2025 (5) TMI 485 - AT - Service Tax

Liability to pay service tax under the category of Manpower Recruitment or Supply Agency Service (MRSAS) - Fixation of value of taxable services under section 67 of the Finance Act 1994 reckoning the gross amount without segregating the expenses towards salaries and statutory payments under the ESI/EPF - HELD THAT - M/s ONGC calculates the wages payable as per agreement PF ESI and any other statutory dues and remits the same to the society for disbursal to the members of the society and for payment to Government accounts respectively. In addition M/s ONGC pays an amount of Rs.2, 500/- per month towards society maintenance. Appellants state that the amount is only liable to be calculated for tax. M/s ONGC submitted a list which is annexed to the SCN which contains amounts paid by M/s ONGC to service provider/appellants. In this list they have not bifurcated payments with regard to PF/ESI etc. Appellants have not provided any list containing the payments made to workers with details showing any bifurcations. In view of these facts and circumstances decision in the case of Young Brothers Transporters Contractors Vs CCE Meerut-I 2017 (9) TMI 229 - CESTAT NEW DELHI is not applicable to the instant case. Revenue relied on the decision of Coordinate Bench at Ahmedabad in the case of CCE ST Surat Vs Jalaram Security Services 2019 (10) TMI 1207 - CESTAT AHMEDABAD wherein it was held that as per section 67 the gross amount charged towards providing service shall be liable to service tax. As regards the salary of security guards PF and ESI the same is not an expenditure incurred by the appellant on behalf of the service recipient. The service recipient is concerned about the overall provision of security service irrespective of bifurcation of payment of service paid by the service recipient to the appellant. Therefore it cannot be said that salary of guards PF ESI etc. are reimbursable expenditures to be deducted from the gross value of security service. Therefore it was decided that only the commission portion is liable to tax and not the gross value. Conclusion - The gross amount charged towards providing service shall be liable to service tax. The service recipient was concerned about the overall provision of security service irrespective of bifurcation of payment of service paid by the service recipient to the appellant. Therefore it cannot be said that salary of guards PF ESI etc. are reimbursable expenditures to be deducted from the gross value of security service. Appeal dismissed.

The core legal questions considered in this judgment revolve around the liability to pay service tax under the category of Manpower Recruitment or Supply Agency Service (MRSAS) and, more specifically, the correct valuation of taxable services under section 67 of the Finance Act, 1994. The principal issues include:

1. Whether the appellant, a cooperative society supplying manpower to a corporate entity, falls within the definition of a service provider liable to pay service tax under MRSAS.

2. Whether the appellant's receipts from the service recipient, including salaries and statutory payments such as Employees State Insurance (ESI) and Provident Fund (PF), should be included in the taxable value for service tax purposes.

3. The correct method of valuation of taxable services under section 67 of the Finance Act, particularly whether the gross amount charged should be reduced by the amounts paid towards employees' salaries and statutory contributions.

4. The applicability and interpretation of relevant precedents concerning the valuation of manpower supply services and the inclusion or exclusion of statutory payments in the taxable value.

Issue-wise Detailed Analysis:

Issue 1: Liability of the Appellant to Pay Service Tax under MRSAS

The appellant is a cooperative society formed under the Societies Act, 1964, engaged in supplying manpower to M/s ONGC Ltd. The department's position was that the appellant's activity falls within the taxable service of MRSAS as defined under section 65(105)(k) of the Finance Act, which covers "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 appellant contended that being a cooperative society, it is not a commercial concern and hence not liable to pay service tax. However, the Court noted that the absence of an employer-employee relationship between ONGC and the contract workers, coupled with the appellant's role as a manpower supplier, squarely places the appellant within the ambit of MRSAS. The High Court's direction to the department to proceed with assessment further underscores the legal recognition of the appellant's liability.

Issue 2: Inclusion of Salaries and Statutory Payments in the Taxable Value

The appellant argued that the amounts received from ONGC include salaries and statutory payments (ESI, PF), which are not part of the service element and thus should not be included in the taxable value. The appellant relied on the principle that only the service element should be taxed, citing precedents such as the Delhi Tribunal's decision in MP Security Force and the Supreme Court's ruling in Intercontinental Consultants & Technocrats Pvt Ltd, which held that under section 67(1), only the service component is includible in the gross amount charged.

However, the Court observed that the appellant failed to provide a clear bifurcation of payments made towards salaries and statutory contributions. ONGC's payments to the appellant included wages, PF, ESI, and a maintenance amount, but no separate accounts were furnished by the appellant to demonstrate that these amounts were disbursed to workers or statutory authorities. This lack of segregation meant that the appellant could not avail the benefit of excluding these amounts from the taxable value.

Issue 3: Interpretation of Section 67 of the Finance Act on Valuation

Section 67 prescribes that service tax is to be charged on the "gross amount charged" by the service provider for the taxable service. The explanation to section 67 defines "consideration" and "gross amount charged" broadly, including reimbursable expenditures unless prescribed otherwise.

The appellant's contention was that salaries and statutory payments are reimbursable expenditures and thus should be excluded from the gross amount. The department, supported by case law, contended that these payments do not qualify as reimbursable expenses because the service recipient (ONGC) is concerned with the overall provision of manpower services, not the individual components of the payment.

The Court relied on the Coordinate Bench decision in CCE & ST, Surat Vs Jalaram Security Services, which held that salary, PF, and ESI payments are not reimbursable expenditures deductible from the gross value. The rationale is that the service recipient pays a consolidated amount for the service, and the service provider's internal disbursement of salaries does not affect the taxable value.

Issue 4: Treatment of Competing Precedents

The appellant relied on several decisions favoring exclusion of salary and statutory payments from taxable value, including MP Security Force and Young Brothers Transporters. The department cited contrary decisions such as Jalaram Security Services and others, which upheld the inclusion of the entire gross amount.

The Court distinguished the appellant's case from the MP Security Force decision on the ground that in the latter, the service receiver directly paid statutory contributions to the respective authorities, and the service provider did not receive or handle those amounts. In the present case, ONGC paid all amounts to the appellant, who was responsible for disbursal, and no clear evidence was furnished to show the amounts were not part of the gross consideration.

Thus, the Court found the appellant's reliance on precedents excluding statutory payments inapplicable due to factual differences.

Conclusions on Issues:

1. The appellant is liable to pay service tax under MRSAS as it provides manpower supply services without an employer-employee relationship between ONGC and the workers.

2. The gross amount charged by the appellant, including salaries and statutory payments, is liable to service tax unless a clear bifurcation and proof of reimbursement is furnished.

3. In the absence of such proof, the gross amount paid by ONGC to the appellant is the taxable value under section 67.

4. The appellant's arguments based on precedents excluding salary and statutory payments do not apply on facts.

Significant Holdings:

The Court held that "the gross amount charged towards providing service shall be liable to service tax. The service recipient was concerned about the overall provision of security service irrespective of bifurcation of payment of service paid by the service recipient to the appellant. Therefore, it cannot be said that salary of guards, PF, ESI, etc., are reimbursable expenditures to be deducted from the gross value of security service."

This principle establishes that in manpower supply services, the entire amount received by the service provider from the service recipient is taxable unless the service provider can demonstrate that certain amounts are merely reimbursed expenses incurred on behalf of the service recipient, which are excluded by prescribed conditions.

The Court dismissed the appeals, affirming that the appellant's valuation method was incorrect and that the entire gross amount charged was subject to service tax liability.

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