TaxTMI 
TaxTMI 
2026 (4) TMI 1080
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....duction of copies of agreements and the payments received from Beekay during the period 2008 - 09. However, Biswal stated that the activity carried out by them was only manufacture and does not fall under the category of 'Manpower Recruitment and Supply Agency Service' and furnished copies of ledgers and balance sheets for the period 2008 - 09 to 2012 - 13. Since Biswal did not produce copies of agreements, the same were obtained from Beekay. On perusal of the agreements, it appeared that on the basis of work order by Beekay to Biswal, it was on principal to principal basis and that Biswal had to supply manpower for the production activities and housekeeping activities and Biswal was vested with the rights to control the manpower supplied for production activities and that they were to charge Beekay towards supply of such labour on per MT basis. It also appeared that the activity fell under the category of 'Manpower Recruitment and Supply Agency Service'. Hence Show Cause Notices dated 23.10.2013 for the period from 01.04.2008 to 30.06.2012 and 23.4.2014 for the period July 2012 to September 2013 were issued for demanding Service Tax amount of Rs.17,65,051/- and Rs.2,04,326/- respe....
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....for the same activity, Show Cause Notice dated 28.11.2016 has been issued to Beekay recover service tax of Rs.8,70,366/- along with interest and penalties for the period from April 2015 to March 2016. The Ld. Adjudicating Authority confirmed the demand and the Ld. Commissioner (Audit) upheld the same. Hence the appellant is in appeal. 3. The learned Advocate Shri S. Venkatachalam appeared for the appellant and Ld. Authorized Representative Smt. G. Kripa appeared for the respondent. 3.1 Shri S. Venkatachalam, the Ld. Counsel for the appellants (Biswal and Beekay) submitted as follows: A. Beekay manufactures Bright Bars under Chapter 72 of the Central Excise Tariff Act and engaged Biswal as a job worker, paying charges based on quantity of finished goods. B. Initially, M/s. B.S. Biswal & Company supplied labour and paid service tax up to March 2008. Thereafter, the contract was changed to a job-work arrangement for manufacture of goods, and service tax was neither paid nor collected, as the activity did not constitute manpower supply. C. Based on audit objections, show cause notices were issued, and impugned orders were passed without properly conside....
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.... D. The payment structure, absence of independent tools or materials, and maintenance obligations confirm labour hire. The job work order was merely a device to evade service tax. Accordingly, the Appellant is liable under Manpower Recruitment or Supply Agency service. E. CBIC Circular No. 96/7/2007-ST clarifies that where workers are employed by an agency and supplied for specific tasks, the agency is liable to service tax. This squarely applies to the present case. F. The plea against extended limitation fails as the Appellant stopped filing statutory returns post 01.04.2008. Penalties under Sections 76, 77, and 78 are rightly imposed and upheld. G. The agreement with BSIL further confirms daily production obligations, fixed job charges per MT inclusive of levies, statutory compliance by the Appellant, fixed working hours, responsibility for labour, and machinery maintenance-reinforcing the finding of manpower supply. The Ld. A.R. prayed that the appeals filed by Beekay and Biswal may be rejected. 4. We have heard the parties and have carefully considered their oral and written submissions. The issue pertains to the classification of servi....
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....ol over the nominees as he did over numerous other employees, and thus an employer-employee relationship existed. The bank also had the right to select bank personnel who would have the authority to supervise how the cash department conducted its work. The court concluded that the cashier was an employee of the bank. The scope of indirect employment was expounded as under: "If a master employs a servant and authorises him to employ a number of persons to do a particular job and to guarantee their fidelity and efficiency for a cash consideration, the employees thus appointed by the servant would be equally with the employer, servants of the master." (emphasis supplied) (iii) While Shivanandan Sharma (supra) was the first instance of the control test being applied, an important step in the test's evolution was in Dharangadhara Chemical Works Ltd. Vs State of Saurashtra reported in (1957) 1 LLJ 477. The dispute was whether agarias (salt workers) were employees and whether the claim under the Industrial Disputes Act 1947 was maintainable. To establish that the hirer had control over the hired person, it was ruled that control must exist in two aspects. First,....
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....st) as interpreted in the Market Investigations Ltd. (supra), Cassidy. (supra), Montreal Locomotive Works (supra) and the control test used in India. (ii) The organisation test looks at the degree of integration in the work committed in the hirer's primary business with the understanding that the higher the level of integration, the more. likely the worker is to be an employee. A combination of control and integration tests allows the professional workers to be classified as employees, notwithstanding a lack of control over the manner of work. Furthermore, the existence and potential use of factors beyond the control and integration in future cases was also recognised. This opened the path for the multifactor test. 3. Multiple Factor test (i) The multifactor test includes: a) Control b) Ownership of the tools c) Integration/Organisation d) Chance of profit e) Risk of loss f) the master's power of selecting his servant g) the payment of wages or other remuneration h) The master's right to control the method of doing the work, and i) The master's right of suspension....
