When Workmen are not Integrated into the Hiring Organization, Contract Cannot be Classified as Manpower Supply Services: CESTAT Allows Appeal filed by Larsen & Toubro [Read Order]

The Customs, Excise and Service Tax AppellateTribunal (CESTAT), Chennai, held that when workmen are not integrated into the hiring organisation, their contracts cannot be classified as manpower supply services.

The facts of the case are that the appellant, M/s. Larsen & Toubro Ltd., had engaged various contractors to carry out operations within its factory premises pursuant to work orders under which all materials, power, and machinery were supplied by the appellant, and the work was executed under its supervision and control, with consideration paid on a per-piece or per-MT basis.

The department classified these activities as Manpower Recruitment and Supply Services attracting liability to pay 75% of the service tax under the partial reverse charge mechanism (RCM). It was found that only tax was paid only partly, resulting in short-payment. The Commissioner confirmed the demands raised along with interest and penalties under Sections 76 and 78. The appellant then preferred the present appeal before the Tribunal.

The counsel for the appellant submitted that mere execution of work at the appellants’ premises using their raw materials and tools does not constitute manpower supply. It was argued that once activity is held non-taxable in the hands of the service provider, the corresponding RCM demand is unsustainable.

The issue that the tribunal considered was whether the contractors are independent job workers rather than mere suppliers of contract labour. Reliance was placed on General Manager, U.P. Cooperative Bank Ltd. v. Achchey Lal & Anr to reiterate that the workmen are on the contractor’s rolls and under his supervision, this emphasises the relationship failing the ‘control test’.

The CESTAT observed that nature of contracts are examined in such fast-specific matters and noted that contracts entered into for execution of specified jobs, where consideration is linked to output or piece-rate basis and the workmen are not integrated into the hiring organisation, cannot be classified as manpower supply services.

The two member bench, consisting of Ajauan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member), held the appellant eligible for consequential relief and set aside the previous orders.

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