By TIOL News Service

MUMBAI, MAR 06, 2014: THE appellant SSKL leased out their plant and machinery to M/s. Bajaj Organics Ltd., Mumbai. In addition to leasing out the plant and machinery, the agreement dated 04/08/2002 also provided that the lessee, namely, Bajaj Organics Ltd., shall endeavour to engage maximum possible technical and other staff from amongst the present staff on the roll of SSKL and salary of each such staff engaged by mutual consent, shall be fixed up between SSKL and Bajaj Organics and the same shall be reimbursed to SSKL on a monthly basis. Staff of SSKL would work under the administrative guidelines of Bajaj and if any disobedience occurs, the same staff would be returned to SSKL.

The department was of the view that the appellant M/s. SSKL has supplied manpower to M/s. Bajaj Organics and, therefore, demanded Service Tax under three SCNs for the period March, 2003 to July, 2006. The demands were confirmed along with interest and penalty but the Commissioner(A) reduced the penalty imposed under Section 76 to Rs.25,000/-. Against this order, SSKL is before the CESTAT.

In another proceeding, the demand for the subsequent period August to December 2006 confirmed by the adjudicating authority was dropped by the lower appellate authority and so the Revenue is against this order.

Before the CESTAT the appellant submitted that prior to 16/06/2005 the taxable service related only to "recruitment of manpower in any manner"; that since the appellant has not recruited any manpower for M/s. Bajaj, therefore, the appellant would not be liable to pay any tax for the period prior to June 16, 2005. For the period on or after 16/06/2005, it is submitted that the appellant was not engaged in supply of manpower to M/s. Bajaj, temporarily or otherwise, though they have an understanding with M/s. Bajaj to engage the staff of the appellant in the factory run by M/s. Bajaj and that would not constitute supply of manpower as envisaged in law. Reliance is placed on the decisions in Arvind Mills Ltd. - (2013-TIOL-1455-CESTAT-AHM); Paramount Communication Ltd. - (2013-TIOL-37-CESTAT-DEL) and Volkswagen India (Pvt.) Ltd. - (2013-TIOL-1640-CESTAT-MUM) and it is prayed that the demand be set aside and for similar reason the Revenue appeal.

The Revenue representative justified the service tax demand and also submitted that there is no reason given by the Commissioner(A) as to why he is differing with the view taken by his predecessor while dropping the demand.

The Bench observed -

"5.1 As regards the demands for the period prior to 16/06/2005, we notice that Section 65(21) read with Section 65(105)(k), as it stood at the relevant time, dealt with only recruitment of manpower for a client. In the present case, the appellant has not undertaken any recruitment activity for M/s. Bajaj and, therefore, for the period up to 16/06/2005 the activity of the appellant does not come within the purview of service tax under the category of ‘manpower recruitment agency service' as defined in law. However, w.e.f. 16/06/2005 the scope of the taxable service was widened bringing within the purview not only recruitment but also supply of manpower and the taxable service was also amended so as to levy on the activity of supply of manpower. Therefore, supply of manpower would be eligible to service tax effective from 16/06/2005. Though the learned counsel for the appellant has argued that they received only 75% of the salaries to be paid to their employees from M/s. Bajaj and has not received any consideration for the supply of manpower, this argument is misplaced. Section 67 of the Finance Act, 1994 provides that service tax shall be paid on the gross amount received by the service recipient. The said section does not envisage that the service provider should always render the service on a profit basis. Even if loss is incurred in the provision of service, on the consideration received service tax liability would accrue. Therefore, merely because the appellant collected only 75% of the salary paid to the employees, it does not take the appellant out of the purview of service tax liability. The learned counsel's contention that the appellant is not engaged in supply of manpower service is also not correct. The law does not envisage that the appellant should be engaged in supplying manpower to various clients. Even if the activity undertaken in a one time transaction, conforming to the legal definition of supply of manpower, service tax liability would accrue. In the present case, without the appellant's consent and without the agreement entered into between the appellant and M/s. Bajaj, the employees of the appellant could not have been employed by M/s. Bajaj. Therefore, there is a constructive supply of manpower by the appellant to M/s. Bajaj and, therefore, for the period w.e.f. 16/06/2005, the appellant's activity would be clearly covered within the definition of ‘supply of manpower' as defined in Section 65(68) read with Section 659(105)(k) of the Finance Act, 1994 and we hold accordingly. Consequently, the appellant would be liable to pay service tax on the consideration received along with interest thereon."

The case laws cited by the appellant SSKL were distinguished and in the matter of appeal filed by the Revenue the Bench observed that as the demand is for the normal period, the allegation of suppression cannot arise and, therefore, imposition of penalty u/s 78 is not warranted.

So, the CESTAT ordered - the appellant's activity comes within the purview of supply of manpower on or after 16/06/2005 and the appellant would be liable to discharge service tax liability on the consideration received w.e.f. that date along with interest. The appellant would also be liable to penalty under the provisions of Section 76 of the Act for the default/delay in payment of service tax. No penalty under Section 78 is warranted.

The appeals were disposed of.

(See 2014-TIOL-355-CESTAT-MUM)