2025 (9) TMI 933 - AT - Service Tax

Manpower recruitment supply service: service recipient liable for 100% service tax under N/N.30/2012 as amended by N/N.07/2015

CESTAT held that the appellant supplied labour constituting 'manpower recruitment or supply agency service.' Following N/N.30/2012 as amended by ... Liability to pay service tax - manpower supply service - services tax liability has been enhanced to ‘100%’ vide N/N. 07/2015-S.T. dated 01.03.2015 - HELD THAT:- It is found that the ld. adjudicating authority has not classified the said services under any particular category of service. However, from the evidences available on record, it is found that the appellant has supplied labour, which is liable to be classified as ‘manpower recruitment or supply agency service’ - by virtue of N/N. 30/2012, as amended vide N/N. 07/2015 ibid., the 100% liability to Service Tax in respect of 'manpower supply service' for the period under dispute i.e., 2015-16 to 2017-18, is on the service recipient. Thus, the submission of the appellant is agreed upon that the demand of Service Tax from the appellant is not sustainable. The demand of Service Tax from the appellant as confirmed in the impugned order is not sustainable and consequently, the same is set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED Whether amounts received by the appellant labelled as 'labour charges' and reflected in Income Tax returns constitute taxable consideration for 'manpower recruitment or supply agency service' attracting Service Tax. Whether, for the period 2015-16 to 2017-18, the statutory notifications governing 'manpower supply service' place the entire (100%) Service Tax liability on the service recipient, thereby absolving the service provider from Service Tax liability. Whether reliance on Income Tax filings and related TDS/26AS statements by the Revenue is sufficient to sustain a demand of Service Tax against the party that provided manpower. Whether the lower authorities' demand of Service Tax against the appellant is sustainable in law in light of the classification of services and applicable notifications. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification of the services rendered (manpower supply vs. other services) Legal framework: Taxability depends on whether the activity falls within the description of services provided 'by way of supply of manpower for any purpose' as contemplated by the service tax statute and related notifications. Precedent Treatment: The Tribunal has in prior decisions treated supplies of labour in equivalent factual matrices as falling within 'manpower recruitment or supply agency service.' Interpretation and reasoning: The material on record (Balance Sheet entries under 'labour charges' and Income Tax returns) establishes that the appellant supplied labour and received payment therefor. The adjudicating authority did not classify the service under a particular head, but the evidence supports classification as manpower supply service. Ratio vs. Obiter: The determination that the appellant's activity constitutes 'manpower supply service' is central to the decision and constitutes ratio. Conclusion: The services rendered are properly classified as 'manpower recruitment or supply agency service.' Issue 2 - Effect of Notification No. 30/2012 and Notification No. 07/2015 on incidence of Service Tax Legal framework: Notification No. 30/2012 set out apportionment of service tax liability between provider and recipient for specified services (initially 25%/75% for manpower supply). Notification No. 07/2015 amended the table to substitute 'Nil' and '100%' for the relevant entries effective for the notified period, thereby vesting 100% liability on the person liable other than the service provider (i.e., the service recipient) from 1-4-2015 (operative by amendment effective 1-3-2015). Precedent Treatment: Decisions of Tribunals in analogous fact situations have applied the amended notification to hold that the service recipient bears 100% liability for manpower supply services in the relevant period. Interpretation and reasoning: For the period under dispute (2015-16 to 2017-18), the Notifications, as amended, place the entire Service Tax burden on the service recipient. Therefore, where the appellant is the provider of manpower, the statutory scheme shifts the liability away from the appellant to the recipient. The Court accepts the appellant's submission that, on this statutory basis, demand of Service Tax from the provider is not sustainable. Ratio vs. Obiter: The conclusion that the notification amendment removes provider liability and casts 100% liability on the recipient for the period in question is central and constitutes ratio. Conclusion: The amended notifications render the service provider not liable to Service Tax on manpower supply for the period under dispute; the statutory incidence rests with the service recipient. Issue 3 - Evidentiary value of Income Tax filings/TDS/26AS for imposing Service Tax demand Legal framework: Value for Service Tax must be determined under service tax law; reliance on filings or consolidated tax statements under the Income-tax Act (e.g., Form 26AS/TDS statements) is not determinative of Service Tax liability. Precedent Treatment: Earlier tribunal pronouncements have observed that a TDS/26AS statement is an income-tax return consolidation and cannot, by itself, fix the value of taxable services or be the sole basis for a service tax demand. Interpretation and reasoning: While the Revenue used information from Income Tax returns to initiate action, the Tribunal recognises that Income Tax and Service Tax operate under separate statutes and that Form 26AS/TDS cannot alone constitute the value of taxable services for Service Tax demand. However, in the present case, reliance on Income Tax filings merely revealed the existence of payments for labour; the determinative factor remains the statutory allocation of tax incidence by notification. Ratio vs. Obiter: The observation that Form 26AS/TDS is not sufficient by itself to fix Service Tax liability is consistent with prior Tribunal authority and treated as a supporting ratio, but in this case it plays a subsidiary role because the notification itself is dispositive. Conclusion: Income Tax return entries and TDS/26AS statements are insufficient in themselves to sustain a Service Tax demand against the manpower provider; they may only supply information but cannot supplant statutory incidence rules. Issue 4 - Validity of the demand confirmed by lower authorities and appellate outcome Legal framework: The correctness of a confirmed demand must be tested against proper service classification and the statutory incidence as per applicable notifications for the period in question. Precedent Treatment: Tribunals have set aside demands where the statutory incidence, by way of notification amendment, places liability on the recipient and not on the provider. Interpretation and reasoning: Applying the classification (Issue 1) and the notifications (Issue 2), the Tribunal finds that the confirmation of Service Tax demand against the appellant (provider) is not sustainable for the period 2015-16 to 2017-18. The Tribunal also notes that reliance on Income Tax filings does not remedy the statutory misallocation of liability. Ratio vs. Obiter: The setting aside of the demand on the ground that the notification shifts liability to the recipient is the operative ratio of the decision. Conclusion: The demand of Service Tax as confirmed by the lower authorities against the appellant is unsustainable and is set aside; the appeal is allowed with consequential reliefs as per law.