Whether harvesting and transporting sugarcane covered under manpower supply agency service?

Case:- AMRIT SANJIVNI SUGARCANE TRANSPORT CO. P. LTD. Vs C.C.E. & C., AURANGABAD

Citation:- 2014 (36) S.T.R. 360 (Tri. - Mumbai)

Brief Facts:- The appellant, M/s. Amrit Sanjivni Sugarcane Transport Co. Pvt. Ltd., is a private limited company whose shareholders are mainly farmers. They entered into an agreement with M/s. Sanjivini SSK Ltd., for harvesting of sugarcane at the fields of member farmers and transporting the same to Sanjivini SSK Ltd.’s factory. The individual farmers entered into agreements with the sugar factory for sale of sugarcane before the commencement of sugar cultivation and the factory pays advance to the farmers for meeting the expenses for growing the sugarcane, harvesting and transporting the same. As per the agreement, it is the farmers’ responsibility to deliver sugarcane from the field to the sugar factory. The appellant-company is coordinating between the sugar factory and the labour contractors for which they receive consideration from the sugar factory towards supervision charges and they discharge Service Tax liability thereon under the head ‘Business Auxiliary Service’. For supply of transportation by means of truck/tractors, etc., the sugar factory pays freight and Service Tax thereon, whereas for supply of harvesting sugar cane, the appellant pays to the contractor harvesting charges which they get reimbursed from the sugar factory at actuals. Remuneration for harvesting and transportation were paid on a tonnage basis i.e., per tonne of the sugarcane delivered at the factory. The Department was of the view that the act of providing harvesting sugarcane and transporting the harvested sugarcane from the farmers’ fields to the factory site is classifiable as ‘manpower recruitment or supply agency service’ and is chargeable to Service Tax. Accordingly, a show cause notice dated 11-4-2008 was issued to the appellant demanding Service Tax amounting to ` 1,03,71,911/- under the provisions of Section 73 of the Finance Act, 1994 along with interest thereon under Section 75 ibid. The notice also proposed to impose penalties under Sections 77 and 78 of the said Finance Act.

Appellant’s Contention:- The learned counsel for the appellant made the following submissions:-
The activity undertaken by the appellant is harvesting of sugar cane and transporting the same on behalf of the farmers. Thus, the said activity does not come under the category of ‘manpower recruitment or supply agency service’ as defined in Section 65(105)(k) of the Finance Act, 1994 read with Section 65(68). The charges for the harvesting and transportation are paid on tonnage basis and not on the number of labour employed. The sugar cane being a standing crop is covered under the Sale of Goods Act, 1930 and in view of the agreements between the farmers and the sugar factory, it is transfer of property in goods to the sugar factory by the farmer and the transaction is one of sale. The activity of harvesting and transportation is incidental to sale.
It is also contended that out of the period from 16-6-2005 to 3-6-2007 covered by show cause notice dated 21-4-2008 the period from 16-6-2005 to 31-3-2007 is barred by limitation in the absence of any suppression or conscious withholding of any information. In a similar case pertaining to Shriram Krishi Audyogik Ous Todani, the Commissioner of Central Excise (Appeals) vide Order-in-Appeal No. PII/PAP/67/2010, dated 21-4-2010 held that labour contractor is the service provider and the farmer is the recipient of service and no Service Tax is payable on the amounts paid to the labour contractor under the category of ‘Manpower Recruitment or Supply Agency Service’. Similarly, in another Order-in-Appeal dated 18-6-2010 relating to Sampatrao Deshmukh Oos Utpadak and Todani Sahakari Sanstha, the Commissioner of Central Excise (Appeals) held that since the appellant is paid by the sugar factory on tonnage basis of the sugar cane delivered irrespective of the number of labour employed and number of vehicles used for transportation; therefore the service rendered cannot be classified under the category of ‘Manpower Recruitment or Supply Agency service’ and had accordingly dropped the demand. In view of the above, it is pleaded that the demand of service tax under the category of ‘manpower recruitment or supply agency service’ is not sustainable.
The learned counsel has also submitted copies of bills raised by them on the sugar factory from which it is evident that the charges have been made on per ton basis of the sugar cane delivered and the sugar factory has also paid them service charges on tonnage basis of sugar cane delivered and not on any other parameters. From these documents it is evident that the appellant has not rendered any service relating to ‘Manpower Recruitment or Supply Agency service’.

