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

M/s. Utkal Engineering Works Versus Commissioner of Central Excise, Customs & Service Tax, Bhubaneswar-I

M/s. Utkal Engineering Works Versus Commissioner of Central Excise, Customs & Service Tax, Bhubaneswar-I - TMI 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.