Manpower supply is not manufacture where labour merely supports production-related work; penalty waiver needs proven reasonable cause.

Mere supply of manpower for packing, cleaning, gardening and allied work does not amount to manufacture merely because the personnel assist production-related activities; the service remains within manpower recruitment or supply agency service and is liable to service tax. Penalty waiver under the reasonable cause provision is available only on proof of a genuine and sufficient cause for non-payment; a belated claim that the activity was manufacture was rejected as untenable on the facts, so the penalties were restored along with the tax demand.

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Issues: (i) Whether the supply of manpower to carry out packing, cleaning, gardening and allied work amounted to manufacture so as to fall outside the levy of service tax under manpower recruitment or supply agency service. (ii) Whether penalties under the service tax provisions could be waived by invoking reasonable cause.

Issue (i): Whether the supply of manpower to carry out packing, cleaning, gardening and allied work amounted to manufacture so as to fall outside the levy of service tax under manpower recruitment or supply agency service.

Analysis: The agreement and the surrounding records showed that the respondent was engaged only in supplying manpower. The work performed by the supplied personnel for the service recipient did not change the character of the service rendered by the provider. Manufacture requires a process having a direct and integral connection with production of a commercially different article, whereas mere supply of labour, even for tasks connected with production activities, does not become manufacture. The nature of the activity remained that of providing manpower within the statutory definition of manpower recruitment or supply agency service.

Conclusion: The activity was taxable as manpower recruitment or supply agency service and did not fall within manufacture.

Issue (ii): Whether penalties under the service tax provisions could be waived by invoking reasonable cause.

Analysis: Section 80 permitted waiver only where the assessee established reasonable cause for the failure. The explanation that the service was wrongly treated as manufacture was found to be untenable and afterthought in the facts of the case. No sufficient reasonable cause was shown to justify non-payment of service tax, and the authorities below erred in setting aside the penalties.

Conclusion: Penalty waiver under the reasonable cause provision was not available, and the penalties were liable to stand.

Final Conclusion: The order of the Tribunal and the appellate authority was set aside, and the adjudicating authority's demand and penalties were restored.

Ratio Decidendi: Mere supply of manpower does not become manufacture merely because the supplied personnel perform work connected with production, and penalty waiver is available only on proof of reasonable cause.

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