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 recruitment/supply agency service (classification upheld for the assessee). Extended limitation: earlier audit and Audit Memo put the Department on notice of the issue, so invocation of the proviso to extend limitation is unsustainable and the extended-period demand is set aside. Normal period: records and invoices show amounts billed to a body corporate recipient; applying Rule placing liability on recipient, the tax for the normal period is sustained but payable by the service recipient, not the appellant. Penalty: no evidence of suppression with intent; penalty under Section 78 set aside.

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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.

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