Works contract classification and manpower supply limits led to unsustainable service tax demand, interest and penalties.

Services rendered along with supply and use of materials such as cement, barbed wire and structural steel were treated as works contract service, which entered service tax law only from 01.06.2007; the related demand under management, maintenance or repair service was therefore unsustainable. The manpower-related work order also did not fall within manpower recruitment or supply agency service because the manpower was hired for rendering service to the appellant itself, not recruited for the third party. As the principal demand failed on classification, the consequential interest and penalties also could not survive.

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Issues: Whether the services rendered with materials were classifiable under management, maintenance or repair service or manpower recruitment or supply agency service, and whether the resulting service tax demand, interest and penalties were sustainable.

Analysis: The appellant produced work orders showing that the services were executed along with supply and use of materials such as cement, barbed wire and structural steel. Services rendered along with materials were held to be appropriately classifiable as works contract service, which was introduced into service tax law only from 01.06.2007. For the manpower-related work order, the manpower was hired for rendering the service to the appellant itself and not recruited for M/s. NTPC, so the activity did not fall within manpower recruitment or supply agency service. As the demand itself failed, interest and penalties based on that demand also could not survive.

Conclusion: The service tax demand under the cited heads was unsustainable, and the consequential interest and penalties were also unsustainable.

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