Manpower supply service tax fails where workers are paid directly and no consideration is received

Service tax was held inapplicable where workers' wages and salaries were paid directly by the beneficiary factories and the respondent received no consideration. The Tribunal applied its earlier view on a similar tripartite arrangement under the SARFAESI framework and found that, without payment for supplying manpower, the essential ingredient of manpower recruitment or supply agency service was absent. On that basis, the demand was not sustainable and the order dropping it was maintained.

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Issues: Whether service tax was payable on the amount alleged to be payable by the beneficiary factories where the respondent's employees continued to be paid wages and salaries directly, so as to constitute manpower recruitment or supply agency services.

Analysis: The Tribunal noted that an identical fact situation had already been decided in earlier decisions involving a tripartite arrangement entered into by a bank after taking over the factory under the SARFAESI regime. On the same reasoning, it held that the respondent did not provide manpower supply in return for any consideration. Since the wages and salaries were paid directly to the workers and no consideration was received by the respondent, the essential element for levy of service tax was absent.

Conclusion: Service tax was not payable on the alleged deemed consideration. The order dropping the demand was upheld and the Revenue's appeal failed.

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