Tribunal overturns service tax liability on construction and manpower services, citing non-commercial purpose

The Tribunal set aside the order confirming substantial service tax liability on 'works contract service' for construction activity related to the Commonwealth Games-2010, ruling the construction was not for commercial purposes. Additionally, the Tribunal ruled in favor of the appellant regarding service tax liability on manpower services provided to a group company, finding that deputing employees did not constitute manpower supply services. As a result, the service tax liabilities on both issues were deemed legally unsustainable, and the appeal was allowed.

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Issues involved:
1. Service tax liability under 'works contract service' for construction activity.
2. Service tax liability on manpower services provided to a group company.

Analysis:

Issue 1: Service tax liability under 'works contract service' for construction activity
The appellant entered into an agreement with the Municipal Corporation of Delhi for constructing parking facilities for the Commonwealth Games-2010. The Revenue claimed service tax liability for the period 2007-08 to 2011-12. The original authority confirmed a substantial service tax liability along with penalties. The appellant contended that the construction was solely for the Commonwealth Games and not for commercial purposes, thus not falling under 'works contract service.' The Tribunal noted that the facility was used for the games and later for public purposes, not commercial or industrial activities. The order erred in presuming commercial usage, leading to an incorrect tax liability under 'works contract service.' The Tribunal found the impugned order legally unsustainable and set it aside, allowing the appeal.

Issue 2: Service tax liability on manpower services provided to a group company
The appellant deputed some employees to a subsidiary company, with expenses reimbursed by the subsidiary. The appellant argued they were not a manpower supply service industry and cited precedents to support their stance. The Revenue claimed tax liability, alleging no employer-employee relationship between the deputed employees and the appellant. The Tribunal found that the appellant controlled the deputed employees, received only actual cost reimbursement, and was not in the business of manpower recruitment. Relying on legal precedents, the Tribunal ruled in favor of the appellant, stating that deputing employees to a group company did not constitute manpower supply services. Consequently, the service tax liability on this issue was deemed unsustainable, and the impugned order was set aside, allowing the appeal.

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