TaxTMI 
TaxTMI 
2025 (7) TMI 482
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....LEM001. The Appellant also possesses Service Tax Registration No. AACCH1252LSD001 for various services including GTA Service, Manpower Recruitment & Supply Agency Service, Legal Consultancy Service, etc. under Reverse Charge Mechanism and for providing Business Auxiliary Service. 2.1. During the course of verification of ST-3 returns for the financial year 2016-17, it came to the department's attention that the Appellant had discharged Service Tax amounting to Rs. 9,58,382/- under reverse charge mechanism for receipt of 'Manpower Recruitment & Supply Agency Service'. However, examination of the Appellant's books of accounts revealed that the ledger for the year 2016-17 showed inter-alia, expenditure of Rs. 1,66,63,444/- under the head "Reimbursement of Labour Charges" and Rs. 9,58,382/- under "Supervision Charges of Labour Contractor". 2.2. The Department observed that the Appellant had engaged three manpower agencies for supplying workers to their manufacturing facility. These agencies were M/s. Perfect Consultancy (a proprietorship concern), M/s. Max Enterprise (also a proprietorship concern), and M/s. National Security Organization (a partnership concern). ....
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....s), vide the impugned Order-in-Appeal dated 31.05.2024, has upheld the demands confirmed in the Order-in-Original dated 06.05.2022. 2.7. Aggrieved against the impugned Order-in- Appeal, the appellant has filed this appeal. 3. The submissions made by the appellant are summarized below: The manpower agencies acted as pure agents of the Appellant and all conditions under Rule 5(2) were satisfied 3.1. The appellant submits that the interpretation and application of Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 by the Ld. Commissioner (Appeals) is not proper. It is the Appellant's case that the manpower agencies acted as 'pure agents' of the Appellant when they collected wages from the Appellant and disbursed the same to the workers deployed at Appellant's premise; since the agencies acted as pure agents for the wage component, this amount should be excluded from the taxable value on which the Appellant is required to pay Service Tax under Reverse Charge Mechanism. They have pointed out that the business arrangement establishes that the Appellant engaged these manpower agencies for supply of workers. Under the agreements, the agencies were req....
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.... (iii) M/s Sai Manpower Placement & HR Services Versus CCE & ST, Lucknow [2019 (1) TMI 1116] (iv) Security Guards Board for Greater Bombay & Thane Dist. Versus Commissioner of Central Excise, Thane [2016 (12) TMI 859] The department has mis-interpreted Rule 5(2) and the pure agent concept. The demand is liable to be set aside on this ground also. 3.6. The Appellant submits that the Department's entire case rests on a fundamental misunderstanding of how Rule 5(2) operates in the context of manpower supply services; the Department states that "manpower which deployed by the manpower agencies to the appellant is not the third party" and therefore Rule 5(2) cannot apply. It is the Appellant's plea that this interpretation misses the crucial point that Rule 5(2) examines whether the service provider (here, the manpower agencies) acts as a pure agent of the service recipient (the Appellant) for certain expenditures and the correct analysis under Rule 5(2) is to examine whether the manpower agencies, while providing manpower supply services, also acted as pure agents for the wage disbursement component; that the "third party" in this context refers to the worker....
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....t the books of accounts reflected the true position with separate ledger heads for different components; all agreements and documentation were available and were produced whenever called for. The Appellant points out that in fact, they themselves intimated of the mechanism of discharging Service tax liability vide letter dated 27.10.2016; that the modus operandi was transparent and based on a bona fide interpretation of law supported by the plain reading of Rule 5(2) and established industry practice. The Appellant also contends that the fact that substantial tax was paid on the service component while maintaining complete documentation negates any allegation of suppression or evasion. 3.9. It is also submitted by the Appellant in this regard that the case involves interpretation of legal provisions, not suppression of facts; the Appellant claims to have acted on a reasonable interpretation that wage reimbursements through agencies acting as pure agents are not includible in taxable value. Accordingly, the appellant contends that extended period cannot be invoked to demand service tax in this case. As there is no suppression of facts involved, they have prayed for dropping the p....
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....d these agencies for supply of workers and under the agreements, the agencies were required to deploy workers at the Appellant's premises based on the requirement of the Appellant, collect wages from the Appellant, disburse these wages to the workers without any margin or markup, and separately charge their service fees (supervision charges) for the manpower supply service. For ready reference, the relevant part of the agreement is reproduced below: "8. The Contractor will raise two bills one for salary of manpower under reimbursement basis and another for their service charges which includes the all cost of the services for providing such manpower." 6.2. We have perused the provisions of Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 and the Terms and conditions of the Agreement reproduced above. We find that the manpower agencies satisfy all the conditions prescribed under Rule 5(2) as follows: - (a) The agencies incurred expenditure (wages to workers) in the course of providing manpower service to the Appellant. (b) The agencies neither intended to hold nor held any title to the wages - they were mere pass-through amounts. ....
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....against specific work and accordingly shown on the face of each invoice/bills. Thus, the clients are well aware before making payments that reimbursed amount of salary etc. has to be paid to the specific person deployed with them. Undoubtedly, the noticee have made such payments of salary under due authorization by the clients. The clients were liable to pay for the payments but the noticee paid on their behalf and realized the same from their clients, hence it cannot be considered as value of taxable service rendered. The noticee did not procure any service from the personnel deployed with the clients. Conclusively, the noticee have fulfilled all the requisite conditions as stipulated in Rule 5(2) of the Valuation Rules for exclusion of such reimbursement from the taxable value for the purpose of levy and payment of Service Tax." 19. As for the department's assertion with regard to Section 67 of the Act, it is a clear mandate of law that the value of taxable service for levy of service tax has to be in consonance with the provisions of Section 66 of the Act ibid which levies tax only on the "value of taxable service" per se alone. Thus it is inbuilt in the mechanism of la....
