By TIOL News Service

MUMBAI, DEC 20, 2013: THE assessee is a proprietary concern providing security guards to M/s BSNL for security of their immovable and movable properties. As per the terms of agreement between BSNL and the assessee, BSNL was to pay the salary of the guards + 10% as the service charges to the appellants. The entire amount was billed by the assessee and was paid by BSNL to the assessee. From the said amount, the assessee was paying the salary to the security guards and retaining 10% service charges as their profit. Assessee was paying service tax on the service charges alone.

SCN was issued on 17/04/2006 for the period 2002-03, 2003-04 & 2004-05 demanding duty on the gross amount received. Before the adjudicating authority the assessee took the stand that he is only a supplier of labour/manpower and is a labour contractor and liable to pay the service tax only on the value of the service amount retained by him; that he is not providing any security service.

The adjudicating authority rejected these contentions and upheld the demand. The Commissioner (A) held that the services are security services only but agreed with the assessees contention that service tax is required to be paid only on the service charges and not on the gross amount received.

Whereas the Revenue is in appeal before the CESTAT against the valuation method adopted by the Commissioner (Appeals), the assessee is in appeal on the ground that the service provided by him is of Manpower Supply which was not taxable before 16.6.2005. The assessee has also taken a stand that the salary of security guards received by him is nothing but reimbursable expenses and, therefore, cannot form part of the assessable value.

Incidentally, consequent to the above mentioned order of the Commissioner (Appeals), assessee filed a refund claim before the original authority for the subsequent period which was rejected. The assessee filed an appeal before Commissioner (Appeals) against the said rejection order both on merits as also on unjust enrichment. Commissioner (Appeals) allowed the appeal of the assessee. Revenue is in appeal against the said order also on the ground that the principles of unjust enrichment would be applicable in the situation.

The Bench after hearing both sides rejected the submissions of the appellant by observing thus -

+ The reading of the agreement with the BSNL clearly indicated the personal supplied are expected to work as security guard, and ensure security of articles and equipment in the building and offices. Keeping in view the agreement and the definition of the security agency as stipulated under Section 65 (79)of the Finance Act, 1994, we have no doubt that the service provided by the assessee is that of security agency.

+ Wages cannot be called reimbursable expenses. These are not incidental for providing the service, but main element in providing the service. Wages of security guards will form part of the assessable value as far as security agencies service is concerned.

On the ground of limitation raised by the appellant, the CESTAT observed -

+ The assessee had taken the registration and was also filing the returns wherein all the details were being indicated. The assessee is a Retired Army officer and was not collecting any service tax from his client even on the service charges. Keeping in view peculiar facts and circumstances of the case, we find that ingredients to invoke the extended period are absent in the present case. Accordingly, we set aside the demand which is beyond the normal period of limitation.

On the question of imposition of penalty, the Bench took a view that the case is a fit one for exercising the power u/s 80 of the FA, 1994 and accordingly the penalties were set aside.

In the matter of the second appeal filed by the Revenue, the Bench observed that since it had upheld the demand of merits (i.e. value for service tax purpose will include wages also) the assessee will not be entitled to the refund claim filed by him.

(See 2013-TIOL-1889-CESTAT-MUM)