TaxTMI 
TaxTMI 
2013 (3) TMI 735
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....y on the compensation received for the provision of the service but failed to discharge service tax on reimbursement of wages received by them (by way of debit notes) from their client M/s. Tidewater during the period November 05 to December 08. The total reimbursement received towards the wages was Rs. l4,45,89,055/- and the service tax liability on the same worked out to Rs. 1,75,22,141/-. It was alleged that M/s. Jubilant did not disclose the above receipts to the department and in fact suppressed the value of services with a mala fide intention to evade payment of duty. Accordingly the notice proposed to recover the same by invoking the extended period of time of 5 years under the proviso to Section 73(1) of the Finance Act, 1994 along with interest thereon under Section 75 ibid and also proposing to impose penalties under Sections 76 and 78 of the said Finance Act. The ld. adjudicating authority dropped the proceedings on the ground that the service rendered merited classification under "Ship Management Services" and the respondent acted as "pure agents" of the service recipient in rendering the services of Manpower recruitment or supply and therefore, the reimbursement of wag....
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.... staff costs from the recipient, e.g. salary and other contributions. Even if these amounts are paid directly to the workers by the service recipient, these amounts are still part of the consideration and hence forms part of the gross amount charged. (c) Reliance is also placed on the following decisions,- (i) Panther Detective Services - 2006 (4) S.T.R. 116 (Tri.-Del.); (ii) Punjab Ex-servicemen Corpn. - 2009 (13) S.T.R. 529 (Tri.-Del.); (iii) -do- 2012 (25) S.T.R. 122 (P&H); (iv) Sri Bhagavathy Traders - 2011 (24) S.T.R. 290 (Tri.-LB); (v) Safe & Sure Marine Services Pvt. Ltd. - 2012 (28) S.T.R. 30 (Tri.-Mum.) In the first four decisions, it has been held that assessable value will include the salary paid to the workers/personnel provided and in the last decision, it has been held that prior to the introduction of "ship management service", supply of manpower/crew to work on board of vessels would come under the purview of manpower recruitment or supply service. In the light of these decisions, the ld. Additiona....
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....e paid by the respondent on behalf of TIPL as is evident from the Form 16 issued under the Income-tax Act, 1961 for the deduction of TDS issued to the employees. (d) The respondent is acting as a "pure agent" of TIPL within the meaning of Rule 5(2) of the Valuation Rules. While making payment of wages to the seafarers on behalf of TIPL, the respondent was acting as pure agent as clarified in Board's circular B1/4/2006-TRU, dated 19-4-2006. (e) The issue involves interpretation of law and there is no wilful suppression of facts by the respondent and therefore, extended period of time could not have been invoked against the respondent for confirmation of service tax demand. They have declared the amounts received as "pure agent" in the respective ST3 returns filed with the department. In as much as there is no suppression of facts, penalty is not imposable on the Respondent under Section 78 of the Finance Act. (f) They have not collected service tax on the reimbursement of wages and therefore the consideration received should be treated as cum-tax. (g) They place reliance on th....
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....itory and shall be fully qualified and experienced to work in the OWNER'S SSVs. OWNER may request additional SEAFARER(s) or modify or reduce the number and category of CONTRACTOR'S SEAFARER upon giving CONTRACTOR reasonable notice thereof. (2) To provide the OWNER the detailed information about the qualified SEAFARER(s) prior to joining the SSV(s), including but not limited to, name, grade of licence, and record of sea service with passport photographs. (3) To arrange for the physical and medical examinations (including, but not limited to, drug and alcohol screening) of the SEAFARER(s) by OWNER'S doctor prior to each SEAFARER working on OWNER'S SSVs. (4) Subject to OWNER'S prior written approval, and as required by law of the territory or industry practice, CONTRACTOR shall develop an Employment Agreement to be signed by and between CONTRACTOR AND SEAFARER(S). (5) To execute the Employment Agreement by and between the CONTRACTOR and SEAFARER(S) who have been selected and declared physically and medically fit by OWNER'S doctor. (6) To make, sign, seal and execute the Employment Agreements and related documents, including lawful orders or proc....
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....nts enumerated below to ensure prompt joining of SSVs at the ports indicated by the OWNER. (a) The number of SEAFARER(S) required in each category; (b) The desired qualification and skill required for each category of the SEAFARER; (c) Names and locations of SSVs for which the SEAFARER(S) are required; (d) The work schedule required of the SEAFARER. Provided however, that the foregoing requirements are in accordance with the relevant labour laws and regulations, the OWNER shall furnish CONTRACTOR from time to time with a scale of wages applicable to the SEAFARER. The owner reserves the right to revise such scale at any time on a prospective basis. OWNER shall reimburse the CONTRACTOR, the applicable wages of each SEAFARER incurred as an expense to the CONTRACTOR. (2) In addition to the above mentioned wages for each SEAFARER, the OWNER shall pay compensation enumerated in Exhibit A to the CONTRACTOR for the services rendered by the CONTRACTOR under this Agreement. .............................................................................................. A....
