by the Trust did not involve any supply of labour to the sugar factory, attracting the provisions of manpower supply services as defined in Section 65(105)(k) read with Section 65(68) of the Finance Act, 1994. It was contended that if at all, the transaction undertaken by them is leviable to service tax, it merits classification under “business auxiliary services”. However, that is not the proposition in the show cause notice and, therefore, the impugned show cause notice and the order consequent thereto are not sustainable in law. He relies on the decision of this Tribunal in the case of Amrit Sanjivni Sugarcane Transport Co. Pvt. Ltd. v. CCE, Aurangabad vide order No. A/532/2013/CSTB/C-I, dated 2-4-2013, where in similar circumstances, this Tribunal held that harvesting of sugarcane and transportation would not come under the category of “manpower recruitment or supply agency service” and would be appropriately classifiable under “business auxiliary service”. Accordingly he prays for allowing the appeal.
The learned counsel also submits that in a number of decisions pertaining to different Trusts, the Commissioner (Appeals) have also held that the activity of cutting/harvesting of sugarcane and transportation would not amount to manpower supply services and set aside the demands under that category, and in particular, in two Orders-in-Appeal Nos. PII/AV/88 & PII/AV/89/2010, dated 18-6-2010.

Respondent’s contention:- The learned Commissioner (AR) for the Revenue, on the other hand, reiterates the findings of the adjudicating authority. He submits that in the statements given by the Deputy Chief Accountant of the sugar factory as also the Secretary of the Trust, they have agreed that the activity undertaken by them amounted to supply of manpower. This admission by the persons concerned should be a relevant factor for classification of the service and, therefore, he pleads that the impugned order is sustainable in law.

Reasoning of judgment:- The Hon’ble Court have carefully considered the rival submissions and also perused the agreements entered into by the appellant with the sugar factory as also with the transporters. From the agreement dated 2-1-2006 with the sugar factory, it is seen that the same is for cutting and transportation of sugarcane from the farmers’ fields to the sugar factory, who have agreed to sell their sugarcane to the sugar factory. The agreement is not for supply of any labour. The rates agreed upon for the said work are per tonnage of sugarcane supply, both for harvesting as well as transportation. This would clearly indicate that the activity undertaken cannot, by any stretch of imagination, be called supply of manpower. They have also perused the agreement entered into between the Trust and the transporters and as per this agreement, it is for the transporter to engage labour for harvesting and transporting the sugarcane to the sugar factory and the rates agreed to be paid are on tonnage basis of the sugarcane supplied and not for the supply of any manpower. From these agreements, it is obvious that no manpower has been supplied by the appellant to the sugar factory to constitute supply of manpower. As per Section 65(105)(k) of the Finance Act, 1994, 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”. From the documents available on record, they do not find any activity undertaken by the Trust either for the recruitment of manpower or for supply of manpower to the sugar factory. This Tribunal, in similar circumstances, in the case of Amrit Sanjivni Sugarcane Transport Co. Pvt. Ltd. (supra) held that harvesting of sugarcane and transportation thereof to the sugar factory from the farmers’ fields would not come under the purview of manpower recruitment or supply agency service and would be more appropriately classifiable under “business auxiliary services”. These decisions relied upon by the appellant and the orders of the Commissioner (Appeals) also support this view. Merely because in the statements, the deponents therein, based on their understanding agreed that the services come under the manpower supply, the same cannot be the basis for demand of service tax. The demand has to be made in accordance with law, taking into account the contracts entered into by the appellant with the various parties involved in the transaction. The demands cannot be confirmed on the basis of a wrong understanding entertained by the appellant or anybody else. In view of the above, they find that the impugned order is not sustainable in law. Accordingly they set aside the same and allow the appeal. The department is also directed to refund the amount of Rs. 15,00,000/- made as pre-deposit by the appellant forthwith without waiting for any letter/application from the appellant.
In view of the above findings, the appeal was allowed.

Decision:- Appeal allowed.

Comment:- The gist of the case is that the classification of a service is to be made after analysing the agreements entered by the service provider and the service receiver. Merely admission in statements by persons on the basis of their own understanding cannot decide classification of service. In the present case, the appellant has entered into agreement with sugar factory as also with transporter. Agreement is for cutting and harvesting of sugar cane and transportation of sugarcane from farmer’s field to the sugar factory, who have agreed to sell their sugarcane to the sugar factory. The agreement is not for supply of any labour. Moreover, the consideration received is also based on “per tonnage of sugarcane supplied” which also indicates that the transaction is not of supply of labour. Moreover, reliance was placed on certain decisions wherein the said activities have been held to be more appropriately covered by the service of “Business Auxiliary Service”. Therefore, the appeal was allowed.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2451

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