Whether contract for execution of lump-sum work of loading, unloading, bagging, stalking, destalking can be classified as ‘manpower recruitment & supply agency' service?

Case:- M/s RITESH ENTERPRISES & KARWAR DOCK & PORT LABOUR COOPERATIVE SOCIETY LTD Vs COMMISSIONER OF CENTRAL EXCISE, BANGALORE

Citation:- 2010-TIOL-539-CESTAT-BANG

Brief Facts:-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 cargos 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. Coming to such a conclusion, show cause notices were issued to the 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 and 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. Aspin wall 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., Vs Union of India – 2007 (210) ELT 484 (SC) 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 & 78 and also under Rules 7 C of the Service Tax Rules. Aggrieved by such an order the appellants filed appeal before Tribunal.

Appellant’s contention:-The appellant submits that 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 adhoc, handling and transportation of the goods within the warehouse of the CWC and or M/s. Aspin Wall & Co. He would draw our 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. He 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., Vs CCE Punjab (2008 (10) STR 545 SC) = 2008-TIOL-82-SC-ST
(b) State of AP Vs Kone Elevators ( India ) Ltd., (2005 (181) ELT 156 (SC) =2005-TIOL-30-SC-CT-LB
(c) Union of India Vs Mahindra & Mahindra Ltd., (1995 (76) ELT 481 (SC) = 2002-TIOL-62-SC-CUS

The appellants also submits 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:-The Respondent submits 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 laborers 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 our attention to the scope of entry “Manpower Recruitment Agency” and submit 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. She relies upon the decision of the Supreme Court in the case of Indian Metals & Ferro Alloys Ltd., Vs Collector of Central Excise (1991) 51 ELT 165 (SC) 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 our 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.

The respondent further submits 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 individual 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.

Reasoning of judgment:-The Tribunal have considered 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.”

The tribunal finds that from the plain reading of the above reproduced definitions in the Finance Act 1994, 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 other-wise to a client in order to get covered under the said definition. There should be either a recruitment or supply of manpower temporarily or other wise.

The Tribunal finds from the records and the documents of appellant produced that appellants 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. The tribunal also perused the invoices issued by the appellants 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, The Tribunal finds that the contract which has been given to the appellants is for the execution of the work of loading, unloading, bagging, stalking destalking etc., in the entire records, 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. The Tribunal also finds that the Hon'ble Supreme Court in the case of Super Poly Fabriks Ltd., Vs 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 AP Vs Kone Elevators (India) Ltd. (Supra) and UOI Vs Mahindra and Mahindra in similar issues. The ratio of all the three judgements 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. The Tribunal finds 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.

The Tribunal further considered the records and the submissions of the Respondent on the Master Circular dated 23.8.2007, Tribunal finds 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 service sunder 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 individuals 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.

The Tribunal finds that 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 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/ may not be for execution of a specific work. We 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, we are of the view that the impugned orders are liable to be set aside and we do so. The appeals are allowed with consequential relief if any. Since we 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 with consequential relief.

Comment:- The analogy drawn from this case is that terms and conditions of contract entered into between the parties is required to be thoroughly analysed for coming to the conclusion whether the said terms indicate that there is supply of manpower or it reflects a works contract. In the above decision also, the contract was deeply analysed for deciding the case.

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PJ/Case Laws/2012-13/1345

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