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.... Seafarer and/or liens either during the period of contractual service or on/after its termination except whose which are specified here............. 3. During the contractual employment, the Seafarer will be paid all-inclusive gross wages amounting to INR.............per day from the date of joining the vessel. This includes all remuneration including but not limited to various allowances, compensatory benefits, leave wages and social benefits. ................................................................................................... 6. Necessary deductions including but not limited income-tax will be made from the gross wages paid to the Seafarer by the company............... 7.  During the Service tenure on board, the Seafarer will be provided Insurance cover under the Workmen Compensation, Medical and Personal Accident by Policies by the Company.................................................. .................................................................................................... 10. The service conditions and more particularly pertaining to working hours, pay procedures, medical fitness, insurance coverage, adherence....
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....the Contractor and payment of Compensation to the Contractor for the services rendered and nothing else, apart from specifying their requirements and the scale of wages, as enumerated in Article IV of the agreement. (7) Similarly, the Seafarer's duty/responsibility is in terms of the Employment Agreement and the said agreement is entered into between the seafarer and the Respondent. 5.3 In the light of the above findings, the respondent's contentions that the Seafarers are employees of M/s. TIPL and the service rendered by them is "manpower recruitment" and not "manpower supply" have no basis whatsoever. The express language of the Agreement and the terms and conditions stipulated therein do not support such a proposition at all and in fact controverts such a view. Therefore these contentions have to be rejected outright and we hold accordingly. 5.4 The next question is whether the service rendered by the respondent is taxable under "manpower recruitment or supply agency" service or "ship management service". The definitions are as follows : '65(68) "manpower recruitment or supply agency" means any person engaged in providing any service, directly or indi....
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....ribes "earlier the better" principle - that is the service shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration. In the present case, sub-clause (68) relating to manpower recruitment or supply agency service occurs first compared to sub-clause (96a) relating to ship management service. Therefore, the classification sought in the present case by the Revenue under "manpower recruitment or supply agency" service cannot be faulted at all and we hold accordingly. 5.5 The Respondent has relied on a few decisions in support of their contention that the service rendered by them comes under the category of 'ship management service'. In the Creative Marine Services case (supra) wherein also a similar issue was involved, the dispute was whether the service was classifiable under 'Management Consultant Service' as contended by Revenue or under "Ship Management Service" as claimed by the appellant therein. In the said decision, it was held that since 'ship management service' was more specific, the service was classifiable under the said category and not under 'management consultant service'. Thus the issues involved were co....
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....een two principals. Secondly, the respondent is engaging the seafarers, responsible for their conduct, payment of wages/salaries/other compensations, for their termination and repatriation. For such services rendered, the respondent is getting compensated in two ways, one by way of re-imbursement of the wages/salaries of the seafarers and second by way of daily compensation based on the number/type of seafarers supplied. Thus the question of treating the respondent as a 'pure agent' of M/s. TIPL does not arise at all from the terms and conditions of the agreement and we hold accordingly. 5.7 The next issue for consideration is whether both the amounts received, that is, reimbursement of wages and daily compensation are leviable to Service Tax. As per Section 67(1)(i), the taxable "value shall, in a case where the provision of service is for a consideration of money, be the gross amount charged by the service provider for such service provided or to be provided by him." The Respondent charges for the services rendered by way of two debit notes, one debit note for the daily compensation and the other for the wages of the seafarers. Merely because he has split up the gross amo....
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....es and inputs used in rendering service cannot be treated as reimbursable costs and service tax is leviable on the gross amount received which includes the cost of input services/inputs used in rendering the service. Judicial discipline mandates that this Tribunal follows the ratio of the above decisions. Accordingly, respectfully following these decisions, we hold that the reimbursement of wages/salary of the seafarers is towards the cost of input service and therefore, the same forms part of the taxable value under Section 67 of the Finance Act and accordingly, the service tax liability has to be discharged on the gross amount received including the salary and wages of seafarers. 5.10 The next issue for consideration is whether any part of the demand is time-barred and whether there has been any suppression of facts on the part of the respondent. The Respondent's claim is that they have indicated in the ST3 returns, the amounts received towards seafarer's wages as "Amount received as pure agent" under column F(1)(c)(iii) and copies of the same has been annexed to the cross objection papers. From these returns for the period October, 2006 to March, 2009, it is seen that th....
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....e hold accordingly. 5.13 As regards penalty under Section 76, penalty is imposable under the said section for failure to pay service tax. The said section reads as follows "76. Penalty for failure to pay service tax Any person, liable to pay service tax in accordance with the provisions of Section 68 or the rules made under this Chapter; who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax in accordance with the provisions of Section 75, a penalty which shall not be less than two hundred rupees for every day during which such failure continue or at the rate of two per cent. of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax: Provided that the total amount of the penalty payable in terms of this section shall not exceed the service tax payable." No mens rea is required for imposition of penalty under Section 76 and mere failure to pay Service Tax along with interest will attract the provisions. The rate of penalty is also specified therein and there is no discretion on the penalty amount, which is only subjec....