Whether service tax payable on wages paid directly to workers?

PJ/Case Law /2016-17/3243

Case:- S.M. MAGAR LABOUR CONTRACTOR VERSUSCOMMISSIONER OF C. EX., KOLHAPUR

Citation:-2016 (43) S.T.R. 224 (Tri. - Mumbai)

Brief Facts:-The issue involved in this case in brief is that appellant assessee appeared to have been engaged in providing “Manpower Recruitment or Supply Agency Services” to M/s. Paranjape Auto Cast Pvt. Ltd, Satara and was receiving consideration for that activity. The appellant assessee is registered with the lower authorities for rendering the services for “Manpower Recruitment or Supply Agency Services”. It was observed that appellant had not discharged the correct service tax on the total amount paid by said Paranjape Auto Cast Pvt. Ltd. Coming to such a conclusion, a show cause notice was issued for the demand of the service tax for the period 16-6-2005 to 31-3-2010, demanding interest and also penalties. The adjudicating authority after following the due process of law drop the proceeding for demand of tax liability for the extended period but confirmed the demands within the limitation period, demanding the interest and also imposed penalties.
Appelants Contention:- Learned Counsel would draw attention to the agreement entered by the appellant with Paranjape Auto Cast Pvt. Ltd; he would draw attention to the invoices raised by them and submit that appellant had recruited various persons for Paranjape Auto Cast Pvt. Ltd; the appointment letters to such individuals was given by Paranjape Auto Cast Pvt. Ltd, salaries and wages of these persons was paid by Paranjape Auto Cast directly and appellant used to receive as commission an amount equivalent into 3% of the total salary paid by Paranjape Auto Cast. He would submit that the appellant is discharging the service tax liability on the amount of 3% received by them for supervision of the work undertaken by the recruits. He would submit that the appellant is nowhere in the picture as regards the salaries and wages paid to such employees and no amount passes through the appellant. He would submit, alternatively, that the role of the appellant, assuming is providing such services, would not fall under “Manpower Recruitment Services” as the appellant’s services at the best, can be classifiable under “Business Support Services” for supervising the work undertaken by the new recruits.

Respondent Contention:- Learned Departmental Representative on the other hand submits that the agreement entered into indicates that appellant had complete supervision over the work undertaken by the new recruits. He would submit that this amounts to “Manpower Recruitment or Supply Agency Services” as the board Circular No. B1/6/2005-TRU, dated 27-7-2005 is very clear, as also circular dated 19-4-2006 when service tax valuation rules were introduced that any amount received as consideration for the provisions of services shall be the gross amount charge for tax. He would submit that the services rendered by the appellant would not have been rendered unless the entire amount of the salaries and wages paid to the recruits are covered under the tax. He would submit that the adjudicating authority has incorrectly drop the proceedings for the demand by invoking extended period as the service tax returns filed by the appellant assessee was not indicating correct picture of the amount received by them.

Reasoning of Judgment:- On perusal of the records and the agreement entered into by the appellant with Paranjape Auto Cast, it is found that the said agreement talks about recruitment of the persons as trainee by the said Paranjape Auto Cast and appellant assessee has been detailed to provide the list of recruits and for which they will be paid an amount equivalent to 3% of the 75% of the amount paid to such recruits. It is seen from the records that the appointment letter for individual is issued by Paranjape Auto Cast as trainee and they will be paid by the Paranjape Auto Cast directly and discharging the statuary deduction like PF, pension, tax etc. is to the account of said Paranjape Auto Cast Ltd. The said Paranjape Auto Cast has as per agreed terms paid 3% of the 75% of the amount paid to such recruits as commission/service charges to appellant assessee, as also for deputing to supervisor to oversee the activities of such new recruits. In the considered view, the service tax liability discharged by the appellant on the amount equivalent to 3% paid by Paranjape Auto Cast is the correct discharge of service tax liability as there is nothing on record to indicate that M/s. Paranjape Auto Cast had paid the amount of wages/salaries of the recruits to appellant and appellant had paid the same to the individuals.
In the absence of any such evidence, we hold that service tax liability as discharged by the appellant is correct .
Decision:-The appeal is allowed.

Comment:-The gist of the case is that recruits employed as trainees are directly receiving wages from Company and there is nothing on record to show that appellant is involved in payment of wages to recruits. Thus, appellant is correctly discharging Service Tax liability on 3% commission/service charge received.

Prepared by:- Ritika Mehta

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PJ/Case Law /2016-17/3243

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