Output-linked job work, not manpower supply, was found outside service tax where contractor control and no sham were proved.

Output-oriented work arrangements with remuneration linked to production, labour remaining under the contractor's control, and statutory compliance obligations resting on the contractor were treated as a contract for service, not manpower recruitment or supply agency service. Applying the control test, mode of remuneration test, integration test and the broader multifactor approach, the tribunal found that the activity was job work for specified hot rolled products and not supply of manpower. It also accepted that restructuring the business to reduce tax liability was legitimate tax mitigation, as no sham, fraud or fraudulent device was proved. The service tax demands, interest and penalties were therefore unsustainable.

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Issues: Whether the activity undertaken by Biswal for Beekay was a contract for service by way of job work, or a contract of service amounting to manpower recruitment or supply agency service, and whether the resultant service tax and penalties were sustainable.

Analysis: The contractual terms required production of specified quantities of hot rolled products on a daily basis for job charges fixed per metric tonne, with consideration linked to output and not to manpower, wages, or time. The agreement also placed labour under the contractor's control, imposed statutory compliance on the contractor, and reflected commercial risk and reward on the contractor's side. Applying the control test, the mode of remuneration test, the integration test, and the multifactor approach relevant to distinguishing a contract of service from a contract for service, the arrangement was found to be job work and not manpower supply. The change in business model to reduce tax liability was held to be legitimate tax mitigation, and no fraudulent or sham device was established by the Revenue.

Conclusion: The activity was not liable to be classified as manpower recruitment or supply agency service, and the demands, interest, and penalties were unsustainable.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where contractual terms show output-oriented job work with remuneration linked to production, labour remaining under the contractor's control, and no proven sham or fraud, the arrangement is a contract for service and not manpower supply for service tax purposes.

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