AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 60
X X X X Extracts X X X X
X X X X Extracts X X X X
....as an agriculture-related service. A Show Cause Notice dated 29.01.2014 proposed rejection of the refund on the ground that the services rendered were classifiable as Manpower Supply Services (MSS) and was not eligible for the exemption. The Original Authority rejected the refund, holding that the notification was inapplicable during the relevant period. This decision was upheld by the Commissioner (Appeals), leading to the present appeal. 3. The learned Advocate Shri G. Shivakumar appeared for the appellant and Ld. Authorized Representative Shri N. Satyanarayanan appeared for the respondent. 3.1 Shri G. Shivakumar, Ld. Advocate, submitted on behalf of the appellant that: A. The appellant has entered into a contract with ITC Ltd for processing unmanufactured tobacco including the related activities of packing and other incidental activities connected thereto. B. Exemption was available to the service rendered by them under Notification 14/2004-ST, dated 10.09.2004 during the Pre-Negative List regime and was continued in Post-Negative List regime as per Sl. No. 30 of Mega Exemption Notification No. 25/2012-ST dated 20.06.2012. C. A comparison of Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to a claim for refund. The dispute prima facie relates to the classification of the service rendered by the appellant to ITC and secondly as claimed by the appellant the service is exempted from Service Tax both in the pre and post Negative List period as it relates to agriculture. 4.1 The Ld. Original Authority choose to dispose of the refund claim solely on the basis of the classification of the service under MSS. Since he did not find any exemption from Service Tax for MSS under the Mega Notification or in the Negative List for the said activity, the refund claim was rejected. 4.2 On the other hand the Ld. Commissioner Appeals, vide the impugned order, examined the claim of the Appellant for exemption under Notification 14/2004-ST, dated 10.09.2004 and under the Negative List and recorded in his order as under: "6. The main contention of the appellants is that their activity is related to agriculture and is exempted from service tax. It is observed that though they had claimed that they had undertaken the activity of processing of unmanufactured tobacco, they had neither produced the copy of agreement entered with M/s. ITC, nor produced any documents in support ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure and scope of works and assured ITC that it has the required competency and is capable of carrying out the said job/s. 3. ITC has accepted the offer of the contractor on certain terms and conditions to which the contractor has agreed to revenant. PART-3 TERMS NOW THIS AGREEMENT WITNESSETH AS UNDER 1.DEFINITIONS Unless otherwise specified or defined, in this Agreement- (i) 'COMPANY' means 'ITC LIMITED 'PROJECT KGLT'' (ii) . . . . . . . . (viii) JOB SPECIFICATION means the Annexure - I to this Agreement wherein the details of the scope of work, the special conditions attached to it, the minimum manpower ordinarily required to carry out the jobs etc. The job specification may be amended from time to time by the Company depending on requirements. 2. NATURE & SCOPE OF AGREEMENT (i) This is an Agreement to carry out certain jobs as mentioned in the job Specification in the KGLT for the period specified in the Agreement (ii) ITC has explained to the contractor, entire details of the work involved and the type of the manpower required to carry out such works and the contractor has su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n maintain discipline and that there is no misconduct from their part. If there is any misconduct then the Company shall bring the same to the notice of the contractor. However, the company or its officials are not authorized to initiate any disciplinary action or impose punishment against the contract workmen. The imposing of disciplinary action or mending the misconduct shall be the sole responsibility of the contractor and the contractor agrees to take prompt action as called for to maintain utmost discipline, peace and tranquillity. Further, the company shall not suggest or recommend any particular disciplinary action and it shall be left to the judgment of the contractor on a case to case basis. . . . . (xviii) The Contractor shall provide to his workmen at least two exclusive similar pairs of dress/uniform that can be visually differentiated from the ITC uniform. All the Contract Workmen have to compulsorily wear the uniform while in the premises. The Contractor shall take the consensus of ITC before choosing the colour of the uniform. This is to distinguish the Contractor Workmen from me rest of the workforce. . . . . . . 6. WORKING HOURS,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mage cause to the protective gear and safety equipment. However, the Contractor shall not be responsible for the damages or loss arising out of the normal course of work or the normal wear and tear of the equipment. (iv) The ITC Occupational Health Center (Dispensary) shall give first aid to the Contractor Workmen who may suffer injures while carrying out their normal work in the premises. (v) For any major injuries suffered by the Contract Workmen while carrying out their normal work in the premises the Contractor shall make the necessary arrangements for the medical treatment and other related facilities. The major injuries are those injuries for which first aid alone is not sufficient and requires additional and/or specialized medical care/treatment and may include hospitalization. The Contractor shall have covered the costs of the hospitalization and the treatment for the injuries under a separate insurance policy and keep the insurance valid in the course of the aforesaid agreement. The Company shall not be liable for the costs of the same and the contractor keeps the Company indemnified in this regard. (vi) The Contractor shall be responsible to com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by all the rules or guidelines specified in the Job Specification, this agreement. (iv) The contract workmen shall work only in the areas specified by ITC from time to time, to fulfill the terms and