Manufacturing of Valves Based on Fixed Remuneration on a Tonnage Basis, No Service Tax Leviable under MRSA Service: CESTAT [Read Order]

The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that no service tax leviable under“Manpower Recruitment or Supply Agency Service” (MRSAS)  service on manufacturing of valves based on fixed remuneration on a tonnage basis.

Mr. A. Natarajan, the appellant assessee was registered under the category of “Manpower Recruitment or Supply Agency Service” (MRSAS). It appeared to the department that the appellant provided MRSAS for the work of the water cooling system pipeline laying to M/s.BHEL, Trichy during the period January 2011 to March 2011 and received payment from M/s.BHEL Trichy.

The appellant did not discharge service tax on the payments received from M/s.BHEL, Trichy and was liable to pay a service tax of Rs.66,642/- under the category of MRSAS. Show cause notice was issued to the appellant demanding service tax along with interest and imposing a penalty. After due process of law, the original authority confirmed the demand along with interest and imposed a penalty.  On appeal, Commissioner (Appeals) upheld the same.

Shri G. Derrick Sam appeared for the appellant and submitted that the nature of the activity of the appellant is as per the work orders of M/s.BHEL is to assist in the work of turning, machining, welding, assembly, and hydraulic test station and to assist in the work of shipping, grinding, painting and cleaning.  It was explained by the Counsel that the appellant’s responsibility does not cease with the supply of manpower but it is manufacturing valves (boiler components) and the remuneration fixed is on a tonnage basis. This being so, the activity is not covered under the category of MRSA Service.  

It was also argued that the activities are ancillary works of manufacturing activity and therefore cannot be subject to the levy of service tax. The process of denting and painting, which were carried on bus bodies before clearances from the factory, was held to be a process essential for the completion of finished products and held to be part of manufacturing activity. 

The Joint Commissioner set aside the demand holding that as the payments were made per MT basis, the activities are incidental to the completion of manufacture and hence not subject to levy of service tax. 

A two-member bench of Ms Sulekha Beevi C.S, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) observed that the appellant has obtained a work order to execute certain works which are part of the manufacturing activity. The appellants are thus responsible to execute the work. The payment is on a tonnage basis/unit rate.

“Being a contractor for execution of work, the contractor gets to decide the number of persons that have to be engaged for completion of the work whereas, in the case of manpower recruitment services, the contract for the supply of workers and the payment is based on man hours spent by the employee, which was not covered under MRSA Service”, the bench held.

As a result, the CESTAT set aside the impugned orders and allowed the appeal.

To Read the full text of the Order CLICK HERE

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