TMI Blog2010 (3) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... in recruitment and imparting of specialized training for the recruited personnel cannot be held against the appellants’ claim that they have not supplied the manpower but have merely recruited and retained the same for providing specialized services to Pfizer utilizing such manpower. - the nature of services required to be provided by the appellants are in the nature of information technology services as the same relates to data management. - ST/195/2009 - 259/2010 - Dated:- 3-3-2010 - Ms. Jyoti Balasundaram, Vice-President and Dr. Chittaranjan Satapathy, Member (T) REPRESENTED BY: S/Shri N. Venkataraman, Sr. Counsel assisted by S. Muthuvenkataraman and M.N. Bharathi, Advocates, for the Appellant. S/Shri N. Rajagopalan , Special Counsel and V. V. Hariharan, Jt. CDR, for the Respondent. [Order per: Chittaranjan Satapathy, Member (T).]. - Heard both sides. The period involved and the amounts involved in this appeal are as follows:- Appeal No. Period ST + CESS (In Rupees) Penalties (In Rupees) ST/195/09 14-2005 to 31-3-06 and 16-5-05 to 31-3-2007 Rs. 1,48,74,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts for validation of regulated computer systems, used in the performance of ser vices, [Clause 3.3 (c)] (e) Appellants to maintain all applicable licences, accreditations, certifications, permits, and authorizations required to provide the service and adhere to all applicable current professional standards, [Clause 3.3 (g) and (h)]. (f) Appellant is responsible for all project management and quality assurance activities necessary to fulfil its obligation under this agreement and work orders. (Clause 3.5) (g) Appellants will provide regular updates as to the progress of the services at a frequency and in a manner designated by Pfizer in the scope of services or work order. (Clause 3.6) (h) Unless otherwise specified in this agreement, the work order or Attachment-i (scope of services), appellants, at its own expense, will provide all the equipments, tools, materials and supplies necessary to accomplish the services. (Clause 3.7) (3) Clause 4—Time-lines: Timely performance of services is required. Appellants will use its commercially reasonably efforts to initiate, conduct and complete each step of services within the time-line where specified in the work order is appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y unavoidable, provided however, Pfizer may withhold payment of any amount disputed in good faith, pending resolution of such disputes. [Clause 16.8(a)]. ATTACHMENT- I (SCOPE OF SERVICES) (7) Description of Services: (a) The appellant will provide biometric services by retained staff for various Pfizer sponsored clinical studies. Specific studies or numbers of retained staff will be identified in individual work orders issued under this agreement unless an explanation is provided in the work order to explain why the study cannot be identified. A given work order may cover more than one study. Services may include some or all of the functions described below. Pfizer will provide the appellant with the Pfizer documents and instructions referred. (b) CRF Designs, Database Designs, Validation Procedure, Programming and Validation, Coding, Data Management, Data Programming, Data Acquisition, Scanning and Inducting, Statistical Sup port, Statistical Programming, Analysis and Reporting, Serious Ad-verse Reconciliation, Quality Control, Medical Writing, clinical Communications. (c) Service Standard for each of the above referred category. (d) Appendix 6 to Attachment — 1: S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant as part of this retained workforce will work on Pfizer-sponsored studies performing activities detailed in Attachment-1 of the agreement and will remain sole employees of appellant. Pfizer shall make all reasonable efforts to support applicant to recruit and train the staff that will be dedicated for Pfizer work. Functional supervision will be provided by Pfizer during this time in such a manner that at the termination date of this work order, appellant will be able to work as a Functional Service Provider (FSP) on a project basis. Upon appellant moving to the FSP model, the parties agree to enter into a new work order for FSP services. The appellant-staff assigned to Pfizer projects under this work order in 2004 and 2005 will be located on Dev Ops India premises for the first 6 months after joining. Thereafter staff will move to the appellant's premises. Total number of staff required for 2 year retained F model The total number of stall will be 86, 30 of which will be recruited during February, 2005 and 56 during July, 2005. Function Feb., 05 Number of Staff July, 05 Number of Staff Associate Biom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... design, Database Design, Validation Procedure, Programming and Validation, Coding, Data Management, Data Programming, Data Acquisition, Scanning and Indexing, Statistical Programming, Analysis and Reporting, Serious Adverse Event Reconciliation, Quality Control, Medical Writing, Management including specified service standards. (2) Attachment-2 describes that Pfizer shall support appellants to recruit and train the staff that will be dedicated for Pfizer work and functional