CESTAT rules no service tax pre-June 2005 for labor supply not as manpower agency

The Appellate Tribunal CESTAT, New Delhi, ruled that the supply of manpower services by the appellants before 16.6.2005 did not attract service tax liability. The Tribunal found that the appellants were supplying their own labor on a contract basis and billing clients for their salary and allowances, not falling under the category of a manpower recruitment agency. As a result, the appeals were allowed, granting the appellants relief from service tax demands and penalties for the disputed period ranging from January 2002 to December 2005.

---

---

Issues: Determination of liability for service tax on supply of manpower services prior to and after 16.6.2005.

In the case before the Appellate Tribunal CESTAT, New Delhi, the issue revolved around the liability for service tax on the supply of manpower services by the appellants to different industries on a contract basis. The original authority considered the appellants as providing services of a 'Manpower Recruitment Agency' and imposed service tax demands and penalties. The Commissioner (Appeals) upheld these orders. The appellants argued that service tax was only applicable on manpower recruitment services from 16.6.2005 onwards, while the disputed period in these cases ranged from January 2002 to December 2005.

The Tribunal analyzed the statutory definitions of manpower recruitment services before and after 16.6.2005. Prior to 16.6.2005, the definition referred to a 'manpower recruitment agency' engaged in providing recruitment services to a client. Post 16.6.2005, the definition expanded to include 'manpower recruitment or supply agency' engaged in providing manpower recruitment or supply services to a client, temporarily or otherwise. The Tribunal also referred to a circular clarifying that service tax was leviable on temporary supply of manpower by recruitment or supply agencies post 16.6.2005.

After careful consideration, the Tribunal concluded that supply of manpower was not covered under service tax prior to 16.6.2005. It was noted that the appellants were supplying their own labor on a contract basis and billing the client for their salary and allowances. Therefore, the Tribunal held that the appellants were not liable to pay service tax under the category of a manpower recruitment agency for the disputed period. Consequently, the appeals were allowed, providing the appellants with consequential relief.

---