CESTAT Upholds Service Tax Demand on Manpower Supply Services [Read Order]
The Tribunal observed that what mattered to the service recipient was the overall provision of manpower services, without regard to how the payments made to the appellant were bifurcated
Manpower Supply
Manpower Supply
The bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has dismissed two appeals challenging levy of service tax on manpower supply services provided to M/s. ONGC, holding that the gross amount received for such services is liable to tax under the Finance Act, 1994.
The appeals were filed by Shanti Beem Friends Educated Unemployed Co-operative Society Ltd., Rajahmundry, against two Orders-in-Appeal dated 26 July 2012 and 30 August 2012 passed by the Commissioner of Customs, Central Excise and Service Tax (Appeals), Visakhapatnam.
The dispute arose when M/s. Oil and Natural Gas Corporation Ltd. (ONGC) informed the Department that the appellant society was engaged in supplying contract workers but was not discharging service tax on the amounts received. The Department observed that the activity fell within the scope of “Manpower Recruitment or Supply Agency Service” under Section 65(105)(k) of the Finance Act, 1994.
The Divisional Office, Rajahmundry, advised the society to obtain service tax registration through a letter dated 18 November 2009, but no registration was taken.
The Adjudicating Authority, after issuing show cause notices and examining the agreements between ONGC and the society, concluded that there was no employer-employee relationship between ONGC and the contract workers, and therefore the services squarely fell under manpower supply services.
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The AO confirmed the demand of service tax along with interest and penalty vide Orders-in-Original dated 20 December 2011 and 29 December 2011.
On appeal, the Commissioner of Customs, Central Excise and Service Tax (Appeals), Visakhapatnam, upheld the adjudication orders. The Commissioner held that the appellant’s contention that it is a cooperative society was not a commercial concern, therefore outside the service tax net was untenable in law.
The Commissioner also rejected the claim that the gross receipts included only reimbursements like wages, PF, and ESI, and confirmed that the entire amount received from ONGC was liable to service tax under Section 67(105)(k) of the Finance Act, 1994.
Aggrieved by these findings, the appellant carried the matter to the Tribunal.
Represented by P. Sai Makrandh, the appellant contended that being a cooperative society formed to provide employment to members, it was not a commercial concern and hence outside the scope of taxable service.
It was submitted that the consideration received from ONGC consisted largely of salaries and statutory dues like Employees’ State Insurance and Provident Fund, which could not be included in the value of taxable service.
Represented by A. Rangadham, the Department argued that the appellant was squarely covered by the definition of manpower supply services and was liable to service tax on the gross consideration received. It was submitted that ONGC made consolidated payments to the appellant for providing manpower, which included wages and statutory dues, and these could not be excluded under Section 67(105)(k) of the Finance Act, 1994.
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The Bench comprising of A.K. Jyotishi, Technical Member and Angad Prasad, Judicial Member held that the activities of the appellant clearly fell under manpower supply services and that the payments made by ONGC constituted the gross amount chargeable to service tax under Section 67(105)(k) of the Finance Act, 1994.
The bench rejected the appellant’s plea that wages and statutory contributions should be excluded, observing that ONGC’s payments were to the service provider for overall manpower services, not reimbursements. The Tribunal noted the absence of bifurcated records demonstrating separate treatment of wages and statutory dues.
The Tribunal emphasized that the service recipient was concerned about the overall provision of security service irrespective of bifurcation of payment of service paid by the service recipient to the appellant. Therefore, it could not be said that salary of guards, PF, ESI, etc., were reimbursable expenditures to be deducted from the gross value of security service.
Consequently, both appeals were dismissed, and the orders of the lower authorities were upheld.
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