Manpower Supply By Proprietor to Body Corporate Taxable Under Reverse Charge, Not on Service Provider: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that service tax on manpower supply by a proprietorship concern to a body corporate was payable by the service recipient under reverse charge, and not by the service provider.

Mofijul Ali, the appellant, was a proprietorship firm registered under service tax for manpower recruitment and supply agency services. The department alleged that he had short-paid service tax of Rs. 11,69,344 for the financial year 2016-17.

The demand was raised on the basis of differences between the turnover shown in Form 26AS, income tax records and ST-3 returns. The department treated the difference as suppression of taxable value and invoked the extended period under Section 73(1) of the Finance Act, 1994. Interest under Section 75 and penalty under Section 78 were also demanded.

The main dispute related to a work order issued by Gammon India Limited for manpower supply in connection with OPGW work. The appellant’s counsel argued that the manpower worked under the supervision and control of Gammon India Limited. They also argued that he was an individual service provider and the recipient was a body corporate.

The appellant’s counsel relied on Rule 2(g) of the Service Tax Rules, 1994 read with Notification No. 30/2012-ST dated 20 June 2012. They argued that the entire service tax liability on manpower supply was on the recipient under reverse charge. They also pointed out that he had neither charged nor collected service tax from Gammon India Limited.

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For the second work order, the appellant’s counsel claimed small service provider exemption. For the remaining demand, he argued that service tax of Rs. 7,88,907 had already been paid through challans and proper credit was not granted.

The revenue counsel argued that the appellant had not disclosed all receipts in ST-3 returns. It submitted that the demand was confirmed after verification of income tax returns and Form 26AS details.

The single-member bench comprising R. Muralidhar (Judicial Member) examined the work order and invoices. The tribunal observed that the documents clearly showed manpower supply services. Since the appellant was a proprietary concern and the recipient was a body corporate, the liability was on the recipient under reverse charge.

The tribunal set aside the demand of Rs. 8,67,579 on this ground. It also allowed the threshold exemption for the second work order and accepted the appellant’s tax payment details for the remaining demand. The tribunal further held that a demand based only on Form 26AS and income tax data cannot sustain the extended period without corroborative evidence. The appeal was allowed with consequential relief.

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