2026 (3) TMI 1533 - AT - Service Tax

Transportation contract not treated as manpower supply; tax demand set aside, but penalty upheld for registration and return defaults.

A transportation contract for tractors on a per-kilometre, job-specific basis was not taxable as Manpower Recruitment or Supply Agency Services because ... Classification of service - Transportation of tractors by road - Manpower recruitment or supply agency service - Penalty for failure to obtain registration and file returns. Classification of service - Transportation contract - Manpower recruitment or supply agency service - HELD THAT:- The Tribunal held that the controversy was already covered by its earlier decision in the appellants' own case, M/s Syal & Associates and M/s Kamaldeep Enterprises vs. CCE & ST, Chandigarh - [2023 (4) TMI 715 - CESTAT CHANDIGARH], and followed that ratio. On that basis, it accepted that the arrangement was a transportation contract in which consideration was linked to the job performed and not to supply of personnel, and that the appellants undertook responsibility for delivery and allied obligations under the contract. Since the activity was not manpower recruitment or supply agency service, the service tax demand under that category could not be sustained; with the demand set aside, interest did not survive. [Paras 6] The demand of service tax under manpower recruitment or supply agency service was set aside, and the consequential liability to interest did not survive. Failure to obtain registration - Failure to file returns - Statutory penalty - HELD THAT:- The Tribunal separately found that, even on the footing that the appellants were rendering transportation service, they were required to get themselves registered and file returns, which they had not done. Treating this omission as violation of Section 70 of the Finance Act, 1994, it held that penalty under Section 77 was attracted notwithstanding the setting aside of the tax demand under the wrong classification. [Paras 7] Penalty under Section 77 was imposed on each appellant for failure to obtain registration and file returns. Final Conclusion: The Tribunal held that the appellants' activity of transporting tractors by road was not taxable as manpower recruitment or supply agency service and accordingly set aside the service tax demand with consequential interest. However, for failure to obtain registration and file returns, penalty under Section 77 was sustained against each appellant, and the appeals were therefore partly allowed. Issues: (i) Whether transportation of tractors by road under the contract fell within the scope of Manpower Recruitment or Supply Agency Services; (ii) Whether penalty was leviable for failure to obtain registration and file returns.Issue (i): Whether transportation of tractors by road under the contract fell within the scope of Manpower Recruitment or Supply Agency Services.Analysis: The contract was found to be for transportation of tractors on a per-kilometre basis, with the contractor undertaking delivery responsibilities, statutory compliances en route, and other job-related obligations. The arrangement was held to be job-specific and not manpower-specific. The mere organisation of drivers for execution of the transportation work did not make the activity one of supply of manpower, and the service recipient was concerned with delivery of tractors rather than the number of persons deployed.Conclusion: The demand of service tax under Manpower Recruitment or Supply Agency Services was not sustainable and was set aside in favour of the assessee.Issue (ii): Whether penalty was leviable for failure to obtain registration and file returns.Analysis: Even though the substantive tax demand was set aside, the assessees were found to have not obtained registration or filed returns for the activity undertaken. That omission was treated as a violation attracting penal consequences under the service tax law, independent of the fate of the tax demand.Conclusion: Penalty was upheld and imposed against the assessees.Final Conclusion: The tax demand was annulled, but the penalty component survived, resulting in partial relief to the assessees.Ratio Decidendi: A transportation contract governed by a per-kilometre, job-oriented arrangement does not become taxable as manpower supply merely because drivers are deployed to perform the work, but non-compliance with registration and return obligations can still attract penalty.