2010 (3) TMI 516 - AT - Service Tax

Tribunal rules in favor of appellant, classifying services as IT not manpower supply

The tribunal concluded that the services provided by the appellant were classified as information technology services rather than manpower supply, ... Manpower Recruitment or supply agency's services - Assessee entered into a biometric service agreement with pharmaceutical company in connection with Pfizer sponsored clinical studies on project specific basis. Work force was required to work under a project manager appointed by assessee. Pfizer had to provide assistance in selecting and recruiting suitable personnal. In second stage of project, assessee would be providing functional service to Pfizer relating to data management, bio-statistics etc. Held that - mere assistance of Pfizer in recruitment and imparting of specialized training for recruited personal could not be held against assessee's claim. Moreover, service required to be provided by assessee was in nature of information technology services as same related to data management and consequently assessee was not liable to pay service tax in respect of services provided by it to Pfizer under impugned contract. Issues Involved:1. Classification of services rendered by the appellant.2. Determination of whether the services fall under 'Consulting Engineer' or 'Manpower Supply'.3. Eligibility for small scale exemption for services provided to SAP Labs India Pvt. Ltd.4. Assessment of penalties under sections 76 and 78 of the Finance Act, 1994.Issue-wise Detailed Analysis:1. Classification of Services Rendered by the Appellant:The primary issue revolves around the classification of the services provided by the appellant to Pfizer Pharmaceuticals (India) Private Limited. The appellant argues that the services rendered are in the nature of 'information technology services', which were not taxable during the relevant period. The appellant contends that the services involved data management, biostatistics, and reporting, which are integral to information technology services. The Department, however, argues that the services fall under 'Manpower Supply' as the appellant recruited and provided staff to Pfizer based on their requirements. The tribunal noted that the work force recruited and retained by the appellant worked under the appellant's management and were responsible for project management, thus supporting the appellant's claim that the services were not merely manpower supply but involved specialized IT services.2. Determination of Whether the Services Fall Under 'Consulting Engineer' or 'Manpower Supply':The appellant contends that the services should be classified under 'Consulting Engineer' rather than 'Manpower Supply'. The tribunal examined the contractual obligations and found that the services provided were not limited to supplying manpower but involved delivering specific IT services, including data management and biostatistics. The tribunal emphasized that the employees recruited by the appellant were retained and managed by them, and the services were rendered under the appellant's supervision, which aligns more with 'Consulting Engineer' services rather than 'Manpower Supply'.3. Eligibility for Small Scale Exemption for Services Provided to SAP Labs India Pvt. Ltd.:The appellant argued that if their primary service to Pfizer is considered exempt, the small amount received for providing 'commercial training service' to SAP Labs India Pvt. Ltd. would fall under the small scale exemption limit of Rs. 4 lakhs. The tribunal agreed with this argument, noting that the value of services provided to SAP Labs was below the exemption limit, making the appellant eligible for the small scale exemption.4. Assessment of Penalties Under Sections 76 and 78 of the Finance Act, 1994:The appellant did not press the appeal regarding the question of limitation but argued against the imposition of penalties under sections 76 and 78 of the Finance Act, 1994, on the grounds of bona fide belief that their services did not attract service tax. Given the tribunal's decision that the services rendered were not taxable under 'Manpower Supply', the question of penalties became moot. The tribunal set aside the impugned order, thereby nullifying any penalties imposed.Conclusion:The tribunal concluded that the services provided by the appellant to Pfizer were in the nature of information technology services and not manpower supply. Consequently, the appellant was not liable to pay service tax for the services rendered to Pfizer. Additionally, the appellant was eligible for the small scale exemption for services provided to SAP Labs India Pvt. Ltd. The tribunal set aside the impugned order and allowed the appeal, thereby nullifying any penalties imposed under sections 76 and 78 of the Finance Act, 1994.