No Intention to Evade Service Tax Payment: CESTAT quashes invocation of Extended Limitation against Manpower Recruitment/Supply Agency [Read Order]

The Ahmedabad Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) Bench, since there was no intention to evade Service Tax Payment, quashed the invocation of Extended Limitation against Manpower Recruitment/Supply Agency. The brief facts are that Milan Jashbhai Patel, the appellant firm being a proprietary concern engaged in providing Manpower Recruitment, are registered with the service tax department as per the provisions of the Finance Act, 1994. During the audit and verification of the noticee's reports, including the balance sheet, profit and loss accounts, ledgers, and invoices, the department noticed that the noticee had reported lower income in their ST-3 returns compared to the income shown in their profit and loss account for the period from 2006-2007 to 2009-2010. The department has noted that the appellant has suppressed the taxable value of the service and short paid service tax amounting to Rs. 15,27,818/- for the period from 2006-2007 to 2009-2010. The appellant during the course of the audit itself and before issue of the show cause notice, has deposited an amount of Rs.8,06,956/- towards the short payment of the service tax detected by the department. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here Based on which, a show cause notice was issued on 27.09.2012 u/s 73 (1) of the Finance Act, 1994. Various other provisions u/s Section 75 and Penal Provisions under Section 76 and 78 of the Finance Act, 1994 were also invoked. The matter was adjudicated by the impugned order-In-Original dated 28.03.2014 in which all charges invoked in the SCN had been confirmed by the adjudicating authority. Following which the appellant approached Commissioner (Appeals) against the impugned-Order-In-Original, but no relief was extended to the appellant. Shri Mrugesh Pandya, Advocate Appearing for the Appellant submitted that the impugned Order-In-Original as well as Order-In-Appeal seeks to be demanded differential service tax only on basis of difference between the income shown in the ST-3 returns as compared to the income shown in the balance sheet and assumes that difference is towards taxable services amount on which appropriate service tax has not been paid by the appellant. The Advocate has contended that certain amounts have been collected by the appellants as reimbursement of the various costs incurred by him towards the employees/workers supplied by him to various service recipients. These expenses included payment of bonus, supply of shoes and uniform to the workers, deposit of the PPF and insurance etc. The Advocate contended that the amount paid by their service recipient as per the agreement is taxable value in view of the provisions of Section 67 of the Finance Act, 1994 on which the appellant has correctly discharged their service tax liability. It further contended that actual expenditure made by the appellant on account of purchase of uniform, shoes, bonus, leave encashment, PPF and insurance was made by the appellant only on behalf of the employer of the manpower supplied by the appellant only on behalf of the employer of the manpower supplied by the appellant and these expenditures have been reimbursed on actual basis to them by the service receipt and thus same should not be considered as taxable value. The Advocate referred to the profit and loss account for the year ending 31.03.2007 and attempted to explain that certain expenditures, such as the expenditure on the purchase of shoes amounting to Rs. 52,842/-, had also been shown on the income side as Rs. 52,842/-. The Advocate further clarified that this represented the actual reimbursement of the expenditure incurred by the appellant for manpower supplied to various service recipients. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here The Advocate emphasized that the gross amount charged for providing manpower supply services, as outlined in Section 67 of the Finance Act, 1994, included only the per-person charges received. He further explained that other reimbursements for items such as uniforms, shoes, insurance, and PPF were made on behalf of their clients or service recipients and constituted purely a reimbursement of the actual expenditures incurred for the manpower supplied. The decision of Hon’ble Apex Court in case of Union of India vs. Intercontinental Consultants and Technocrats Pvt Limited, the Apex Courts has upheld the decision of the Hon’ble High Court of Delhi wherein the provisions of the Rule 5 (1) of the Determination of the Value Rules, 2006 have been held ultra vires. Later the advocate tried to emphasize that the actual reimbursement of the expenditure made by the service provider on behalf of service receipt cannot be included in the taxable value of the services provided by him. The Department Representative, Shri P Ganesan reiterated the findings given in the impugned Order-In-Appeal. The tribunal, hearing both the sides, found that the appellant had been discharging the service tax liability on gross amount received by them for manpower recruitment or supply service. However, the appellant had received reimbursement of certain expenditures made by him on account of the service receipt on the manpower supplied by him to them on account of supply of shoes and uniform,making provision for the provident fund, providing bonus, insurance etc. So the court found that the appellant has actually received reimbursement of various expenditures. So from the profit and loss account reproduced before the court, the court found that “other than the income on account of the supply of the manpower under head ‘Labour Charges’ the appellant has got reimbursement on account of PF, shoes, insurance, uniform etc. on actual basis which have been made by him.”So from the observations above the court came to the conclusion that the case is not a situation that has never been encountered. Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here So by referring to the decision of the Tribunal in case of Star Freight Pvt Ltd. vs. C.S.T Service Tax - Ahmedabad, where the court decided that since there is no suppuration of fact or malafide intention to evade payment of service tax, the demand or impugned order conforming service tax demand cannot be sustained and needs to be set aside. The CESTAT Bench of C L Mahar (Technical Member) observed that since the facts of the present case being akin to the one which is decided above, the court viewed that the matter is no long res-integra. Following which the court decided to follow and hold that the impugned Order-In-Appeal was without any merit and needed to be set aside. So the appeal was allowed by the court. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates