Whether personnel deputed by principal manufacturer to job workers premises is taxable as Manpower Recruitment or Supply Agency Service?

PJ/CASE LAW/2015-16/2633

Case:- BRITANNIA INDUSTRIES LTD. VERSUS COMMR. OF SERVICE TAX, BANGALORE

Citation:-2015 (38) S.T.R. 187 (Tri. - Bang.)

Brief facts:- Demand for Service Tax of Rs. 71,82,570/- with interest has been confirmed taking a view that the appellants had provided ‘Manpower Recruitment or Supply Agency Service’ during the period from April 2006 to March 2010. Besides demanding tax with interest, penalties under various Sections of Finance Act, 1994 have been imposed. Show cause notice was issued on 14-10-2011.
The appellants have engaged in the manufacture and marketing of Biscuits. The appellants have outsourced the manufacturing activity of biscuits to various job-workers and the issue before them is in relation to such outsource arrangement entered into by the appellants with J.B. Mangaram Foods Pvt. Ltd. (JBM) vide agreement, dated 9-5-2000 for manufacture of biscuits for the appellants. To ensure that quality of biscuits is as per the specification and standards of the appellants, the appellants deputed certain personnel to JBM premises to carry out checks on the quality of biscuits manufactured by JBM on their behalf. Salaries of the said personnel were recovered from job-workers. Treating the salary recovered from job-workers as consideration for ‘manpower supply service’, demand for Service Tax with interest has been confirmed and penalties have been imposed.

Appellant’s contention:- The following submissions were made by learned counsel on behalf of the appellants :
(i)    Manpower Recruitment or Supply Agency Service covers persons who are responsible for supplying manpower to companies of industries. The appellants undertake the quality check of the biscuits manufactured by JBM to ensure that continuous quality check is maintained at the premises of the job-workers & other job-workers.
(ii)    The mere fact that the appellants are employing such personnel to complete the said job does not imply that the appellants are supplying such labour force to JBM.
(iii)   As is evident from the clauses of the agreement, the job- workers are under an obligation to affix the trade mark of the appellants on the goods manufactured by them and any fall in the quality of the biscuits shall affect the brand value of the appellants directly. Therefore, if at all any service has been provided by the appellants by deputing its personnel to the job workers’ premises, it is a service to self and therefore, not taxable under the category of ‘manpower recruitment or supply agency service’.
(iv)   The personnel are directly under the control and supervision of the appellants and not the job-workers. In view of the same, reliance on Circular issued under F. No. B1/6/2005-TRU, dated 27-7-2005 is misplaced. The circular suggests that personnel should come under the direction and control of the service recipient which is not the situation in the instant case.
(v)   ‘Manpower supply agency service’ does not envisage a situation where there is a contract for completing a job ad hoc. As per circular No. 96/7/2007-S.T., dated 23-8-2007, the impugned service covers such cases where the agreement is for the utilization of the services of an individual, and such individuals are supplied by the agency/person.
(vi)   The appellants are not ‘manpower recruitment or supply agency’. In this context, the relevance of the phrase “engaged in” has to be understood in the light of the following cases :
•      Regional Provident Fund Commissioner v. Shree Krishna Metal Mfg. Co., AIR 1962 SC 1536
•      National Projects Construction Corporation Ltd. v. Commissioner of Wealth Tax - 1969 (74) ITR 465 (Delhi)
(vii) The appellants submit that the appellants are receiving the amounts from the job-workers at actual and are not retaining any amounts. The same has also been accepted in the Order-in-Original. In this regard, reliance can be placed on:
•      M/s. ITC Ltd.v. Commissioner of Service Tax, New Delhi [2013 (29)S.T.R.387 (Tri.-Del.)]
•      UTI Asset Management Co. Ltd. v. Commissioner of Service Tax, Mumbai-I [2012-TIOL-1822-CESTAT-MUM]
(viii)No consideration charged by the appellants for the alleged supply of manpower. The amount received by the appellants is only a reimbursement of the salary that is payable to the said employees from JBM.
(ix)   It is submitted that an agency would charge an amount which is more than the salary/wages paid to the manpower supplied to another person. If the agency charges only the salary and gives the entire amount to the employees, the purpose of existence as an agency does not exist. This view is supported by the Circular F. No. B1/6/2005-TRU, dated 27-7-2005 which states that the taxable value includes staff costs e.g. salary and other contributions.
(x)   There is no suppression of facts by the appellants nor an intent to evade payment of taxes. Extended period cannot be invoked and the entire demand is barred by limitation. The department has itself taken a conflicting view on the same transaction and classified it as ‘Management or Business Consultancy Service’.
(xi)   Mere non-payment of Service Tax does not amount to suppression. No penalty is imposable and no interest is payable since the issue involves interpretation of complex legal position. Further, penalty under both Sections 76 & 78 of the Act cannot be invoked simultaneously.
(xii) The appellants have assessed its liability as it deemed correct and filed its returns regularly in the prescribed form. Therefore, penalty under Section 77(2) is liable to be set aside. Further the benefit under Section 80 of the Act is available to the appellants.

Respondent’s contention:- Learned AR, on the other hand, submitted that according to the agreement, the appellants had a right to reject biscuits and recover all the costs attributable to biscuits. Such being the situation, according to him, the personnel provided by the appellants were actually rendering service to the job-workers only. If the entire works were supervised, the question of rejection does not arise. He submitted that it cannot be said that manpower was not supplied.

Reasoning of judgement:- They are not able to agree with the submissions made by learned AR in view of the fact that even in the appellant’s own factory, if so happened, the entire quantity in a particular lot could get rejected. Rejection of produced quantity on the basis of lack of quality and supervision by the personnel of the appellants in the job-worker’s factory and supervision of manufacturing operation cannot be linked with each other. Learned AR submitted that there is no agreement at all for supply of manpower and the amount is simply recovered by the appellants without even an agreement. He submitted that salaries are paid by the appellant to the personnel supplied and recovered from the job-worker. However, they find force in the submissions made by learned counsel that the deputed personnel continue to be employees of M/s. Britannia Industries Ltd. (the appellant) and the service provided by them are for the benefit of the appellant and not for the benefit of JBM at all. The appellants are actually forcing upon JBM their personnel to supervise their operations and it is not that JBM are requesting for assistance of these personnel. In the case of manpower supply, the receiver makes a request for service and therefore, the service is provided. Prima facie, they do not find relationship of ‘manpower supply service’ provider and service receiver between the appellants and JBM. Moreover, they also find the entire demand is time-barred. Therefore, they are not convinced about the correctness of stand taken by the Revenue either on merits or on limitation at this stage. In these circumstances, requirement of pre-deposit of adjudged dues is waived and stay against recovery is granted during pendency of the appeal.

Decision:- Application allowed.

Comment:- The analogy of the case is that there is no agreement at all for supply of manpower and so no service tax is payable. Salaries are paid by the appellant to the personnel supplied and recovered from the job-worker and deputed personnel continue to be employees of appellant. JBM is not requesting for personnel but this is for benefit of appellant. On the other hand as per the definition of manpower recruitment or supply agency service, 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. Hence, there is no relationship of ‘manpower supply service’ provider and service receiver. So a personnel deputed by principal manufacturer to job workers premises is not taxable as Manpower Recruitment or Supply Agency Service.

Prepared by:-Monika Tak

Comments

PJ/CASE LAW/2015-16/2633

Post a Comment

Query