10 June 2024


Customs, Excise and Service Tax Appellate Tribunal

Sureel Enterprise Pvt. Ltd. Vs. C.C.E. & S.T., Ahmedabad-III



Service Tax

When contract between service provider and service recipient is of manufacturing, demand under man power supply cannot be made

The brief facts of the case are that, the Appellant entered into agreement with Nirma Limited, Bhavnagar (Nirma) accordingly to which the Appellant was supposed to manufacture detergent on job work basis. However, subsequently, they made another agreement accordingly to which the Appellant were required to carry out the process of converting the raw material into detergent/cake in the factory premises of Nirma at Bhavnagar with the machinery, material, land and building provided by Nirma. The case of the department is that, the Appellant provided manpower for manufacturing of detergent powder/cake to Nirma in its factory at Bhavnagar. Accordingly, the consideration received against the supply of manpower is leviable to service tax under the head of "Manpower Recruitment and Supply Agency Services".

The revenue has issued a show cause notice periodically for payment of service tax. The adjudicating authority holding that, the activity of the appellant is providing the services of "Manpower Recruitment and Supply Agency Services" confirmed demand of service tax. The demand of interest under section 75 of the Finance Act 1994, was made and penalty under section 76 and 78 was also imposed.

As per both the agreement that, the ultimate activity which is to be performed by the Appellant is to convert raw-material and packing material into packed detergent/cake irrespective of the fact whether the same is carried out in the Appellant's premises or at the premises of the service recipient i.e. Nirma Ltd. Even as per the agreement the clear understanding between the Appellant and Nirma Limited is not for supply of man power but to carry out manufacturing activity of detergent/cake, therefore, it is clear contract of manufacturing of excisable goods.

There is no dispute that the appellant after carrying out the manufacturing handed over the excisable goods to Nirma Ltd. who ultimately cleared the said goods on payment of excise duty. It is also observed that the appellant were paid the service charges, as per the quantity of excisable goods i.e. detergent/cake manufactured by the appellant and the consideration is not with reference to the number of man power/man hour deputed for the manufacturing of excisable goods. This also shows that, there is no contract between the Appellant and Nirma Ltd. for supply of man power. The activity carried out by the Appellant is at the most considered as "production or processing of goods on behalf of the client" which is covered under the service head of "Business Auxiliary Service". If this be so, then the service is exempted under Notification No. 8/2005-ST. Since, the demand was raised under wrong head i.e. Man Power Recruitment and Supply Agency Service, for this reason also, the demand is not sustainable.

Present tribunal time and again held that, if contract is for particular job and not for man power supply the demand of service tax under Man Power Recruitment and Supply Service cannot be raised. The impugned order is not sustainable. Hence, the same is set aside. The appeals are allowed.

Tags : Demand Confirmation Legality

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