Whether service tax is leviable on contribution to provident fund?

PJ/CASE LAW/2014-15/2315

Case:- NEELAV JAISWAL & BROTHERS Vs COMMISSIONER OF C. EX., ALLAHABAD

Citation:-2014 (34) S.T.R. 225 (Tri. - Del.)

Brief facts:- At the stage of considering the Stay Petition No. 3365/2012, Counsel for the petitioner/appellant and the ld. AR for Revenue agree, having regard to the narrow compass within which the substantive appeal falls for determination that the appeal itself be disposed of. Accepting the request, the appeal was disposed of.
The Assistant Commissioner of Central Excise and Service Tax, Mirjapur, Uttar Pradesh by the adjudication order dated 23-3-2012 confirmed Service Tax demand of Rs. 41,037/- apart from interest and penalties as specified, including penalty equivalent to the tax demand confirmed, under Section 78 of the Finance Act (the Act). The assessee’s appeal was rejected by the Commissioner (Appeals), Allahabad vide order dated 21-5-2012. Hence this appeal.
A scrutiny by Revenue of the record of M/s. Hindalco Industries Ltd., Renukoot, revealed that the assessee was engaged in providing the taxable “man-power recruitment or supply agency” service and had received a total amount of Rs. 3,47,481/- towards the provident fund contribution in respect of personnel deployed by the assessee to M/s. Hindalco Industries Ltd.
The appellant failed to deposit Service Tax of Rs. 41,037/ - relatable to the amount of provident fund contribution received from Hindalco Industries Ltd., for providing the taxable service aforementioned, during the period April 2005 to March 2010. Proceedings were initiated and after a due process, an adjudication order came to be passed. There was no contest as to any transgression of natural justice requirements in passing the adjudication order.

Appellant’s contentions:- Shri B. Laxminarasimhan, ld. Counsel for the appellants referred to the decision of the High Court of Delhi in Intercontinental Consultants & Technocrats Pvt. Ltd. v. UOI reported in 2013 (29) S.T.R. 9 (Del.)to support his contention that under Section 67 of the Act the value of a taxable service can only be the gross value received for providing such service and not any amount in excess of the consideration received as quid pro quo from the service recipient. We were in respectful agreement and were also bound by the principle delineated in the judgment of the High Court of Delhi but such resonance to this non-derogable principle was not per se dispositive of the issue before them, in the facts and circumstances of this appeal.
The contention that was dis-favoured by the primary and appellate authorities and was reiterated before this Tribunal was that since the provident fund contribution (remittable by the assessee to the credit of provident fund accounts of its employees under the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952), was separately paid by M/s. Hindalco to the assessee and not as part of payments meant for providing the taxable service, this amount could not legitimately be included in the gross value of the taxable service for computation of the taxable value and levy of tax.

Respondent’s contentions:-The counsel for the respondent reiterated the findings of the lower authorities.

Reasoning of judgment:-Section 65(105)(k) enacts the relevant taxable service to mean any service provided or to be provided to any person, by a man-power recruitment or supply agency in relation to the recruitment or supply of man-power, temporarily or otherwise, in any manner. Section 65(68) of the Act defines “man-power recruitment or supply agency’ to mean 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. Section 67 of the Act dealing with valuation of taxable service for charging Service Tax specifies that where the provision of service was for a consideration in money, the taxable value would be the gross amount charged by the service provider for such service provided or to be provided by him.

It was admitted that the liability to remit Provident Fund to Provident Fund Authorities was a statutory liability on the appellant, an employer of persons who were deployed to serve the needs of M/s. Hindalco Industries Ltd., towards the taxable ‘manpower recruitment or supply agency’ service. M/s. Hindalco consideration for such taxable service provided by the appellant had remitted to the appellant not only the amount agreed to between the parties for remunerating the personnel so deployed but also the amount of provident fund payable by the appellant to Provident Fund authorities, in terms of the appellant’s statutory obligation. Both these amounts therefore constitute the gross amount charged by the appellant for the taxable service provided to M/s. Hindalco Industries Ltd., since the taxable service was provided for a consideration in money. Both these amounts therefore constitute the gross amount charged by the appellant for having provided the taxable service.
On the aforesaid analysis, the Bench found no infirmity in the concurrent findings/conclusions recorded by the adjudicating authority and the appellate Commissioner (Appeals), warranting interference. The appeal was accordingly dismissed, but in the circumstances without costs.
Decision:- Appeal was dismissed.
Comment:- The analogy drawn from the case is that for a taxable service of “Manpower recruitment or supply agency” provided by the assessee, the taxable amount shall be the amount agreed to between the parties for remunerating the personnel so deployed and also the amount of provident fund payable by the appellant to Provident Fund authorities, in terms of the appellant’s statutory obligation. Both these amounts therefore constitute the gross amount charged by the assessee for the taxable service provided for a consideration in money. Accordingly, the appeal filed by the assessee was dismissed. In our opinion, the contribution to Provident Fund is in the nature of reimbursable expenditure and should have been covered by Rule 5 and should not have been included in the value of taxable service in light of the judgment given in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. UOI reported in 2013 (29) S.T.R. 9 (Del.).
Prepared by: Ranu Dhoot

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PJ/CASE LAW/2014-15/2315

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