Supply of manpower vs job work: output paid contracts supervised by contractor found not liable to service tax under reverse charge.

Contracts for specific jobs paid on output/piece rate, with materials provided by the hirer but labour on the contractor's payroll and under the contractor's supervision, were examined under Rule 2(g), the control test, organisation/integration test and the multifactor test and against Board Circular No.190/9/2015-ST; because consideration was output-linked, workforce remained on contractor rolls, contractor retained supervision and safety responsibility and no contrary contract evidence was produced, the factual matrix met job work characteristics rather than supply of manpower, and the reverse charge service tax demands were set aside.

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Issues: Whether contracts under which specific jobs are executed on output/piece-rate basis, with materials and equipment supplied by the hiring entity but workforce on contractor's rolls and under contractor's supervision, constitute "manpower supply services" liable to service tax under the partial reverse charge mechanism, or whether they are job work/independent contracting arrangements not liable to service tax.

Analysis: Rule 2(g) of the Service Tax Rules, 1994 defines supply of manpower by reference to work being performed under the recipient's superintendence and control. The determination turns on the existence of an employer-employee relationship assessed by tests such as the control test, organisation/integration test and a multifactor test as consolidated by the Supreme Court in Achchey Lal. Board Circular No. 190/9/2015-ST (15.12.2015) distinguishes manpower supply (charging based on manpower deployed and under recipient's effective control) from job work (service provider accountable for the job, free to deploy manpower and paid by output). The material on record shows consideration linked to quantum/output, no restriction on number of workers, workforce on contractor's rolls, and supervision and safety responsibility resting with the contractor. The show cause notices and statements of demand did not rely on or produce the contracts as primary evidence. An identical contract in related proceedings was held to be job work by the First Appellate Authority and that order has attained finality. In the absence of contrary evidence or sham arrangements, the factual matrix satisfies the characteristics of job work rather than manpower supply and the control test and other factors weigh against finding an employer-employee relationship with the hiring entity.

Conclusion: The appeals are allowed; the impugned orders demanding service tax under the partial reverse charge mechanism in respect of the contracts under challenge are set aside and the appellant is entitled to consequential relief in law in respect of the periods and demands contested.

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