supervision will be provided by Pfizer during the period of work order. Comments: Attachment - 2 has been read in isolation. There is a Master Biometric Service Agreement, Attachment-1 and work order containing Attachments 1 to 4. A cumulative reading of the clauses would indicate the following: (a) The contract is for rendition of biometric services, in the nature of Clinical Programming and Writing (CPW) and Global Clinical Data Services (GCDS) and Data Management and Biostatistics and Reporting. (b) The contract, along with attachments and work order, defines the scope of work, performance of services, project management and quality assurance, obligation to update services performed, timeline in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment can be on per diam basis, man-hour basis, monthly-hour basis etc. Still, if the contract is for delivery of services, it cannot be termed as a Manpower Supply Contract, merely because measure of payment is in terms of man-hour basis. This can not be the yardstick to decide whether the service is in the nature of Consulting Engineer or Manpower supply. (b) Further, the order concedes that the payment is not mere salary but includes rentals, and various other administrative costs. This only goes to prove and vindicate the stand of the appellant that the contract is not for manpower supply but deliverables in the nature of services. (4) The order refers to Attachment-4 does not dispute the same and gives no finding. Comments: As clearly conceded, Attachment-4 deals with Task Ownership Matrix. The task of delivering the service vests wholly with the appellants and it should be delivered in line with international congress of harmonization good clinical practice guideline or applicable local governmental regulations. (5) Para 17 of the order-Appellant is a contractual employer of the staff supplied to Pfizer. Such staff work under a Project Manager, who is identified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply agency" means any person engaged in providing any service, directly or indirectly in any manner for recruitment or supply of manpower, temporarily or otherwise to any other person. Parliament under manpower supply obligates the ultimate deliverable to be "Supply of manpower temporarily or otherwise". There is no contractual obligation for a manpower supply agency to undertake provision of any notified or specified services as a part or in addition to supply of manpower. Section 65(68) as it originally stood prior to 16-6-05 reads as under: "Manpower recruitment agency" means any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment of manpower to a client. "In other words, the definition initially was made applicable only for recruitment. Later with effect from 16-6-05 it got amended as "Manpower recruitment or supply agency". The purpose of the legislation should be inferred from the expressions used namely "recruitment", "supply". Both in the case of recruitment and in the case of supply of manpower, the obligation of the service provider would end once people are recruited or people are supplied. The definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, if the responsibility is to render a specified service, which in the instance cases is computer software services, will it be open to the Revenue to still classify the services as manpower supply. Contractual responsibilities are determinative of the classification of service. If the responsibility is for supply of manpower it would be a "manpower supply agency", on the other hand if the responsibility is to render technical assistance while providing computer software services, the same has to get classified only under "Consulting Engineer". Relevant portion of the contract are extracted hereunder: - (1) Appellant is responsible for all project management and quality assurance activities necessary to fulfil its obligation under this agreement and work orders (3.5) (ii) Appellant will provide regular updates as to the progress of the services at a frequency and in a manner designated by Pfizer in the scope of services or work order (3.6) (iii) Appellant to comply with Pfizer provided standards and requirements for validation of regulated computer systems used in performance of services and ensure that any electronic records and electronic signatures are subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Focus InfoTech. Pvt. Ltd. Location therefore is immaterial. If per- formed from one zone/premises are termed as computer software services, it cannot become manpower supply merely because it is rendered or performed at the client's premises. As long as the scope of deliverables, responsibility and accountability is for provision or rendition of computer software services. The transaction would merit classification only under "Consulting Engineer" and will not become manpower supply. When a computer software service is rendered from the service provider's own premises or location using his own infrastructure, the presumption if any, should go in favour of such service providers, classifying the services as "Consulting Engineer". Relevant clauses in the contract on record are as below : - (i) Appellant will provide a standard work environment in its office following a period of 3 to 6 months when appellant