2025 (10) TMI 729 - AT - Service Tax

Appeal partly allowed: service tax not leviable on manpower recruitment or exam fees; miscellaneous receipts taxed, selective penalties altered

CESTAT DELHI - AT allowed the appeal in part. It held that service tax could not be levied on manpower recruitment/supply services because no ... Levy of service tax - Manpower recruitment or supply agency service - amount charged from, organizations as well as from the candidates as examination fees against the service so provided - Section 66B of the Finance Act, 1994 - Misc. Receipts/Recoveries - Rent from Residential Quarters/Post Office & Bank - invocation of extended period of limitation - penalties. Levy of service tax - Manpower recruitment or supply agency service - amount charged from, organizations as well as from the candidates as examination fees against the service so provided - Section 66B of the Finance Act, 1994 - HELD THAT:- The law in respect of the levy of the service tax is well settled. There are certain essential ingredient that need to examined and fulfilled before the service tax could have been levied on these activities. Undisputedly appellant has taken the stand before the original authority as evident from the letter of “Financial Controller” reproduced in the impugned order that they have not received any amounts from the state government departments top wards any services provided by them towards the recruitment of the manpower. Hon’ble Madras High Court has in the case of Wunderbar Films Private Limited [2024 (3) TMI 17 - MADRAS HIGH COURT] observed that 'The question as to whether a particular transaction would attract the levy of Service Tax as constituting a taxable service within the meaning of 65 (105) (zzzzt) prior to 01.07.2012 or Section 66B read with Section 65B(44) and Section 66E(c) w.e.f. 01.07.2012 ought to be determined on the basis of the contracts entered into between the service provider and the recipient. One cannot generalize the transactions nor determine the liability without examining the contracts individually for the rights/ obligations flowing therefrom may vary from contract to contract.' In absence of any identification of the contract for the provision of service for a consideration between the appellant and the service recipient, departments of the state government against a consideration we are unable to understand how can it be said that the ingredients as spelt out by Section 65 B (44) of the Finance Act, 1994 can be satisfied. Appellant have claimed that the Examination Fees have been collected from the students/ persons who intended to the take the examination conducted by them for recruitment towards various vacancies to be filed by those departments of the state government. The appellant had not collected any amounts from the state government departments for provision of any service to but have only collected the fees from candidates which in no terms can be considered as “consideration‟ for providing the service. All the expenses incurred by the appellant for conduct of examination and listed in the impugned order are recovered by the appellant while fixing the examination fees recovered from the candidates. Hence there are no consideration has been recovered by the appellant from the state government departments for rendering these services. Impugned order records that services provided by the appellant are in nature of manpower recruitment services to the state government departments. Even if it is held that the findings recorded in the impugned order are too accepted, then also the service tax could not have been demanded from the appellant as the consideration received against the provision of these services from the service recipient is nil. The examination fees collected from the candidates appearing for the examination being conducted by the appellant cannot be considered as consideration for supply of manpower recruitment and supply services to the state government departments - there are no merits in the demand made on this account under this category and set aside the same. Levy of service tax - Misc. Receipts/Recoveries - Rent from Residential Quarters/Post Office & Bank - HELD THAT:- The appellant have not contested the demand, either before the adjudicating authority or in the submissions made before us. Impugned order records the findings in this respect and also the reasons for invoking the extended period of limitation for making the demand. Thus the demand of service tax (inclusive of cess) along with the interest and penalties (Section 78) imposed in respect of these categories of receipt upheld. Invocation of extended period of limitation - penalties - HELD THAT:- Since impugned order itself concludes in the favour of invocation of extended period of limitation for making the demand the penalties under Section 76 cannot be justified. The penalties have been imposed under Section 77 (1) and 77 (2) for not obtaining the registration and for not filing the ST3 returns. It is found that enough justification in the penalties imposed under these two sections in view of decision of Hon’ble Supreme Court in case of Gujarat Travancore Agency [1989 (5) TMI 1 - SUPREME COURT] wherein it was held that 'A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.' Appeal allowed in part. Issues: (i) Whether examination fees charged by the appellant for conducting recruitment examinations constitute taxable 'manpower recruitment or supply agency' services for the period 14.03.2016 to 30.06.2017; (ii) Whether amounts received under 'Misc. Receipts/Recoveries' and 'Rent from Resi. Qrts Post Office & Bank' are taxable and liable to service tax, interest and penalties; (iii) Whether extended period under proviso to Section 73(1) and penalties under Sections 76, 77(1), 77(2) and 78 of the Finance Act, 1994 are invokable.Issue (i): Whether examination fees collected from candidates amount to consideration for services provided to State Government departments so as to attract service tax as manpower recruitment/supply services.Analysis: Determination of levy requires identification of a contract between service provider and service recipient, clear identification of service recipient, and consideration flowing from recipient to provider. The appellant collected fees from candidates pursuant to statutory fee-fixation parameters which recover various costs of conducting examinations; no amounts were shown to have been received from State departments as consideration for services to them. Precedents and statutory definitions require a value/consideration in favor of the service provider from the service recipient for service-tax liability to arise.Conclusion: Examination fees collected from candidates do not constitute consideration received from State Government departments for manpower recruitment services; demand of service tax on this category is set aside. (In favour of Appellant)Issue (ii): Whether amounts under 'Misc. Receipts/Recoveries' and 'Rent from Resi. Qrts Post Office & Bank' are taxable and liable to service tax, interest and penalties.Analysis: The appellant did not provide particulars or bifurcation of amounts in these heads; renting of immovable property is a declared taxable service and unexplained miscellaneous receipts were treated as part of the main taxable activity. Tax liability was computed on gross receipts under these heads for the period in dispute, and the appellant did not contest these demands before the adjudicating authority or on appeal in respect of these two categories.Conclusion: Demand of service tax (including cesses), interest and penalties in respect of 'Misc. Receipts/Recoveries' and 'Rent from Resi. Qrts Post Office & Bank' is confirmed. (In favour of Revenue)Issue (iii): Whether extended period under proviso to Section 73(1) and penalties under Sections 76, 77(1), 77(2) and 78 are properly invoked/levied.Analysis: Extended period was invoked on findings of deliberate suppression of material facts and non-disclosure of taxable receipts discovered during investigation; failure to obtain registration and file returns supports penalties under Sections 77(1) and 77(2). Penalty under Section 78 for suppression/concealment was applied where evasion was found. However, penalties under Section 76 (penalty for failure to pay service tax) are not justified where extended period invocation and specific findings do not support that separate basis.Conclusion: Extended period under proviso to Section 73(1) and penalties under Sections 77(1), 77(2) and 78 are sustainable as applicable to the contested categories; penalty under Section 76 is not justified and is set aside. (Mixed: partly in favour of Appellant on Section 76; partly in favour of Revenue on Sections 77 and 78)Final Conclusion: The appeal is partially allowed: demand, interest and penalties in respect of receipts categorized as 'Misc. Receipts/Recoveries' and 'Rent from Resi. Qrts Post Office & Bank' are upheld; demand in respect of examination fees treated as manpower recruitment service is set aside; penalty under Section 76 is quashed while penalties under Sections 77(1), 77(2) and 78 are sustained where applicable.Ratio Decidendi: For service tax to be levied the existence of a service contract, identification of the service recipient, and receipt of consideration by the service provider from that recipient are essential; absence of consideration from the alleged service recipient (State departments) means fees collected from candidates cannot be treated as consideration for taxable manpower recruitment services.