2024 (6) TMI 301 - AT - Service Tax

Manufacturing operations for client qualify as business auxiliary service exempt under Notification 8/2005-ST, not manpower recruitment

CESTAT Kolkata held that appellant's manufacturing operations for client did not constitute manpower recruitment service but qualified as business ... Classification of services - manpower recruitment or supply agency service or not - activity of 'processing and manufacturing' for the client viz. M/s. Jindal Stainless Steel Ltd. - Demand arisen due to non-consideration of the gross amount received as inclusive of tax - Demand of service tax arisen due to disallowance of rectification of accounting mistake - Demand of service tax on the services rendered by the Appellant as a sub-contractor and other miscellaneous issues - Services of erection, commissioning and installation - abatement claim - Demand of service tax pertaining to accounting error - Demand restricted for the period after 23.08.2007 - penalty. Classification of services - manpower recruitment or supply agency service or not - activity of 'processing and manufacturing' for the client viz. M/s. Jindal Stainless Steel Ltd. - HELD THAT:- It is observed that the appellant has to perform the operation of the plant and machineries for processing of raw materials and manufacture of the resultant excisable product i.e. Ferro Chrome and Ferro Manganese. The labour force deployed by the Appellant worked under the direct control and supervision of the Appellant and not under M/s Jindal Steel Limited (JSL). It is very clear that the responsibility of the Appellant under the contract is to operate the plant and machineries for manufacture finished product out of the raw materials belonging to M/s. Jindal Stainless Limited. Thus, the activity performed by the appellant does not qualify as “manpower recruitment or supply agency service”. The appellant has been paid @ Rs.5.50 per MT. Thus, the consideration paid to the Appellant was on tonnage basis and not on the basis of manpower deployed - the activity performed by the appellant can be categorized as business auxiliary service for the processing / manufacturing of goods for M/s. Jindal Stainless Limited, which is outside the purview of Service tax in terms of Notification No. 8/2005-ST dated 01.03.2005. Accordingly, the demand of service tax confirmed in the impugned order under the category of “manpower recruitment or supply agency service' is not sustainable and hence, the same is set aside. Demand arisen due to non-consideration of the gross amount received as inclusive of tax - HELD THAT:- Since the activities undertaken by the appellant have been held to be not liable for service tax, the question of levy and collection of Service tax on the gross amount as inclusive of service tax does not arise. Accordingly, the demand of service tax confirmed without extending cum-tax benefit also would not survive. Hence, the demand of Rs.10.77 Lakhs confirmed in the impugned order on this count, is set aside. Demand of service tax of Rs. 10.65 lakhs arisen due to disallowance of rectification of accounting mistake - HELD THAT:- M/s. Srikanta & Associates have not specifically clarified with evidence as to on what account the differential amount of Rs.89,54,364/- was incorrectly shown in the P&L account prepared by M/s. Parida Mohanty & Associates. It is observed that the appellant need to clarify this point and for this purpose, the issue is remanded back to the adjudicating authority. The appellant should submit all the documentary evidence available with them within a period of one month from the date of receipt of this Order. Thereafter, the adjudicating authority shall decide the issue within a period of three months, after giving opportunity to the appellant to clarify the issue. Demand of service tax of Rs. 5.97 lakhs, on the services rendered by the Appellant as a sub-contractor and other miscellaneous issues - HELD THAT:- Board vide Circular No. 96/7/2007-ST dated 23.08.2007 clarified that for the services provided, sub-contractors are liable to pay service tax even if the main contractor discharges service tax on the gross value. However, it is observed that the said Circular, being oppressive in nature for the subcontractor, could only have prospective effect - the appellant, as a sub-contractor, is liable to pay service tax only with effect from 23.08.2007. Accordingly, the demand confirmed in the impugned Order on this count is restricted to the period after 23.08.2007 and the demand, if any, for the period prior to 23.08.2007, is set