Manpower Supply by ITC to Five Hotels Liable to Service Tax Under “Manpower Recruitment or Supply Agency Service”: CESTAT [Read Order]

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Bench in New Delhi has ruled that providing manpower by ITC Ltd  to five hotels for almost three years will undoubtedly result in service tax under "manpower recruitment or supply agency service."

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The hotels were taken from the proprietors by the assessee/ITC, who then managed and administered them as separate corporate entities. The Noticees and the hotel owners entered into agreements for the full management and running of the establishments. The operations of the hotels as business entities were the most important factor, not the availability of labor.

In order to recover service tax on "manpower recruitment or supply agency services" that ITC delivered to the service recipient, the show cause notice was issued. Both the demand and the adjudicating authority confirmed it.

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The assessee appealed the Adjudicating Authority's decision to the Commissioner (Appeals), who upheld the Additional Commissioner's ruling. Before the Tribunal, the assessee has contested the Commissioner's (Appeals) ruling. The assessee argued that it is not providing manpower in the regular course of business. Furthermore, ITC had no intention of avoiding service tax payment because it honestly believed it was exempt from paying it.

In contrast, the government argued that ITC was collecting staff charges from the proprietors of the five hotels, namely gross salaries that included provident fund contributions, pensions, and employee gratuities, all of which amply demonstrated that the personnel belonged to ITC. The agency further argued that an assessee has an obligation to submit all relevant information, and that failure to do so would be interpreted as an attempt to avoid paying service tax.

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The Tribunal noted that the department can always call on an assessee to obtain information, including in cases of self-assessment, and that the appropriate person has a responsibility to examine whether the duty assessed by the assessee was accurate. The officers' responsibility to carefully review the returns is also emphasized in the departmental instructions given to them.

The two-member bench of P.V. Subba Rao (technical) and Dilip Gupta (president) has noted that ITC has assigned staff to other hotels in order to maintain and operate those hotels in accordance with ITC Welcome group standards and to run those hotels smoothly and efficiently. This is in reference to the manpower supply to five units on a cost recovery basis. Under the heading of "manpower recruitment or supply agency service," it would be evident that providing labor to five hotels for almost three years would be subject to service tax.

While dismissing the appeal, the Tribunal ruled that the government's argument could not be accepted since an assessee was not required to ask the department for clarification.

To Read the full text of the Order CLICK HERE

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