2025 (7) TMI 481 - AT - Service Tax

Levy of service tax on the services rendered to Railways - manpower recruitment or supply agency service - denial of benefit of the VCES Scheme - HELD THAT - A perusal of the Scope of works as mentioned in the Contract reveals that the works undertaken by the appellant does not start and end with recruitment of persons and supplying those persons to Railways so as to categorize the work under the category of manpower recruitment or supply agency service . It is observed that the Appellant Society is not a man power supply agency . The appellant has undertaken the work of Manning of Railway Traction Sub Station at Danapur Railway Station. This indicates that the appellant have undertaken the complete work related to manning the Railway Traction Sub-Station and not merely engaged the persons and gave it to Railways. The Scope of work as mentioned in the Contract clearly reveals that the works undertaken by them does not related to engagement of man power alone for the work. The manpower has been used by them to undertake the work. Hence the said activity undertaken by the appellant/assessee cannot be categorized as man power recruitment and supply agency service . Accordingly the demand of service tax confirmed in the impugned order under the category of manpower recruitment or supply agency service is not sustainable and hence the same is set aside. As the demand itself is not sustainable the question of demanding interest or imposing penalty under Section 78 of the Act does not arise. No fine is imposable under Rule 7C of the Service Tax Rules 1994. Also in these facts and circumstances no penalty is imposable on Secretary u/s 77 of the Finance Act 1994. Accordingly the fine and personal penalty imposed are also set aside. The impugned order is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the services rendered by the appellant society to the Indian Railways fall within the scope of 'manpower recruitment or supply agency service' as defined under Section 65(105)(k) of the Finance Act, 1994 and are therefore liable to service tax.

- Whether the demand of service tax confirmed by the adjudicating authority on the appellant under the category of 'manpower recruitment or supply agency service' is sustainable.

- Whether the appellant is entitled to the benefit of the Voluntary Compliance Encouragement Scheme (VCES), 2013, despite having received a summon under Section 14 of the Central Excise Act, 1944 prior to 1st March 2013.

- Whether penalties and interest imposed under Sections 77, 78, and 70 of the Finance Act, 1994, and Rule 7C of the Service Tax Rules, 1994, are justified in the facts and circumstances of the case.

- Whether the personal penalty imposed on the Secretary of the appellant society under Section 77 of the Finance Act, 1994, is sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Services Rendered by the Appellant under 'Manpower Recruitment or Supply Agency Service'

Relevant legal framework and precedents: Section 65(105)(k) of the Finance Act, 1994 defines 'manpower recruitment or supply agency service' as "any service provided or to be provided to any person, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner." The Explanation clarifies that recruitment or supply of manpower includes pre-recruitment screening, verification of credentials, antecedents, and authenticity of documents.

Court's interpretation and reasoning: The Court examined the nature of services rendered by the appellant society, which consists of retired railway employees undertaking works related to the Indian Railways after winning tenders. The society deploys staff with relevant experience and arranges tools and tackles for execution of the work. The Court noted that the appellant does not merely supply manpower but undertakes the entire scope of work, including operation, minor repairs, maintenance, cleaning, painting, and round-the-clock manning of Railway Traction Sub-Stations (TSS).

Key evidence and findings: The specimen contract submitted by the appellant detailed the scope of work, including operation of equipment, minor repairs, cleaning, painting, and continuous manning of the TSS. This demonstrated that the appellant was responsible for the entire execution of the contract and not simply supplying manpower.

Application of law to facts: The Court held that since the appellant's activity involves execution of a complete work contract and not merely recruitment or supply of manpower, the service cannot be categorized under 'manpower recruitment or supply agency service' as defined under the Finance Act.

Treatment of competing arguments: The Department contended that the appellant's services fall under the taxable category of manpower recruitment or supply agency service. The appellant argued that their service is distinct and involves complete execution of work beyond mere manpower supply. The Court found the appellant's submissions and contract terms more persuasive and rejected the Department's classification.

Conclusions: The Court concluded that the appellant society is not a manpower recruitment or supply agency and the demand of service tax under this category is not sustainable.