aside. Services of erection, commissioning and installation - abatement claim - HELD THAT:- The appellant has not furnished any break up figures towards this service rendered. Also, no evidence has been submitted regarding supply of materials for claiming the abatement as provided under Notification No. 01/2006-ST. Therefore, for the purpose of quantification of duty liability as a subcontractor and under erection, commissioning and installation, the matter is remanded back to the adjudicating authority. Demand of service tax pertaining to accounting error - HELD THAT:- There is no suppression of fact with intention to evade payment of tax established on this count. Accordingly, no penalty imposable on the appellant on this amount and accordingly, the penalty imposed in this regard on the appellant in the impugned order is set aside. Demand restricted for the period after 23.08.2007 - HELD THAT:- The demand of service tax of Rs. 5.97 lakhs confirmed in the impugned order is restricted for the period after 23.08.2007 and the demand, if any, for the period prior to 23.08.2007, is set aside. However, for the purpose of quantification of duty liability as a sub-contractor and under erection, commissioning and installation, the matter is remanded back to the adjudicating authority. Penalty - HELD THAT:- Since the demands of service tax of Rs.53.54 lakhs and Rs.10.77 lakhs set aside, demanding interest or penalty on these amounts does not arise. Appeal disposed off. Issues Involved:1. Classification of processing and manufacturing activity as manpower supply service.2. Non-consideration of gross receipts as cum-tax amount.3. Disallowance of rectification of accounting mistake.4. Levy of service tax on services rendered as a sub-contractor and other miscellaneous issues.5. Imposition of penalty.Summary:1. Classification of Processing and Manufacturing Activity as Manpower Supply Service:The appellant contested the demand of service tax of Rs. 53.54 lakhs by arguing that their services to M/s. Jindal Stainless Limited were not classifiable as manpower recruitment and supply service. They emphasized that the contract was for operating the plant and machinery for processing raw materials and manufacturing finished products, not for supplying manpower. The Tribunal observed that the appellant's activities were indeed for processing and manufacturing, not manpower supply, and thus, the demand under 'manpower recruitment or supply agency service' was set aside.2. Non-Consideration of Gross Receipts as Cum-Tax Amount:The appellant argued that the demand of Rs. 10.77 lakhs arose due to the non-consideration of gross receipts as inclusive of tax. Since their activities were outside the service tax levy, the Tribunal held that the demand without extending cum-tax benefit was not sustainable and set it aside.3. Disallowance of Rectification of Accounting Mistake:The demand of Rs. 10.65 lakhs was due to an alleged accounting mistake. The appellant provided evidence that certain receipts were considered twice, leading to an inflated figure. The Tribunal remanded the issue back to the adjudicating authority for reconsideration, instructing the appellant to submit all relevant documentary evidence.4. Levy of Service Tax on Services Rendered as a Sub-Contractor and Other Miscellaneous Issues:The appellant contested the demand of Rs. 5.97 lakhs, arguing that the Board's Circular No. 96/7/2007-ST dated 23.08.2007, which clarified the liability of sub-contractors, should have only prospective effect. The Tribunal agreed, restricting the demand to the period after 23.08.2007 and remanded the matter back to the adjudicating authority for quantification of duty liability.5. Imposition of Penalty:Given the setting aside of major demands and the interpretational nature of the issues, the Tribunal held that no penalty was imposable on the appellant. The penalties related to the demands of Rs. 53.54 lakhs, Rs. 10.77 lakhs, and Rs. 10.65 lakhs were set aside. For the demand of Rs. 5.97 lakhs, the Tribunal noted that no mens rea was established, thus no penalty was warranted.Order:(i) The demand of Rs. 53.54 lakhs under 'manpower recruitment or supply agency service' is set aside.(ii) The demand of Rs. 10.77 lakhs without cum-tax benefit is set aside.(iii) The demand of Rs. 10.65 lakhs is remanded back for reconsideration.(iv) The demand of Rs. 5.97 lakhs is restricted to the period after 23.08.2007 and remanded back for quantification.(v) The penalty imposed on the appellant is set aside.The appeal was disposed of with consequential relief as per law.