Service Tax not Leviable as Manpower Supply Service in absence of Consideration for Services: CESTAT [Read Order]

A Division Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, quashed service tax demand and held that service tax is not leviable under Manpower Supply Service in the absence of consideration for such services. The Tribunal also ruled that leasing of tea estates for plantation activities is exempt from service tax as an activity relating to agriculture.

The appeals were filed by M/s. NEPC Agro Foods Limited, challenging an order passed by the Commissioner of Central Excise, which had confirmed service tax demands, along with interest and penalties, under various taxable service categories for the period from November 2009 to June 2017.

The Department alleged that the appellant had rendered taxable services under the categories of Supply of Tangible Goods Service and Manpower Recruitment or Supply Agency Service and had failed to discharge service tax liability, obtain registration, and file statutory returns. Consequently, multiple show cause notices were issued.

The counsel for the appellant relied upon the decisions in CCE, Kolhapur v. Yashwant SSK Ltd. and Raje Vijaysingh Dafale SSK Ltd. v. CCE, Kolhapur, contending that in the absence of separate consideration and independent contractual arrangements, deployment of labour cannot be classified as manpower supply service. It was argued that the workers engaged in plantation activities were under the control and supervision of the lessee, who was responsible for payment of wages and compliance with statutory obligations. The appellant submitted that no consideration was received for any alleged manpower supply service.

The appellant further contended that there was no evidence demonstrating transfer of possession or effective control of machinery, including tractors, nor any separate consideration received that could sustain the demand under the category of Supply of Tangible Goods Service.

The Department, on the other hand, argued that the appellant continued to remain the employer of the plantation workers and facilitated their deployment to the lessee. According to the Revenue, the continued employer-employee relationship and payment of wages indicated that the appellant had supplied manpower for consideration. It was also contended that the appellant had provided tangible goods for use without transferring ownership, thereby attracting service tax under the category of Supply of Tangible Goods Service.

The matter was heard by a Division Bench comprising Vasa Seshagiri Rao, Technical Member and Ajayan T.V, Judicial Member. Allowing the appeals, the Tribunal observed that where employees are engaged in the operations of the lessee, wages are paid directly by the lessee, and no consideration flows to the lessor, the essential ingredient of a taxable service—namely, consideration—is absent.

The Bench held “In the present case also, as borne out from the lease agreement, the entire responsibility of engaging labour, payment of wages and statutory compliances rests with the lessee, and there is no evidence of any separate consideration flowing to the Appellant for supply of manpower.We hold that the demand under the category of “Manpower Recruitment or Supply Agency Service” is not sustainable. ”

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