By TIOL News Service

MUMBAI, FEB 27, 2015: THE appellant is a private limited company whose share holders are mainly farmers. They entered into an agreement with M/s. Kukadi SSK Ltd., for harvesting of sugarcane at the fields of member-farmers and transporting the same to Kukadi SSK Ltd.'s, Shrigonda, Ahmednagar District. Remuneration for harvesting and transportation was paid on a tonnage basis i.e., per tone of the sugarcane delivered at the factory.

The department harboured a view that the act of harvesting sugar cane and transporting the harvested sugarcane from the farmers' fields to the factory site is classifiable as ‘manpower recruitment or supply agency service' and is chargeable to service tax.

SCN demanding service tax of Rs.93,65,050/- came to be issued and confirmed.

Before the CESTAT, the appellant inter alia submitted that they are coordinating between the sugar factory and the labour contractors, for which they receive consideration from the sugar factory towards supervision charges and they discharge service tax liability thereon under the head ‘Business Auxiliary Service'. For supply or transportation by means of truck/tractors, etc., the sugar factory pays freight and service tax thereon, whereas for harvesting of sugarcane, the appellant pays to the contractor harvesting charges which they get reimbursed from the sugar factory at actuals. The charges for the harvesting and transportation are paid on tonnage basis and not on the number of labour employed. Thus, the said activity does not come under the category of ‘manpower recruitment or supply agency service' as defined in Section 65(105)(k) of the Finance Act, 1994 read with Section 65(68). The appellant also placed reliance on the Final Order No. A/532/13/CSTB/C-I dated 02.04.2013 - 2013-TIOL-1097-CESTAT-MUM, wherein under similar circumstances the co-ordinate bench of the Tribunal have held (in favour of assessee) that there is no element of ‘Manpower Recruitment or Supply Agency Service'.

The AR referred to the agreement entered into by the appellant with the sugar factory and which clearly stated that “our company will provide labour for sugar cane cutting including labour carrying sugar cane on head, i.e., dolly center or doycee center, along with all necessary equipments to cut the sugar cane of the members and non-members of the karkhana within the operating limit of the karkhana and from outside the operating limit of the karkhana and transporting it to the karkhana's site”. And, therefore, even if the charges are paid on tonnage basis, it is in respect of supply of labour that the charges have been paid and hence the demand has been correctly raised under the category of ‘manpower recruitment or supply agency service'.

The Bench adverted to the agreements entered by the appellant and after mentioning the various clauses therein observed –

++ From the definition (of ‘Manpower Recruitment or Supply Agency service') it is clear that the service brought under the tax net under the ‘Manpower Recruitment or Supply Agency Service' envisages supply of labour per se. In the instant case, we notice that there is no supply of labour per se to the sugar factory. The work undertaken is harvesting of sugar cane and transporting the same to the sugar factory for which labour is employed. The sugar cane belongs to the sugar factory in terms of the agreement of sale executed between the farmer and the sugar factory. Therefore, the activity undertaken by the appellant is one of procuring or processing of the goods belonging to the client which is classifiable under ‘Business Auxiliary Service' and not under ‘Manpower Recruitment of Supply Agency Service'. On the supervision charges paid to the appellant for the said activity, they have already discharged service tax liability under ‘Business Auxiliary service'.

Holding that there is no merit in the order passed by the CCE, Aurangabad classifying the service under the category of ‘Manpower Recruitment or Supply Agency service', the same was set aside and the appeal was allowed with consequential relief.

(See 2015-TIOL-420-CESTAT-MUM)