2026 (2) TMI 1343 - AT - Service Tax

Reverse Charge Liability: recipient bears tax on manpower supply; extended limitation unsustainable where prior audit put Department on notice.

Classification: agreements, invoices and deployment records show personnel supplied and working under recipient control, so the service is manpower ... Manpower recruitment or supply agency service - supply of manpower - reverse charge mechanism - reverse charge liability on recipient for supply of manpower by individual/partnership to a body corporate under Rule 2(1)(d)(i) of the Service Tax Rules, 1994 - extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 - penalty under Section 78 of the Finance Act, 1994 - Manpower recruitment or supply agency service - HELD THAT:- A perusal of the invoices raised by the appellant on M/s. RailTel indicates that the charges have been raised for “Providing Manpower on Outsourcing Basis at various establishments and premises of RailTel”. With effect from 01.07.2012, no specific categorization of service is required, with the introduction of the comprehensive Service Tax regime; “supply of manpower” has thus been defined under Rule 2(1)(g) of the Service Tax Rules, 1994 As per Rule 2(1)(d)(i) of the Service Tax Rules, 1994, the Service Tax liability on 'supply of manpower' by any individual or partnership firm, to a business entity registered as a ‘body corporate’ is on the recipient of service. We find that the Scope of Work and Terms and conditions of the agreement/s conform to the definition of 'manpower supply service’ as defined. Hence, we hold that the services rendered by the appellant in this case are appropriately classifiable under the category of manpower recruitment or supply agency service. Extended period of limitation - HELD THAT:- It is evident that the issue of rendering of service to M/s. Northern Railway Authority and M/s. IRCTCL was known to the Department at the time of the first audit. Even after raising of the issue and issue of the Audit Memo vide letter dated 18.12.2015, no demand was raised. Thus, we are of the view that the issue of the Show Cause Notice in this case by invoking the extended period of limitation, after the second audit on the same issue, is legally not sustainable. Consequently, we hold that the demand confirmed in the impugned order by invocation of the extended period of limitation is not sustainable and thus, set aside the same. Demand raised for the normal period - reverse charge mechanism - HELD THAT:- A perusal of the agreement and other documents submitted by the appellant indicates that the services rendered by the appellant squarely fall within the ambit of ‘manpower supply service’. The appellant has also placed on record a work-sheet showing the details of manpower supply service rendered by them during the period from 01.04.2016 to 31.03.2017, to M/s. RailTel. We find that the demand pertains only to services rendered to M/s. RailTel, and not to M/s. IRCTCL / M/s. Northern Railway Authority, as evidenced by the list of invoices produced by the appellant in support of their claim. As per the amended Notification No. 7/2015-ST dated 31.03.2015, in respect of ‘manpower supply service’, 100% Service Tax liability is cast on the recipient of service, under reverse charge mechanism, for this period. M/s. RailTel qualifies as a ‘body corporate’ and the appellant as a proprietorship firm. Thus, we agree with the submission of the appellant that there is no liability to Service Tax on them as regards the services rendered by the appellant to M/s. RailTel, under the category of ‘manpower supply service’ and that the liability therefor, if any, lies on the service recipient, under reverse charge mechanism. As per the submission made by the appellant, during this period, the appellant have not rendered any services to M/s. Northern Railway Authority and to substantiate their claim, they have relied on the invoices raised on M/s. RailTel during the concerned period, which have been duly placed on record. Having gone through the records placed before us as well as the submissions made, we hold that the entire liability to Service Tax for the normal period of limitation in respect of the services rendered by the appellant to M/s. RailTel, is on the recipient of service i.e., M/s. RailTel, in this case. Imposition of penalty under Section 78 - HELD THAT:- It has been submitted that the appellant had already declared supply of manpower service in their periodical ST-3 returns and also declared regarding availment of benefit of Notification No.30/2012 (Sl. No.8), thus discharging Service Tax on 25% of the gross value of service as received by them. Therefore, we observe that the element of suppression of facts with intent to evade payment of tax as charged, as alleged in the instant Show Cause Notice, does not exist in this case. No corroborative evidence has also been brought on record by the Revenue to substantiate the imposition of penalty under Section 78 ibid. Considering the above, we hold that the penalty imposed on the appellant under Section 78 of the Act is unwarranted and accordingly, the same stands set aside. Issues: (i) Whether the services rendered by the appellant fall within manpower recruitment or supply agency service; (ii) Whether the demand confirmed by invoking the extended period of limitation (proviso to Section 73(1) of the Finance Act, 1994) is sustainable; (iii) Whether the demand for the normal period of limitation is payable by the appellant or is liable to be borne by the service recipient under reverse charge; (iv) Whether the penalty imposed under Section 78 of the Finance Act, 1994 is sustainable.Issue (i): Whether the services rendered are manpower recruitment or supply agency service.Analysis: The Tribunal examined the agreements, scope of work, payment terms, invoices and completion certificate showing billing by man-days and deployment, and applied the definitions in Section 65(68) of the Finance Act, 1994 and Rule 2(1)(g) of the Service Tax Rules, 1994. The agreements and invoices demonstrate supply and deployment of personnel to work under the control/superintendence of the recipients.Conclusion: The services are classified as manpower recruitment or supply agency service in favour of the assessee on classification (i.e., the service falls within that category).Issue (ii): Whether the demand confirmed by invoking the extended period of limitation is sustainable.Analysis: The Tribunal noted that the issue of liability for Linen Distribution Service (LDS) was raised during an earlier audit and an Audit Memo was issued, but no demand was raised at that time; the same issue was again audited and only thereafter the show cause invoking extended limitation was issued. The earlier audit and Audit Memo put the Department on notice of the issue.Conclusion: The demand confirmed by invoking the extended period of limitation is not sustainable and is set aside (in favour of the assessee).Issue (iii): Whether the demand for the normal period is payable by the appellant or by the service recipient under reverse charge.Analysis: For the normal period the Tribunal accepted the appellant's records showing amounts invoiced to RailTel and applied Rule 2(1)(d)(i) of the Service Tax Rules, 1994 and Notification No.7/2015-S.T. dated 31.03.2015 which places 100% liability on the recipient for manpower supply to a body corporate. RailTel is a body corporate and the appellant is a proprietorship; invoices and worksheet matched the Department's calculation for the normal period.Conclusion: The confirmed demand for the normal period is upheld as a tax liability in substance but the liability to pay for those services during the normal period rests on the service recipient (RailTel), not on the appellant (conclusion in favour of the assessee as regards the appellant's personal liability).Issue (iv): Whether penalty under Section 78 of the Finance Act, 1994 is sustainable.Analysis: The Tribunal found that the appellant had declared the relevant taxable value in ST-3 returns and had availed the relevant notification benefit for earlier periods; there was no evidence of suppression with intent to evade tax and Revenue produced no corroborative evidence to justify penalty.Conclusion: The penalty imposed under Section 78 is set aside (in favour of the assessee).Final Conclusion: The appeal is partly allowed; the demand confirmed under extended limitation and the penalty under Section 78 are set aside, while the demand for the normal limitation period is sustained but the liability to pay that tax is on the service recipient under reverse charge.Ratio Decidendi: Where services constitute supply of manpower to a body corporate, Rule 2(1)(d)(i) of the Service Tax Rules, 1994 and Notification No. 7/2015-S.T. (31.03.2015) place the service tax liability on the recipient under reverse charge; further, invocation of the extended period of limitation is unsustainable where the Department was put on notice of the same issue by an earlier audit/Audit Memo and no demand was raised then.