Issue 2: Demand of Service Tax and Appropriation of Payments

Relevant legal framework: The service tax demand was raised for the period 2008-09 to 2013-14, with payments made by the appellant including Rs. 23,92,736/- deposited during investigation and Rs. 40,00,000/- under the VCES scheme.

Court's interpretation and reasoning: Since the demand of service tax itself was held unsustainable, the Court found no justification for confirming the demand or appropriating the payments towards such demand.

Application of law to facts: Given the rejection of the taxable classification, the payments made by the appellant could not be appropriated against any valid demand.

Conclusions: The demand of service tax was set aside, and consequentially, the appropriation of payments was also invalidated.

Issue 3: Entitlement to Benefit under VCES, 2013

Relevant legal framework: The VCES scheme, introduced on 25.11.2013, allowed voluntary compliance with service tax liabilities. However, benefit was denied to the appellant by the Designated Authority on the ground that a summon under Section 14 of the Central Excise Act, 1944 was issued before 1st March 2013 and an enquiry was pending.

Court's interpretation and reasoning: The Court noted that the appellant had challenged the denial before the Patna High Court, which granted liberty to approach the Tribunal. However, since the service tax demand itself was held unsustainable, the question of denial of VCES benefit became moot.

Conclusions: The appellant's entitlement to VCES benefit was not directly decided but became irrelevant following the dismissal of the service tax demand.

Issue 4: Imposition of Interest and Penalties under Sections 77, 78, 70 of the Finance Act, 1994 and Rule 7C of Service Tax Rules, 1994

Relevant legal framework: Sections 77, 78, and 70 of the Finance Act, 1994, and Rule 7C of the Service Tax Rules, 1994, provide for penalties and interest on non-payment or delayed payment of service tax.

Court's interpretation and reasoning: Since the service tax demand was set aside as unsustainable, the Court held that the imposition of interest and penalties based on that demand could not stand. The Court also set aside the penalty imposed on the appellant and the fine under Rule 7C.

Application of law to facts: The penalties and interest are contingent upon the existence of a valid tax demand. With the tax demand quashed, the penalties and interest lost their foundation.

Conclusions: All penalties, interest, and fines imposed in connection with the invalid demand were set aside.

Issue 5: Personal Penalty on Secretary under Section 77 of the Finance Act, 1994

Relevant legal framework: Section 77 allows imposition of penalty on persons responsible for non-compliance with service tax provisions.

Court's interpretation and reasoning: The Court found no justification for imposing personal penalty on the Secretary given that the primary demand was unsustainable and the appellant society's activities did not attract service tax under the impugned category.

Conclusions: The personal penalty imposed on the Secretary was set aside.

3. SIGNIFICANT HOLDINGS

"The Scope of work as mentioned in the Contract clearly reveals that the works undertaken by the appellant does not start and end with recruitment of persons and supplying those persons to Railways, so as to categorize the work under the category of 'manpower recruitment or supply agency service'. We observe that the Appellant Society is not a 'man power supply agency'. We find that the appellant has undertaken the work of Manning of Railway Traction Sub Station at Danapur Railway Station. This indicates that the appellant have undertaken the complete work related to manning the Railway Traction Sub-Station and not merely engaged the persons and gave it to Railways."

"Hence, we hold that the said activity undertaken by the appellant/assessee cannot be categorized as 'man power recruitment and supply agency service'. Accordingly, we hold that the demand of service tax confirmed in the impugned order under the category of manpower recruitment or supply agency service' is not sustainable and hence we set aside the same."

"As the demand itself is not sustainable, the question of demanding interest or imposing penalty under Section 78 of the Act does not arise. We also hold that no fine is imposable under Rule 7C of the Service Tax Rules, 1994. Also, in these facts and circumstances, no penalty is imposable on Shri Arvind Kumar, Secretary, under Section 77 of the Finance Act, 1994. Accordingly, the fine and personal penalty imposed are also set aside."

"In view of the above findings, the appeal filed by the assessee is allowed, with consequential relief, if any, as per law and the appeal filed by the Revenue is rejected."