Agricultural tea estate leasing stayed outside service tax where ancillary labour and machinery use were integral to plantation operations.

Leasing of tea estates for plantation operations was treated as an agricultural arrangement, not taxable renting of immovable property, because the land, buildings, labour quarters and machinery were integral to cultivation, irrigation, harvesting and processing of green tea leaves. The consideration was linked to agricultural output, and the pre-negative list exemption for services relating to agriculture, as well as the post-01.07.2012 exclusion under Section 66D, applied. Payment of wages and deployment of workers did not amount to manpower recruitment or supply agency service, and provision of tractors and related facilities did not constitute supply of tangible goods service, as no separate consideration or transfer of effective control was shown.

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Issues: (i) Whether leasing of tea estates with appurtenant structures is taxable as renting of immovable property or is excluded as an agricultural activity. (ii) Whether payment of wages and deployment of workers amounts to manpower recruitment or supply agency service. (iii) Whether provision of tractor and related facilities amounts to supply of tangible goods service.

Issue (i): Whether leasing of tea estates with appurtenant structures is taxable as renting of immovable property or is excluded as an agricultural activity.

Analysis: The lease was for plantation operations such as cultivation, irrigation, harvesting and processing of green tea leaves. The consideration was linked to agricultural output, showing revenue sharing from plantation activity rather than commercial renting. Applying the broad meaning of "in relation to", the land, buildings, labour quarters and machinery were found to be integral to the agricultural use of the estates and incapable of artificial segregation. The pre-negative list exemption for services relating to agriculture and, after 01.07.2012, the negative list exclusion under Section 66D covered the activity.

Conclusion: The leasing activity was not taxable as renting of immovable property and was excluded as a service relating to agriculture.

Issue (ii): Whether payment of wages and deployment of workers amounts to manpower recruitment or supply agency service.

Analysis: The agreement placed responsibility for labour engagement, wages and statutory compliances on the lessee, and the workers were under the lessee's control and supervision. No separate consideration flowed to the appellant for supplying manpower. The activity therefore lacked the essential ingredients of a taxable manpower supply service and remained part of the composite agricultural arrangement.

Conclusion: The activity did not amount to manpower recruitment or supply agency service.

Issue (iii): Whether provision of tractor and related facilities amounts to supply of tangible goods service.

Analysis: There was no evidence of transfer of possession or effective control of the machinery to the lessee, nor any separate consideration for such alleged supply. The use of equipment was incidental to plantation operations and formed part of the composite agricultural transaction.

Conclusion: The activity did not amount to supply of tangible goods service.

Final Conclusion: The entire arrangement was held to be a composite and indivisible agricultural transaction, so the impugned service tax demands, interest and penalties could not be sustained.

Ratio Decidendi: A transaction whose dominant character is agricultural cannot be artificially vivisected into separate taxable services where the ancillary elements are integral to plantation operations and no independent consideration or taxable service ingredients are established.

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