Whether deputation of employees amounts to supply of manpower?

PJ/CASE LAW/2015-16/2612

Case:-ARVIND MILLS LTD. VERSUS COMMISSIONER OF SERVICE TAX, AHMEDABAD

Citation:-2014 (34) S.T.R. 610 (Tri. - Ahmd.)

Brief facts:- The brief facts of the case is that during the scrutiny of balance sheet of the appellant, it was observed that they have collected huge amounts from their subsidiary companies on account of services rendered by them. Investigation into the matter revealed that they were supplying qualified/skilled employees to the group company and received amounts against such service. w.e.f. 16-6-2005, the definition of ‘Manpower Recruitment Agency’ means any commercial concern engaged in providing any service directly or indirectly, in any manner for recruitment of manpower or supply of manpower. Therefore, the activity carried out by the appellant is covered under the category of Manpower Recruitment & Supply Agency in relation to the recruitment or supply of manpower, temporarily or otherwise in any manner as defined under Section 65(105)(k) of the Finance Act, 1994. After recording statements of various persons, show cause notice was issued to the appellant demanding service tax under the category of Manpower Recruitment Agency. The appellant herein contested the show cause notice on merits and raised many contentions before the adjudicating authority. The adjudicating authority did not agree with the contentions raised and after following due process of law, confirmed the demands along with interest and also imposed penalties and aggrieved by such an order appellant preferred an appeal along with the stay application before the First Appellate Authority. The First Appellate Authority in the impugned order did not agree with the contention raised by the assessee and held that the appellant is liable to be taxed under the category of Manpower Supply or Recruitment Agency. Hence, the appellant is before Tribunal.

Appellant’s contention:- Ld. counsel appearing on behalf of the appellant would draw attention to the show cause notice and submit that the show cause notice talks clearly, that the appellant herein are deputing some of the employee to work in the group companies and the salaries of these employees are being collected from the group companies. It is his submission that there was agreement with subsidiary companies as such. It is his further submission that the definition of Manpower recruitment agency as read, and said definition envisaged about discharge of tax liability only if the assessee is engaged in supply of Manpower directly or indirectly. It is his submission that appellant herein is composite mill and is not a supplier of manpower recruitment or engaged in supply of man-power. He would submit that the issue is no more res integra as Division Bench of the Tribunal in the case of the M/s. Paramount Communication Ltd. v. Commissioner of Central Excise, Jaipur [2013-TIOL-37-CESTAT-DEL] has considered an identical issue.

Respondent’s contention:- Ld. departmental representative on the other hand would submit that the appellant herein is supplier of Manpower to various other group companies; skilled manpower is given by the appellant for working in such group companies. It is his submission that for such work done by the said employees, appellant is charging their group companies some amounts which is nothing but consideration for supply of Manpower. He would also submit that there is no power of charging service tax liability even if he would manufacture of some other items.

Reasoning of judgement:- Undisputed facts are the appellant herein is having a composite textile mill and is manufacture of fabrics and readymade garments. It is also undisputed that the appellant in order to, reduce the cost and expenditure has deputed employees to the group companies, who are engaged in similar business and the reason for such deputation may be for stipulated work or for limited period of time. It is also to be noted that there is no allegation or finding that the appellant had deputed their employees to any other concerns other than their own subsidiary company. It is also undisputed that the particular employee who has been deputed does not exclusively work under the direction/supervision and control of subsidiary company, but completes the work which has been directed and is repatriated back to appellant.
On this factual matrix it has to be considered whether the appellant would fall under the definition of Manpower Recruitment and Supply Agency.
The definition of Manpower Supply Recruitment Agency during the relevant period reads as under
“Manpower Recruitment or Supply Agency means any commercial concern engaged in providing any services, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise to a client.”
On careful consideration reading of definition, it is to be noted that service tax liability is on a commercial concern engaged in providing any service, which is recruitment or the supply of manpower. As has been already recorded earlier the appellant herein is a composite textile mill and is not a commercial concern it engaged in primarily in recruitment or supply of manpower.
Out these views are fortified by the decision in Co-ordinate Bench in the case of M/s. Paramount Communication Ltd. (supra) they reproduce the said findings :-

“The present appellant is a manufacturer of excisable goods and is not engaged in the business of supply of manpower, though they were sharing the services of some of the office personnel with their sister concern. Here there is no case of supply of manpower by the appellant to the sister company because the employees concerned continued to work for the appellant also an arrangement in which certain employees work for two sister concerns and the expenses of employees are shared, the manpower is not supplied by one company to other. The situation is that the personnel do the work of both the companies. The service is by the personnel to the two companies in question and not one company providing service to the other company. So there is no taxable activity on the part of the appellant to the other to be taxed under manpower supply service taxable as 65(105)(k) and therefore, the stay petition as well as appeals are allowed. The fact that payment to employee is made by one company and there is inter-company payment of the share of the cost of the employees utilised by the other company cannot be interpreted to mean one company was providing service to the other. We accordingly set aside the impugned order and allow the appeal. Stay petition also gets disposed of.”

No other contrary decision has been brought to the notice of the bench by either side.

Since the issue in the hand is identical to the issue in the case of Paramount Communication they find that the impugned order is unsustainable and is liable to be set aside and they do so.

In view of the foregoing the impugned order is set aside and appeal is allowed.

Decision:- Appeal allowed.

Comment:- The substance of the case is that deputing some of the employee to work in the group companies cannot be considered as rendering the service of supply of manpower. This is also supported by decision given in the case of Paramount Communication wherein it was held that in case of transfer of employees among group companies, the service is being rendered by personnel to the two companies and no service is being provided by one company to the other company. Accordingly, the service tax demand under Manpower recruitment agency services was quashed.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2612

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