Whether harvesting and transportation of sugar classifiable under “manpower recruitment or supply agency service”?

PJ/CASE LAW/2016-17/3097

Case:-C.C., C. EX. & S.T., AURANGABAD VERSUSSHRI SAMARTH SEVABHAVI TRUST

Citation:-2016 (41) S.T.R. 806 (Bom.)

Brief Facts:-The respondents in all these appeals are private limited companies whose shareholders are mainly the farmers. They entered into an agreement with respective sugar factories for harvesting of sugarcane at the fields of members of sugar factory and for transporting the same to the sugar factory as per the agreement. The remunerations for harvesting and transportation were paid on tonnage basis. The appellant was of the view that the act of harvesting of sugarcane and transporting the same from the fields of the concerned farmers to the sugar factories’ site is classified as “Manpower Recruitment or Supply Agency Services” and is chargeable to service tax. Accordingly, show cause notices came to be issued to the respondents demanding service tax under the provisions of Section 73 of the Finance Act, 1994 along with interest thereof. The notices also proposed to impose penalty under the provisions of Finance Act. The notices were adjudicated and demands were confirmed along with interest thereon. Furthermore, an equivalent amount of penalty was also imposed. Being aggrieved by the same, the respondents herein preferred appeal before the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Mumbai (hereinafter, for the sake of brevity called as “Appellate Tribunal”). The Appellate Tribunal, by its separate impugned judgments in all cases, set aside the order and allowed the appeals. Being aggrieved by the same, the Revenue has filed these appeals.

Appellant contentions:- The learned counsel for the appellant submits that as per the definition and scope of Section 65(105)(k) of the Finance Act, 1994, and also the term “Manpower Recruitment or Supply Agency Services” as separately defined in clause 68 of Section 65, the activities performed by the respondents cannot be done or completed without the aid of manpower/labour. The respondents have entered into an agreement with the sugar factories concerned for harvesting of sugarcane and transporting the same from agricultural fields to the factory site. Thus, the respondents have provided manpower to the sugar factory for which sugar factory has paid labour charges on tonnage basis for providing manpower to cut sugarcane and to bring the same to the sugar factory. The learned counsel thus submits that conclusion drawn by the Appellate Tribunal is far away from the facts involved in the case. The Appellate Tribunal has failed to classify the activities properly under “Manpower Recruitment or Supply Agency Services”, which resulted into miscarriage of justice.

Respondent contentions:-The learned counsel for respective respondents submit that individual farmers entered into an agreement with sugar factory concerned for purchase of their sugarcane before commencement of season of sugarcane cultivation and the concerned sugar factory paid advance to them to meet the expenses for growing sugarcane, harvesting and transporting the same. As per the agreement, it is the farmer’s responsibility to deliver the sugarcane from the field to the sugar factory. It is difficult for each individual farmer to make arrangement of harvesting and transporting the sugarcane up to the sugar factory. The respondents are private limited companies, whose shareholders are mainly the farmers. They are engaged in facilitating of harvesting of sugarcane from the fields and further transporting the same to the sugar factory. For that purpose, the respondents availed the services of various contractors, who supplied the labour for harvesting and transporting of sugarcane. The respondent-company is co-ordinating between sugar factory and labour contractors for which they received consideration from sugar factory towards supervision charges and they discharge the services and tax liability thereon under the head “Business Auxiliary Services”. Learned counsel for respective respondents further submit that the activities undertaken by the respondents do not come under the category “Manpower Recruitment or Supply Agency Services” as defined under Section 65(105)(K) of Finance Act, 1994 r.w. Section 65(68). Thus, they lastly submit that the services rendered cannot be classified under the category of “Manpower Recruitment or Supply Agency Services” and the Appellate Tribunal has rightly dropped the demand by allowing the appeals.

Reasoning of Judgment:-The question between the parties is whether the services would fall within the definition of “Manpower Recruitment or Supply Agency Services”. The definition of this term is mentioned in clause (105)(k) r.w. Section 65(68) of the Finance Act, 1994, which read as under :-
“(105)(k) ”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”
“65(68) ”manpower recruitment or supply agency” means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person.”
In view of provisions of Section 65(68) the “Manpower Recruitment or Supply Agency Services” means any person providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person, and Section 65(105)(k) defines the taxable services for providing such services. From the above definitions, it is rather clear that it envisages supply of labour which can be classified as “Manpower Recruitment or Supply Agency Services”. In the case in hand, there is no supply of labour to the sugar factory concerned. The respondents have undertaken the activities of harvesting of sugarcane and transporting the same to the sugar factory for which labour is employed.
Having regard to the nature of contract between the respondents and sugar factory and the scope of definitions mentioned above, it appears that the Appellate Tribunal has rightly come to the conclusion that the respondent’s work, though provided services to the sugar factory, did not come within the mischief of the term “Manpower Recruitment or Supply Agency”.
This interpretation of agreement between respondents and its principal is in tune with the judgment of Supreme Court in the case of Super Poly Fab-riks Ltd. v. Commissioner of Central Excise, Punjab reported in 2008 (10)S.T.R.545 (S.C.).Paragraph No. 8 of the said judgment can be relied upon to drag the point at home, which reads as under :-
“8. 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.”
In view of the above, it is clear that no manpower has been supplied by the respondents to the sugar factory to constitute supply of manpower. This Court had an occasion to deal with the similar issue, as is involved in these appeals, in Central Excise Appeal No. 19 of 2014, and this Court by order dated 27-1-2015 [2015 (38)S.T.R.468 (Bom.)]has dismissed the said appeal.
In view of the above discussion, in our view, the appeals are devoid of any merits. The judgment and orders, which are impugned in these appeals, passed by the learned Member of the Appellate Tribunal calls for no interference. The appeals are hereby dismissed. No costs.

Decision:- Appeals dismissed.

Comment:-The gist of the case is that the activities of harvesting of sugarcane and transporting the same to the sugar factory for which labour is employed is more akin to outsourcing of work and does not amounts to supply of labour. Since, there is no supply of labour to the sugar factory as per the terms of the agreement, no service tax is payable under the category of ‘Manpower Recruitment or Supply Agency Services’.

Prepared By:- Anash Kachaliya

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PJ/CASE LAW/2016-17/3097

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