2013 (3) TMI 735 - AT - Service Tax

Tribunal rules wages reimbursement taxable as 'Manpower Recruitment Service,' imposes penalties & interest

Commissioner of Central Excise, Mumbai Versus Jubilant Enpro Pvt. Ltd.

Commissioner of Central Excise, Mumbai Versus Jubilant Enpro Pvt. Ltd. - 2016 (46) S.T.R. 448 (Tri. - Mumbai) Issues Involved:1. Classification of services rendered by the respondent.2. Taxability of reimbursement of wages.3. Applicability of the extended period for demand.4. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.Detailed Analysis:1. Classification of Services Rendered by the Respondent:The core issue was whether the services provided by the respondent, M/s. Jubilant Enpro Pvt. Ltd., should be classified under 'Manpower Recruitment or Supply Agency Service' or 'Ship Management Service.' The agreement between the respondent and M/s. Tidewater India Pvt. Ltd. (TIPL) indicated that the respondent was responsible for supplying seafarers and managing various aspects of their employment, including medical examinations, payment of wages, and insurance. The tribunal concluded that the respondent's services fell under 'Manpower Recruitment or Supply Agency Service' as defined under Section 65(68) of the Finance Act, 1994, which includes any service for recruitment or supply of manpower. This classification was upheld based on the express language and terms of the agreement, which clearly indicated the supply of manpower.2. Taxability of Reimbursement of Wages:The respondent argued that the reimbursement of wages paid to the seafarers should not be included in the taxable value as they acted as 'pure agents' of TIPL. However, the tribunal found that the respondent did not meet the criteria for a 'pure agent' as defined in the Service Tax (Determination of Value) Rules, 2006. The respondent held responsibility for the seafarers, including their conduct, payment, and termination, which contradicted the definition of a pure agent. Consequently, the tribunal held that the reimbursement of wages formed part of the gross amount charged for the service and was liable to service tax under Section 67(1)(i) of the Finance Act, 1994.3. Applicability of the Extended Period for Demand:The tribunal examined whether the extended period of five years for raising the demand under the proviso to Section 73(1) of the Finance Act, 1994, was applicable. The respondent had disclosed the amounts received as 'pure agent' in their ST-3 returns, indicating no intent to evade tax. Since there was no willful suppression of facts, the tribunal held that the extended period could not be invoked. Therefore, the demand for service tax was restricted to the normal period of one year from the relevant date.4. Imposition of Penalties under Sections 76 and 78 of the Finance Act, 1994:The tribunal considered the imposition of penalties under Sections 76 and 78. Penalty under Section 78 requires elements such as fraud, collusion, or willful suppression, which were not present in this case. Hence, the penalty under Section 78 was not imposed. However, penalty under Section 76, which applies for failure to pay service tax without requiring mens rea, was found applicable. The tribunal upheld the penalty under Section 76, as the respondent failed to pay the due service tax.Conclusion:The tribunal set aside the impugned order, holding that:1. The respondent's services were taxable under 'Manpower Recruitment or Supply Agency Service.'2. The reimbursement of wages was includible in the taxable value.3. The demand for service tax was restricted to the normal period of limitation.4. The respondent was liable to pay interest on the tax due and penalty under Section 76 of the Finance Act, 1994.5. The amounts received were to be treated as cum tax while determining the tax liability.Operative Part of the Order:The tribunal pronounced the operative part of the order on 8-3-2013, affirming the above conclusions.