2023 (12) TMI 79 - AT - Service Tax

Societies executing work orders on principal-to-principal basis not liable for service tax under Section 65(68) manpower supply provisions

CESTAT Kolkata held that respondent societies' services to HEC did not constitute 'Manpower Recruitment or Supply Agency service' under Section 65(68) ... Classification of services - Manpower Recruitment or Supply Agency’s service or not - executed various jobs entrusted to them in the plants of HEC, as per the Work Orders issued by HEC, on principal to principal basis - HELD THAT:- In order to fall within the definition of the term ‘Manpower Recruitment or Supply Agency’ service, the activity should be for providing any service directly or indirectly in any manner for recruitment or supply of man-power temporarily or otherwise to a client - A perusal of the Work Orders issued by HEC clearly reveals that the Respondent societies executed the jobs as the contractors by engaging the workers from their roll and it further reveals that the job was mentioned in terms of quantity and not based on number of workmen supplied or engaged. The rate was fixed per Ton basis. The agreements as per the Work Orders did not require or specify the number of workers to be employed and the number of days for which the workers would be engaged. It is for the respective Respondent societies to execute the jobs, specified in the Work Orders by deploying as many numbers of workers as per its convenience and discretion. The Principal Company HEC was interested only in the execution of the job entrusted to the Respondent societies at the agreed rates and also within the specified time frame. HEC as a responsible Public Sector Company, apart from making profit has the social obligation to ensure that the workers employed by the contractors in their factory are not subjected to any exploitation and they are paid their legitimate dues which they are entitled to appropriately and also in time. The wage bills of the workers are not only properly prepared as per Minimum Wages Act, but also paid and their CPF, ESI etc. are properly deducted and deposited to the respective authorities. This does not means that the man power supplied were under the rolls of HEC. Thus, it is observed that the service rendered by the Respondent would not fall within the ambit of “Manpower Recruitment & Supply Agency” as defined under Section 65(68) of the Act read with Section 65(105) (k). In the case of COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX VERSUS M/S. SHRI SAMARTH SEVABHAVI TRUST, M/S. AMRIT SANJIVANI SUGARCANE TRANSPORT CO. PVT. LTD., M/S. GODAVARI KHORE CANE TRANSPORT COMPANY (P) LTD. AND M/S. GANESH ARPIT SUGARCANE TRANSPORT PVT. LTD. [2015 (3) TMI 1170 - BOMBAY HIGH COURT], it has been held that Having regard to the nature of contract between the respondents and sugar factory and the scope of definitions mentioned above, it appears that the Appellate Tribunal has rightly come to the conclusion that the respondent’s work, though provided services to the sugar factory, did not come within the mischief of the term Manpower Recruitment or Supply Agency. By following the decisions cited above, it is held that the impugned order has rightly dropped the demands under Manpower Recruitment & Supply Agency service and hence the department's appeals are not sustainable. Appeal of Revenue dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the services rendered by the respondent societies in executing work orders on a job/tonnage basis, by deploying workers from their own rolls, fall within the definition of 'manpower recruitment or supply agency' under Section 65(68) of the Finance Act, 1994 and thus constitute a taxable service under Section 65(105)(k) of the Act. 2. Whether the absence of contractual stipulation as to the number of workers or days of engagement, and fixation of consideration by unit of work (per ton), precludes characterization of the contracts as person-based supply of manpower rather than job-based contracts for execution of works. 3. The relevance and applicability of precedents holding that execution of work by deploying manpower does not necessarily amount to 'manpower recruitment or supply agency' service. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of 'manpower recruitment or supply agency' and taxable service under Section 65(68) and Section 65(105)(k) Legal framework: Section 65(68) defines 'manpower recruitment or supply agency' as any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person. Section 65(105)(k) makes taxable any service provided by such an agency in relation to recruitment or supply of manpower. Precedent Treatment: The Tribunal relied on earlier authorities which interpreted similar fact patterns and held that where no supply of manpower to the principal is established, the activity does not fall within the statutory definition. Interpretation and reasoning: A plain reading requires an activity that provides recruitment or supply of manpower to the client. The Work Orders show contracts expressed in terms of quantities (per ton) with no contractual obligation as to specific numbers of workmen or period of engagement. The societies executed jobs as contractors using their own workforce on their rolls, exercising discretion on deployment to achieve the job-based deliverable. The principal's interest was completion of specified work at agreed rates and within time frames, not receipt of personnel as such. Ratio vs. Obiter: Ratio - where contracts are job-based and consideration is per unit of work, and there is no contractual supply of personnel to the principal, the activity is not within the definition of manpower recruitment or supply agency. Obiter - observations about the principal's social obligations (e.g., ensuring compliance with labour laws) are explanatory and not determinative of the statutory test. Conclusion: The services rendered do not fall within the 'manpower recruitment or supply agency' definition and are therefore not taxable under Section 65(105)(k). Issue 2 - Effect of contract terms (job-based/tonnage basis) and absence of specification of number/duration of workmen Legal framework: Contractual terms determine the nature of the service; a document must be read as a whole to ascertain the purport and object with which parties entered into the contract. Precedent Treatment: Authorities emphasize substance over nomenclature and hold that where the contract contemplates performance of work by the contractor's labour and fixes price by output, the contract is for execution of work and not supply of manpower. Interpretation and reasoning: The Work Orders fixed rates per ton and described intermittent jobs; they did not prescribe the number of workers or days of engagement. The contractors were free to deploy manpower at their discretion to meet deliverables. Thus, the essential character of the contract is execution of work (task-based), not supply of manpower (person-based). The principal's supervisory or regulatory concerns (e.g., ensuring payment of wages, statutory deductions) do not convert the arrangement into supply of manpower by the contractors. Ratio vs. Obiter: Ratio - contractual fixation by output and absence of personnel-supply stipulations indicate job-based contract, not manpower supply. Obiter - mention of principal's regulatory oversight to protect workers is ancillary to the contractual analysis. Conclusion: The contractual structure (per ton/payment by unit, no specification of workers) establishes a job-based contract and negates characterization as manpower supply. Issue 3 - Applicability of cited precedents and their treatment Legal framework: Prior decisions interpreting the statutory definitions guide the present analysis where factual matrix is comparable. Precedent Treatment: The Tribunal followed and relied on a line of decisions holding that activities involving execution of work by engaging labour from the contractor's roll, paid on output basis, do not constitute 'manpower recruitment or supply agency' services. Those precedents read the contract as a whole and emphasized absence of supply of manpower to the principal. Interpretation and reasoning: The present facts align with the precedents: no contractual supply of labour to the principal; performance measured by output; contractors' autonomy in deployment. The Tribunal found the precedents directly applicable and consistent with statutory language. Ratio vs. Obiter: Ratio - comparable precedents support that execution-of-work contracts by contractors using their own employees, measured by output, are not taxable as manpower supply services. Obiter - extrapolations in those cases about broader policy do not bind the factual ratio. Conclusion: The precedents are followed; they support rejecting the contention that the respondents provided taxable manpower recruitment or supply agency services. Overall Conclusion and Disposition Having applied the statutory definitions to the Work Orders and followed applicable precedents, the Court concluded that the services were job-based contracts executed by the societies using their own labour on their rolls, with payment by unit of work; therefore, the services do not fall within the definition of 'manpower recruitment or supply agency' under Section 65(68) read with Section 65(105)(k). Consequently, the demand of service tax under that category was not sustainable and the appeals by the department were rejected.