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....orks (supra), the multifactor test was reiterated, consisting of the following factors: a) Control over the work and manner in which it is conducted b) Level of integration into employers' business c) Manner in which remuneration is disbursed to workers d) Economic control over workers e) Whether work being conducted is for oneself or a third party (iii) In Sushilaben (supra) priority was given to factors of control and mode of remuneration, noting these would ordinarily suffice to identify the true nature of the relationship unless other contractual terms indicated otherwise. (iv) In Sushilaben (supra) the articulation of the control test has been given importance as it varies from that in Balwant Rai Saluja Vs Air India Ltd. reported in 2014 9 SCC 407. This was elucidated as under: "The three-tier test laid down by some of the English judgments, namely, whether wage or other remuneration is paid by the employer; whether there is a sufficient degree of control by the employer and other factors would be a test elastic enough to apply to a large variety of cases." (emphasis added) (v) The u....
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....es and their margin etc. d. that the assessees have to submit the Job bill once in every month and the payment will be made within 10 days of receipt of the bill; e. that they are required to abide by all Statutory obligations as per the legislations of the Central and State Acts enforced time to time in carrying out the job work for manufacturing activity and also keep the management free from any Acts of commission or omissions arising from this; f. that they have to carry out the manufacturing activity during the general shift for 12 hours starting from 06.00 to 18.00 hrs on working days; g. that the labour engaged to produce given result will be under your control and that M/s BSIL do not undertake any control over the labour; h. that the assessees have to help the management in keeping the production machineries in neat, clean and in working condition always; i. that the job work order for manufacturing dutiable goods will be valid from 01.04.2008 onwards and that cither party can terminate the same agreement by giving notice of one month in writing and mutual consent; (emphasis added) 9. An agreement that is enforcea....
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....0. A cumulative reading of the contractual terms as set out above, in contextual reference to the 'tests' mentioned in the Supreme Court judgment in ACHCHEY LAL (supra), establishes that the relationship between the parties is one of job work / contract for service, and not a master-servant or contract of service arrangement, as held by the Revenue. The obligation is output-oriented, requiring production of a specified quantity of Hot Rolled Products on a daily basis, with consideration fixed as job charges per metric tonne. Payment is thus linked to results, not manpower, time, or wages, which is determinative under the mode of remuneration test and the economic control limb of the multifactor test. 11.1 The contractor bears economic risk and reward, with job charges inclusive of statutory levies and margin, evidencing a real chance of profit and risk of loss, which is wholly incompatible with employment under the multifactor test. The raising of monthly job bills and settlement thereof further reflects a principal-to-principal commercial arrangement, inconsistent with wage payment under a contract of service. 11.2 Statutory compliance and indemnification obligations vest en....
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....nded and the documents/ transactions, are at variance with the actual intent. 12.1 The Hon'ble Delhi High Court in The Commissioner Of Income Tax, Delhi VI Vs Shiv Raj Gupta [372 ITR 337 (Del.) / ITA No. 41/2002, Dated: 22/12/2014], after discussing three important judgments of the Hon'ble Supreme Court in the cases of McDowell and Co. Ltd. Vs CTO [(1985) 3 SCC 230]; Union of India Vs Azadi Bachao Andolan [(2004) 10 SCC 1] and Vodafone International Holdings B.V Vs Union Of India & Anr [(2012) 6 SCC 613 / CIVIL APPEAL NO.733 OF 2012, dated: 20/01/2012], held; "38. Thus, in Vodafone's case (supra) earlier decisions in McDowell (supra) and Azadi Bachao Andolan (supra) stand explained and elucidated. Demanding and complicated question of tax avoidance and tax evasion, form over substance and what are the powers of the Revenue/income tax authorities stand explicated and unravelled. The issue is vexed but to our benefit examined and answered in Vodafone's case (supra) and we have applied the said tests. Vodafone tests 39. Expressions "tax avoidance, tax evasion and tax mitigation" are often spoken about, but differently understood. Rule of law manda....
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....lloughby [1997] 4 All ER 65, it is:- "The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option." The aforesaid quote uses the expression 'economic consequences that Parliament intended' which as per some, causes confusion and is self contradictory. However, the said criticism overlooks that if the intention of the Parliament is clear and unambiguous; taking advantage or benefit as envisaged by the provision is a case of tax mitigation. Even in case of debate, when the intention of the Parliament is favourable and adjudication decides the question in favour of the assessee, it would be a case of tax mitigation. Courts are trusted and given the power to determine as to what was the intent of the Parliament while enacting a particular provision. When the court decision interpreting the legislative intent is in favour of the assessee, there is no avoidance of tax because the conduct is consistent with the taxing provision. If there is no tax ....
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.... Tax Evasion & Tax Mitigation by Philip Baker.) 46. It is equally important to distinguish and differentiate acceptable tax avoidance and abusive tax avoidance. The Supreme Court in CIT versus Raman (A.) & Co. [1968] 67 ITR 11, at p.17 had observed:- "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." 47. In clear and categorical terms the aforesaid ratio was resonated and approved by the Supreme Court in the Vodafone's case (supra). Thus, the test of 'devoid of business purpose' or 'lack of economic substance' is not accepted and applied in India as it is too broad and unsatisfactory. The said test, if ardently applied, would contradict and would be irreconcilable with taxpayers' right to arrange once affairs within the confines of law, which i....