obligations of this agreement. (v) In the event of any complaint by the Company against the contract workmen for any willful or intentional damage (inducing theft) the parties agree to jointly investigate the same and go by the "Test of Reasonableness" for coming to any conclusion on the cause of damage and the extent of damage. If the damage is found to be willful or intentional, then the Contractor may wherever possible repair / restore the damage caused or make good the losses to the Company. If the Contractor fails to make good the loss within the stipulated and mutually agreed time frame, the Company, after giving adequate notice, can recover the costs of the damage from the payments to be made to the Contractor under this agreement Further if such a circumstance arises, the Contractor assures the Company that he shall not withhold the statutory l obligatory / mandatory payments he is required to make to his workmen (deployed in the Company under this Agreement)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rolley and bundling of the collected gunny pattas for recycling 2. Hauling: Having is an activity of transporting the bale trolley from decaking area to the feed end and empty trollies back manually. 3. Case preparation: The activity involves preparation of relevant cartons for lamina and stem products as per the customer requirements. 4. Packing Support: The activity involves final adjustment of weight and presentation of package at hold on press area and subsequent strapping and labeling of the packed case. 5. Sampling. The activity involves collecting and transporting of samples from the Lamina, Stem and Scrap packing line to the testing lab. 6. Inspection: The activity involves layout of cases from the warehouse in the inspection cay. 7. Coal Crusher Feeding: This activity involves feeding of coal from coal yard with a dumper in to crusher hopper and simultaneously remove stones before feeding. 8. Coal Stoking: The activity involves stoking/poking and breaking of coal, which is fed in the boiler. 9. Loading/Unloading: The activity involves unloading of raw material, packing material and coal, and loading of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... postulates that when the hirer has control over the work assigned and the manner in which it is to be done, an employer-employee relationship is established. The control test is derived from common law application in vicarious liability claims. (ii) The earliest instance of applying the control test in India is in Shivanandan Sharma Vs Punjab National Bank Ltd. reported in AIR 1955 SC 404. Here, a claim under the Industrial Disputes Act arose as to whether a head cashier was the bank's employee. The bank had an agreement with a contracted treasurer who nominated people to work for discharging function of the bank under the agreement, including the cashier in question. The court held that although the treasurer chose the nominees who discharged the functions, yet the bank had complete control over the nominee's disciplinary matters, leave of absence, how the nominees discharged their functions, and, importantly, their salaries were paid by the treasurer from the funds provided by the bank. It was held that the bank manager had the same degree of control over the nominees as he did over numerous other employees, and thus an employer-employee relationship existed. The bank a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gration Test (i) The first instance of the shift from the control test as a sole determinative factor was in Silver Jubilee Tailoring House Vs Chief Inspector of Shops and Establishments reported in (1974) 3 SCC 498. This Court observed that the earlier reliance on the control test was attributed to the agrarian economy, where masters often exercised control over workers. This occurred due to masters having more knowledge, skill and experience. The shift to a multifactor. test is due to modern work being conducted by professionals where masters lack the technical expertise to direct the manner in which the work is undertaken. The court arrived at these conclusions relying on judgements in the Market Investigations Ltd. Vs Minister of Social Security reported in (1969) 2 WLR 1, Cassidy v Ministry of Health reported in (1951) 2KB 343, Montreal v Montreal Locomotive Works Ltd reported in 1947 1 DLR 161 (Privy council). In Silver Jubilee (supra) reliance was placed on a combination of the organisation test (also known as the integration test) as interpreted in the Market Investigations Ltd. (supra), Cassidy. (supra), Montreal Locomotive Works (supra) and the control test used ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ishment; h) the right to reject. (iv) This Court in Bengal Nagpur Cotton Mills v. Bharat Lal reported in (2011) 1 SCC 635 laid down two factors to be considered to determine the true nature of the hiring entity, i.e., whether it is the principal employer or contractor: (i) Whether the principal employer pays the salary instead of the contractor; and (ii) Whether the principal employer controls and supervises the work of the employee? 4. Refinement of the multifactor test (i) The courts, over the years, have refined the scope of the multifactor test by adding various factors based on the facts and circumstances. This Court, in many cases, has applied the refinement of the multifactor test. (ii) In Sushilaben Indravadan Gandhi v The New India Assurance Company Limited, reported in (2021) 7 SCC 151, this Court revisited the distinction between a contract of service and a contract for service. After analysing Market Investigations Ltd. (supra), Cassidy (supra) and Montreal Locomotive Works (supra), the multifactor test was reiterated, consisting of the following factors: a) Control over the work and manner in which....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e essential characteristics of job work service are that service provider is assigned a job e.g. fabrication/stitching, labeling etc. of garments in case of apparel. Service provider is accountable for the job he undertakes. It is for the service provider to decide how he deploys and uses his manpower. Service recipient is concerned only as regard the job work. In other words service receiver is not concerned about the manpower. The value of service is function of quantum of job work undertaken, i.e. number of pieces fabricated etc. It is immaterial as to whether the job worker undertakes job work in his premises or in the premises of service receiver. 