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....quired to be included in the „gross taxable value' under Section 67 of the Finance Act had held as under:- "7. The learned Commissioner in the impugned held that the gross amount charged by the service provider for such services provided in terms of Section 67(1)(i) of the Finance Act, 1994 be part of the taxable value; hence rejected the argument advanced by the appellant that salary and reimbursement expenses like ESIS, bonus, conveyance, OT allowance etc. received from their clients do not form part of the gross value of such services provided as it is not in conformity with the Section 67 of the Finance Act, 1994. 8. We find from the records that the appellant during the relevant period has entered into agreements dt. 01.01.2007 with M/s. Bharati Airtel, Bangalore, dated 22.03.2005 with M/s. Bharati Infotel and dated 24.02.2007 with M/s. Bharati Televentures for supply of manpower in rendering various telecom services. The appellant paid service tax on the service charges in supplying manpower to M/s. Bharati Airtel, M/s. Bharati Infotel and M/s. Bharati Televentures against the said agreements; however in discharging service tax, they have not included the salary and oth....
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....ubject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to service tax. We are, therefore, undoubtedly of the opinion that Rule 5(1) of the Rules runs counter and is repugnant to Sections 66 and 67 of the Act and to that extent it is ultra vires. It purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider "in the course of providing taxable service". What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. It is no answer to say that under subsection (4) of Section 94 of the Act, every rule framed by the Central Government shall be laid before each Hous....
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....ices v. Union of India - in Civil Writ Petition No. 437 of 1998 held that the respondent shall be entitled to charge service tax on the gross except after giving the abatement in respect of statutory levy and the taxes and if the same has direct relation with the services rendered by the client and charged specifically in the bill. 10. As far as the abatement towards deduction of wages and salaries paid to the personal employees by the appellant is concerned, the same is covered by the decision of Mumbai Bench of this Tribunal in case of Security Guards Boards for Greater Bom. & Thane Dist. v. CCE, Thane-II - 2017 (51) S.T.R. 51 (Tri. -Mum.), wherein it is held that wages and allowance including salary and administrative charge collected from client is excludible from the gross value of taxable service in terms of Section 67 of the Act. The relevant paragraph of order is reproduced hereinafter : "4.1 Further, under section 6 of the Maharashtra Private Security Guards (Regulation of Employment & Welfare) Act, 1981, following has been provided:- "31. Disbursement of wages and other allowances to registered Security Guards of the Board. - The wage and other ....
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....ice element has to be included for gross amount of "such services". The relevant portion of the judgment is extracted as under : "18. Section 66 levies service tax at a particular rate on the value of taxable services. Section 67(1) makes the provisions of the section subject to the provisions of Chapter V, which includes Section 66. This is a clear mandate that the value of taxable services for charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else. There is thus inbuilt mechanism to ensure that only the taxable service shall be evaluated under the provisions of 67. Clause (i) of sub-section (1) of Section 67 provides that the value of the taxable service shall be the gross amount charged by the service provider "for such service". Reading Section 66 and Section 67(1)(i) together and harmoniously, it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub- section (4) of Section 67 which enables the determination of the value of the taxable service "in such manner as may be pre....
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....rm him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider "in the course of providing taxable service". The said decision of the Hon'ble Delhi High Court stands followed by the Tribunal in the case of M/s. Fortune Park Hotels Ltd. V/s Commissioner of Service Tax, Delhi reported in 2017 (49) S.T.R. 567 (Tri.-Del.) as also in the case of M/s. SCI International Securities Ltd. V/s Commissioner of Central Excise & Service Tax, Vadodara-I reported as 2017 (49) S.T.R. 399 (Tri.-Ahmd.). 5. Inasmuch as the issue stands settled that reimbursable expenses cannot form part of the gross value of the services being provided by the service provider, we find no reasons to include the E.S.I./P.F./W.C.P. amount in the assessable value of the services, inasmuch as the same are admittedly reimbursable to the persons concerned." 23. In the case of Security Guards Board for Greater Bom. & Thane Dist. Vs. C.C.E., Thane-II [2017 (551) S.T.R. 51 (Tri.- Mumbai)] after a detailed examination of the matter it was held that wages and allowances collected by the Board as an Agency, for payment to concerned persons/au....
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....dence Day. 26. We find from records that the adjudicating authority has distinctly noted the agreements entered into by the respondent with their clients/service recipients. Besides seeking recourse to the various agreements entered with the clients, bill invoices raised against different clients along with respective ledgers of their clients particularly concerning mode of payment to individuals (salary sheets), balance sheet and profit and loss account for the impugned period have also been examined by the lower authority. It is evident that the case has been made out by the department on the basis of public records of the respondent apart. In any case not only was the appellant filing returns and was being regularly audited, even the exercise as contemplated by the department by way of the impugned show cause notice is revenue neutral. Under the circumstances no case of suppression of facts can be substantiated. The figures as available in the books of accounts/other records of the respondent have been in public domain. Under the circumstances, the question of invocation of extended timelines does not arise and demand made out is certainly beyond limitation. 24....