Job work contract versus manpower supply: output-based supervision led to reclassification and fresh demand quantification.

Service tax, interest and penalties were upheld for the manpower supply services rendered to three entities because taxability was undisputed and the collected tax had not been deposited. For the KLL arrangement, payment was linked to units of work done at KLL's premises, with workers remaining under the contractor's supervision; this was treated as a job work contract, not manpower recruitment or supply agency service. The demand on that activity was therefore set aside on classification and the matter was remanded for fresh quantification of the correct liability.

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Issues: (i) Whether the service rendered to three entities, admittedly involving supply of manpower and non-payment of service tax, was liable to service tax with interest and penalties; (ii) Whether the activity carried out for KLL was manpower recruitment or supply agency service or a lump sum job work contract, and whether the demand required reworking.

Issue (i): Whether the service rendered to three entities, admittedly involving supply of manpower and non-payment of service tax, was liable to service tax with interest and penalties.

Analysis: The liability in respect of the services rendered to the three entities was not disputed. The service tax had been collected from customers but not deposited, and the appellants did not contest the taxability of those services in appeal.

Conclusion: The service tax demand, interest, and penalties relating to the services rendered to the three entities were upheld.

Issue (ii): Whether the activity carried out for KLL was manpower recruitment or supply agency service or a lump sum job work contract, and whether the demand required reworking.

Analysis: The agreement with KLL showed payment on a per-unit basis for work done in KLL's premises, without any restriction on the number of workers to be deployed. The workforce remained under the appellant's supervision and the arrangement was found to be a job work contract rather than supply of manpower. The demand had also been computed on an incorrect basis, requiring reworking of the exact liability.

Conclusion: The demand on the KLL activity was set aside as manpower recruitment or supply agency service and the matter was remanded for reworking of the exact demand.

Final Conclusion: The order sustained the tax, interest, and penalty on the undisputed manpower supply services while disallowing the classification adopted for the KLL activity and directing fresh quantification.

Ratio Decidendi: A contract remunerated on the basis of output or units produced, where workers remain under the contractor's supervision, is a job work arrangement and not manpower recruitment or supply agency service.

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