3. Therefore, the exact nature of service needs to be determined on the facts of each case which would vary from case to case. The terms of agreement and scope of activity undertaken by the service provider would determine the nature of service being provided. . ." (emphasis added) 9. Before assessing the parties' relationship to determine whether the Contract is a 'contract for service' or a 'contract of service', in light of the "tests" laid down by the Hon'ble Supreme Court in Achchey Lal (supra), it is apposite to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... may report misconduct, ITC is not authorised to initiate disciplinary action or impose punishment; the entire disciplinary domain (including choice of action) is the sole responsibility of the Contractor. (iii) Control over performance and discipline: Clause 10(vii) reiterates that the Contractor is solely responsible for maintenance of discipline and performance of duties; ITC has no right of control or supervision over the Contractor's employees. B. Organisation / Integration Test (i) Job-work contract (not manpower supply): Clause 2(iv) expressly records that this is not an agreement for supply of manpower but an agreement to carry out and complete certain identified jobs (set out in Annexure I). This indicates that what is integrated, if at all, is the output/service, not the workmen as part of ITC's workforce. (ii) Visual and identity separation from ITC workforce: Clause 5(vi) mandates contractor-issued ID cards bearing the Contractor's name/address (not ITC's). Clause 5(xviii) requires contractor uniforms that are visually differentiable from ITC uniforms, reinforcing that the Contract Workmen are not absorbed into ITC's organisational se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en, which remain with the Contractor. 10.1 Accordingly, on an overall application of the above tests, the dominant and determinative indicia-direct supervision, disciplinary control, wage and statutory liability, and the express character of the arrangement as a job-work contract-establish that the Contract Workmen are employees of, and remain under the supervision and control of, the Contractor, and do not stand in an employer-employee relationship with ITC. The Contract is hence a 'contract for service' and not a 'contract of service'. The service is correctly classified under 'BAS' and not 'MSS'. 11. The finding of the Ld. Commissioner (Appeals) in the impugned order (extracted above), that the Appellant neither produced a copy of the agreement with M/s. ITC nor any documents in support of the claim is incorrect. The OIO itself records that a copy of the Agreement was furnished. In any event, the Ld. Commissioner (Appeals) could have called for the same. He has further observed that it is an 'undisputed fact' that the Appellant supplied manpower to carry out activities as required by the client and collected charges therefor. However, the refund claim proceeds on a positio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 3, Subsection (i) vide number G.S.R. 210 (E), dated the 17th March, 2012, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 66B of the said Act, namely:- . . . . . 30. Carrying out an intermediate production process as job work in relation to - (a) agriculture, printing or textile processing;" (emphasis added) 13.2 Post the introduction of the Negative List, the relevant portions of Section 66B and 66D are reproduced below: SECTION 66B. Charge of service tax on and after Finance Act, 2012.- There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. (emphasis added) ***** ***** ***** "SECTION 66D. Negative list of services.- The negative list shall comprise of the following services, namely :-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....missioner of Income Tax Vs Cynamide India Ltd. [1993 (3) SCC 727 (SC)]. The Court held: 5. The High Court has answered the question in favour of the assessee and against the revenue. Having referred to the definition of 'agricultural product' in Black's Law Dictionary, the High Court has held that the operation of de-husking paddy is not an industrial or manufacturing operation as commonly understood; it is essentially agricultural operation and such changes as are brought about in the product are an outcome of agricultural operation. Both rice and husk remain in their natural form as a result of de-husking and are covered by the term agricultural product' 6. The High Court has also formed an opinion that section 35C of the act was designed to encourage development of agriculture and therefore gave, a weighted deduction in respect of expenditure 'incurred in providing to the agriculturists services and facilities specified there in. The term 'agricultural product' or 'product of agriculture' is required to be construed liberally so as to include not merely the primary product as it actually grows, but also a product which under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tics but make it only marketable. This issue came up for consideration before this Bench in Green Leaf Tobacco Threshers Ltd and others Vs CCE & ST, Guntur [Common Order No. A/30302-30350/2017 dt.22.02.2017], wherein, it was held that processing and drying of tobacco leaves do not result in manufacture of any new product. The essential characteristic of tobacco remains unchanged. The activity is in relation to agricultural produce and such activity is not liable to service tax under BAS. In this regard, the relevant para of the order is cited below for ease of reference. "5.2 It is seen that as per Notification No.14/2004-ST, BAS in respect of inter alia, 'production of goods on behalf of client', inter alia 'in relation to agriculture' is exempted from service tax liability. This exemption got further broad banded vide Notification No.19/2005 dt.07.06.2005 as a result of which such BAS in respect of 'production of processing of goods for, or on behalf of the client' was exempted. Board's circular No.143/12/2011 had, in the wake of representations, clarified that the process of threshing and drying of tobacco undertaken for, or on behalf of the ....