Respondent’s Contention:- The learned Addl. Commissioner (AR) appearing for the Revenue submits that in terms of the agreement entered into by the appellant with the sugar factory, it includes cutting work done through labourers. The agreement dated 15-11-2002, a copy of which is available on record, clearly states that “our company will provide trucks, tractors, bullock carts and labour for sugar cane cutting including labour carrying sugar cane on head, i.e., dolly center or doycee center, along with all necessary equipments to cut the sugar cane of the members and non-members of the karkhana within the operating limit of the karkhana and from outside the operating limit of the karkhana and transporting it to the karkhana’s site”. From this clause it is evident that the transaction is one of supply of labour for undertaking sugar cane harvesting and transport of the same by head load from the farmers’ fields to the sugar factory and, therefore, even if the charges are paid on tonnage basis, it is in respect of supply of labour that the charges have been paid. Accordingly, he submits that the impugned order classifying the services rendered under the category of ‘manpower recruitment or supply agency service’ is sustainable in law and he accordingly pleads for dismissing the appeal.

Reasoning of judgement:-Submissions made by both the sides were carefully considered.
From the agreement entered into between the farmer and the sugar factory, the farmer has undertaken to supply sugar cane grown by him in his field to the sugar factory. The agreement also says that the farmer will cut the sugar cane by his own labour and will deliver it at the gate of the sugar factory through his own transport means and arrangement for hiring and transportation will be made by the farmer. The labour required for this work of cutting and transportation will be of the farmer and the responsibility of paying wages to them would also be of the farmer. As per the agreement dated 5-9-2007 entered into between the appellant and the labour contractor the agreement is for cutting and transporting of sugar cane through labourers from producer-members supplying sugar cane to the factory. The agreement also provides that the bill of work of cutting/transporting sugar cane done by the labour contractor has to be taken from the sugar cane producer (farmer) and be paid to the labour contractor as per rates fixed by the appellant. In addition to the above, there is another agreements between the appellant and the sugar factory. The agreement is for sugar cane cutting and transportation. As per the said agreement, it is the sugar factory’s responsibility to make available all equipments, tractors, trucks, bullock carts and cutting labourers and the appellant’s responsibility is to cut the sugar cane of their members and non-members within and outside the area of operation and deliver the same at the factory gate. The responsibility of payment of wages to be given to the sugar cane cutting labourers and drivers after proper discharge of the work of transportation of sugar cane through trucks/tractors and bullock carts shall be on the sugar factory. The appellant’s responsibility is of assisting in the programme of cutting and inspection for which the appellant receives supervision charges. The rates for sugar cane cutting and transportation are fixed on tonnage basis and rates are fixed independently for various activities such as (i) tying bundle by cutting and slicing sugar cane and (ii) sugar cane transportation by various modes such as bullock-carts, trucks/tractor, labourers (head loads). From these agreements what is evident is that there is no supply of any labour by the appellant to the sugar factory. They are only facilitators between the farmers and the sugar factory. Their work is to ensure that the sugar cane ripe for harvesting are cut and transported to the sugar factory. The labour for the same is provided either by the sugar factory itself or by the labour contractors. The charges involved in sugar cane harvesting is collected by the appellant and distributed to the labour contractors/labourers. The charges for transportation of sugar cane are directly paid by the sugar factory to the transporters wherever the transport is done by trucks/tractors. Only when the transport is by the head load, the payment is made through the appellant to the labourers. In all these transactions, the payment is on tonnage basis of the sugar cane delivered at the factory site and not on the basis of number of persons employed.
As per the provisions of Section 65(68) ‘Manpower Recruitment or Supply Agency service’ means ‘any person providing any service, directly or indirectly, in any manner, for the recruitment or supply of manpower, temporarily or otherwise to any person’ and as per Section 65(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’.
From the above definition it is clear that the service brought under the tax net under the ‘Manpower Recruitment or Supply Agency Service’ envisages supply of labour per se. In the instant case, we notice that there is no supply of labour per se to the sugar factory. The work undertaken is harvesting of sugar cane and transporting the same to the sugar factory for which labour is employed. The sugar cane belongs to the sugar factory in terms of the agreement of sale executed between the farmer and the sugar factory. Therefore, the activity undertaken by the appellant is one of procuring or processing of the goods belonging to the client which is classifiable under ‘Business Auxiliary Service’ and not under ‘Manpower Recruitment or Supply Agency Service’. On the supervision charges paid to the appellant for the said activity, they have already discharged Service Tax liability under Business Auxiliary service.
In view of the above, we do not find any merit in the impugned order classifying the service under the category of ‘Manpower Recruitment or Supply Agency service’. Accordingly we set aside the impugned order and allow the appeal with consequential relief, if any.

Decision:-The appeal is allowed.

Comment:-The crux of the case is that the activity undertaken by the appellant is one of procuring or processing of the goods belonging to the client which is classifiable under the Business Auxiliary Service and not under Manpower or Supply Agency Service.

Submitted By:- Bharat Singh

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PJ/CASE LAW/2016-17/3131

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