By TIOL News Service

MUMBAI, MAR 24, 2015: STRANGE sometimes is the mindset of the departmental officers. Their passion in flogging a down in the dumps assessee seems unparalleled.

The appellant is a sugar factory and due to default in payment of loans, the said factory was taken over by Maharashtra State Co-operative Bank Ltd. who leased out the factory to M/s. Rajaram Bapu Patil SSK Ltd.

The CE authorities at Kolhapur wanted the appellant to pay Service Tax on the ground that they had rendered 'Manpower Supply or Recruitment service'.

Wherefrom did the authorities gather the 'consideration' figure is not known but the fact of the matter is that a Service Tax demand of Rs.28.39 lakhs was confirmed along with truckloads of penalties and interest.

The Commissioner(A) too was apparently convinced with the demand raised and, therefore, rejected the appeal of the ailing sugar factory.

The appellant briefed the Bench of the facts involved and submitted that in this scenario it cannot be said that the appellant rendered any 'manpower supply or recruitment service'; that in any case, the appellant has not received any consideration from the lessee who has paid the salaries and wages to the employees directly and, therefore, in the absence of any consideration, the question of levying any service tax would not arise.

The AR had no qualms in reiterating the findings of the lower authorities.

The CESTAT observed –

"5. …We have also perused the tripartite agreement dated 12/09/2006 entered into between Maharashtra State Co-operative Bank ltd., M/s. Rajaram Bapu Patil SSK Ltd., and the appellant M/s. Raje Vijay Singh Dafale SSK Ltd. The lessor is the bank and the lessee is M/s. Rajaram Bapu Patil SSK Ltd. The appellant is the borrower. As per the said agreement, the lessor being a secured creditor had taken over the factory of the borrower under Section 13(2) of the SARFAESI Act, 2002 to recover its dues and has leased out the factory of the borrower to the lessee. As part of the agreement, the lessee has undertaken to continue the services of the persons who were on the muster rolls of the borrower as permanent employees and the lessee was required to pay salaries/wages to the employees directly. Therefore, it cannot be said that the appellant has provided any service by way of manpower supply to the lessee. In any case, the salaries/wages were paid directly to the employees/workers and the appellant has not received any consideration for any services rendered. Therefore, the question of demanding any service tax in the absence of a consideration will not arise at all."

The order was set aside and the appeal was allowed.

In passing : Also see MSC Co-op Bank Ltd. 2013-TIOL-899-CESTAT-MUM & Sangli District Co-op Bank Ltd. 2014-TIOL-1780-CESTAT-MUM.

(See 2015-TIOL-535-CESTAT-MUM)