2025 (5) TMI 1897 - AT - Service Tax

Demand service tax along with interest and penalties - activities undertaken are taxable under the category of Manpower Recruitment Or Supply Agency Service - Section 65(68) of the Finance Act 1994 - HELD THAT - The issue involved in this appeal is no more res integra as there are catena of decisions rendered by the Tribunal Chennai in favor of the Appellants holding that the supply of cane harvesters the laborers would not be falling under the Manpower Recruitment or Supply Agency Service. The decision rendered in the case of Arignar Anna Sugar Mills. Vs. Commissioner of GST Central Excise 2018 (9) TMI 387 - CESTAT CHENNAI is relevant. Thus we find that the services of the Appellants would not be classifiable under Manpower Recruitment or Supply Agency Service and consequently the demand raised cannot sustain and so requires to be set aside. Penalties imposed are also set aside. Ordered accordingly. Thus the appeal is allowed with consequential relief if any as per the law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the appellants, engaged in the manufacture of sugar and molasses and facilitating the supply of labor gangs for sugarcane harvesting to registered cane growers, were providing a taxable service under the category of 'Manpower Recruitment or Supply Agency Service' as defined under Section 65(68) of the Finance Act, 1994. Specifically, the Tribunal examined whether the appellants' activities amounted to supplying manpower or recruiting laborers for sugarcane cutting, thereby attracting service tax liability, interest, and penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Classification of the appellants' activities as 'Manpower Recruitment or Supply Agency Service' under Section 65(68) of the Finance Act, 1994

Relevant legal framework and precedents: The legal framework centered on the definition of 'Manpower Recruitment or Supply Agency Service' under Section 65(68) of the Finance Act, 1994, which taxes services involving recruitment or supply of manpower. The appellants relied heavily on a series of Tribunal decisions from Chennai, notably the case of Arignar Anna Sugar Mills Vs. Commissioner of GST and Central Excise, Trichy, which held that similar activities did not constitute a taxable manpower recruitment or supply service. Other precedents cited included Kallakuruchi Co-Operative Sugar Mills Ltd. and Nadippisai Pulavar K.R. Ramasamy Co-Op. Sugar Mill, where the Tribunal consistently ruled against classifying the supply of sugarcane cutting laborers as taxable manpower supply services.

Court's interpretation and reasoning: The Tribunal scrutinized the nature of the relationship between the appellants, the labor gangs, and the cane growers. It was noted that the laborers or gang leaders were independent contractors, not employees or agents of the appellants. The appellants did not exercise control over the laborers, did not fix cutting charges, and did not maintain a master-servant relationship. The farmers themselves negotiated and fixed the payment rates for harvesting. The appellants merely facilitated the identification of laborers for the convenience of the farmers and advanced payments to the laborers, which were subsequently recovered from the farmers. The Tribunal emphasized that no service invoices were raised by the appellants for manpower recruitment or supply, nor were any payments received as such.

Key evidence and findings: The appellate records demonstrated that farmers arranged for harvesting labor independently and that the appellants' role was limited to facilitating contact information of laborers when farmers were unable to find labor themselves. The laborers had the freedom to accept or reject work, reinforcing their status as independent contractors. The absence of any employer-employee relationship was a pivotal fact in the Tribunal's analysis.

Application of law to facts: Applying the statutory definition of manpower recruitment or supply agency service to the facts, the Tribunal found that the appellants' activities did not fall within the scope of taxable services under Section 65(68). The facilitation of labor identification without control, recruitment, or supply in the statutory sense meant that the service tax demand was unsustainable.

Treatment of competing arguments: The Department argued that since the appellants paid the laborers and recovered the amounts from the farmers, the activity amounted to manpower supply. The Tribunal rejected this, relying on the absence of any contractual or control relationship and the precedents holding similar facts. The appellants' contention that no service was rendered, no invoice raised, and no payment received for such service was accepted.

Conclusions: The Tribunal concluded that the appellants did not provide 'Manpower Recruitment or Supply Agency Service' and therefore, the service tax demand, interest, and penalties imposed were not sustainable and were set aside.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"From the facts on record, it cannot be said that the appellants have provided harvesting labourers to the sugarcane growers for harvesting the sugarcane. The Tribunal on identical set of facts had considered the issue and held that the sugarcane growers themselves are encouraging the harvesting labourers and as a mere facilitation, the amount to be paid to these harvesters are deducted from the price of the sugarcane that is to be paid to the farmers."

"The appellant company has no say in the rate for cutting demanded by the labourers and the labourers have got every right to deny to cut for a particular sugarcane grower. The mill simply manufactures the sugar with regard to the availability of the cutting labourers only."

"We are of the considered view that the demand cannot sustain and requires to be set aside, which we hereby do. The impugned orders are set aside and the appeals are allowed with consequential relief, if any."

The core principle established is that mere facilitation by a sugar mill in identifying independent harvesting laborers for farmers does not amount to providing 'Manpower Recruitment or Supply Agency Service' under the Finance Act, 1994. The absence of employer-employee relationship, control, or recruitment by the mill is determinative.

Consequently, the Tribunal set aside the service tax demand, interest, and penalties imposed on the appellants, allowing the appeal with consequential relief.