Textile Job Work on Per-Kg / Output Basis Is Not Manpower Supply: CESTAT Quashes Service Tax Demands [Read Order]

The Ahmedabad Bench of the Customs, Excise andService Tax Appellate Tribunal (CESTAT) held that textile processing carried out on a job-work basis does not amount to manpower supply service and quashed the service tax demands raised against the appellants.

N D Enterprises, the appellant, is a proprietorship concern engaged in textile processing activities such as dyeing and hydro processing of yarn for a principal manufacturer. The work was carried out on a job-work basis at the premises of the principal, and payment was made on a per-kilogram basis. The raw material, machinery, and consumables were supplied by the principal manufacturer.

The department alleged that the appellant was providing manpower supply service and had not paid service tax for the period 2009-10 to 2010-11. A show-cause notice was issued demanding service tax along with interest and penalties. The demand was confirmed by the adjudicating authority and later upheld by the Commissioner (Appeals).

Similar demands were also raised against another appellant, Singh Labour Contractor, who was engaged in textile processing activities for another principal manufacturer. Aggrieved by the appellate orders, the appellants approached the CESTAT.

The appellants’ counsel argued that they were engaged only in job-work and not in supplying manpower. The appellant’s counsel submitted that payment was linked to the quantity of work completed and not to the number of workers deployed.

The appellant’s counsel argued that control over labour remained with the appellants and that they were responsible for quality, losses, and timely completion of work. Reliance was placed on Tribunal decisions and CBEC clarifications which distinguish job-work from manpowersupply service.

The department’s counsel argued that the workers were deployed at the premises of the service recipients and that the appellants were effectively supplying manpower. It was argued that the appellants were registered under labour-related laws and had failed to pay service tax, justifying the demands and penalties.

The two-member bench comprising Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) observed that the issue was already decided in favour of Singh Labour Contractor in an earlier decision of the Tribunal.

The tribunal observed that the contracts placed on record clearly showed that the appellants were engaged for specific textile processing jobs and were paid on a per-kg or per-unit basis, irrespective of the number of workers employed.

The tribunal further observed that the responsibility for execution of work, quality, losses, and labour law compliance rested with the appellants and not with the principal manufacturers.

The tribunal pointed out that as per the CBEC circular, manpower supply service involves supply of workers who are under the control of the service recipient and where payment depends on the number of workers deployed.

On the contrary, job work service is output-based and the service provider controls the manpower. The tribunal explained that the facts of the present case clearly matched the characteristics of job work and not manpower supply.

In view of these findings, the tribunal held that the service tax demands against both appellants were not sustainable on the merits. The tribunal set aside the impugned orders passed by the Commissioner (Appeals) and allowed both appeals.

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