employees will be trained in Pfizer premises in Mumbai (Clause 3.8) (ii) The appellant staff assigned to Pfizer projects under the work order will be located in Dev Ops India premises tot first six months. Thereafter, staff will move to appellant premises (Clause 1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n progress and in the event of termination by Pfizer pursuant to 16.3(a) or 16.6(a) appellant will also be entitled to recover those reasonable costs incurred in anticipation of performance of services to the extent they are reasonably unavoidable, provided however Pfizer may withhold payment of any amount disputed in good faith, pending resolution of such dispute [Clause 16.8(a)]. (ii) This agreement and the associated work orders are governed by the laws of India without giving effect to conflict of laws provisions. The parties irrevocably agree that any legal action, suit or proceeding arising out of this Agreement must be brought solely and exclusively in the Courts of Mumbai. (Clause 17.11) (g) Consideration: It's a common fact both in commerce and in law that consideration is only a measure and cannot go to identify or define a service. It cannot form the basis to define a contractual obligation. Consideration is money or money's worth for rendering any type of services. It gets fixed contractually either on a lump sum basis, or fixed cost basis or a time and material basis. It the service provider uses his own infrastructure it will be a contract inclusive of the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stand further appellants rely on clause 4.6 in the case of Future Focus. The same is extracted hereunder: "Cognizant will recruit and retain a defined number of employees for a period of two years. All cognizant employees recruited as part of this retained workforce will work on Pfizer-sponsored studies performing activities de tailed in Attachment 1 of the Agreement" Attachment 2 to the scope of service at page 193 also defines management staff. "Cognizant will appoint a Project Manager who will be dedicated supporting Pfizer under this Work Order. This individual will act as the single of contract and will be responsible for the overall management of the project. Pfizer shall also identify an appropriate person to act as single point of contract from Pfizer to facilitate seamless communication between the two organizations relating to this Work Order. Cognizant Finance/Human Resources staff will provide support for general administration, salary administration and invoicing". A close scrutiny of these two clauses in the case of the respective appellant's goes to clearly show that the entire contract is for provision of work and at the highest identifies people. It does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation Technology Software Service with effect from 16-5-08 would go to show that the transaction under question would have to be categorized under the specific description of "Consulting Engineer" and not a general description "Manpower Supply". There is one more reason in classifying under consulting engineer. Section 65 of the Finance Act, 1994 is a definition clause, defining various notified services. There are several services which are identified and specifically noted, which are performed through human agency. To name a few are:- (i) Section 65(105)(h) - Custom house agent (ii) Section 65(lO5fllj) - clearing and forwarding agent. (iii) Section 65(105)(q) - interior decorator (iv) Section 65(105)(w) - security agency The appellants also placed on record services rendered by human agency in the form of advise, consultancy or technical assistance. These have been identified as specific services under :- (i) Section 65(105)(g) — Consulting engineer (ii) Section 65(105)(r) — management or business consultant (iii) Section 65(105)(v) - real estate agent (iv) Section 65(105)(za) — Scientific or technical consultancy (v) Section 65(105)(zzzze) — Informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not attract levy; further penalty cannot be imposed both under Section 76 and Section 78. The appellant has placed reliance on a few case laws. (2) In order to determine the nature of service rendered by the appellant it is necessary to look into the various clauses in the agreement between the appellant and Pfizer. A careful look at the agreement will reveal that there are two components- one for undertaking the clinical data management, and the other for supply of manpower. (1) whenever Pfizer wanted data management to be undertaken by the appellant on Pfizer sponsored projects, the work order categorically described the study, the nature of work, the budget allocation, time frame etc., and (2) where Pfizer wanted only manpower, work order issued will specify the number required to undertake unspecified projects. In both cases, separate work orders would be issued. The relevant clauses in the agreement are referred herein to bring forth the differences between the two. (3) The appellant has entered into an agreement with Pfizer, known as Master Biometrics Service Agreement effective from 1-12-2004. This agreement will remain in force up to 1-2-2010 (Clause 16). This agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Pfizer during this time in such a manner that at the termination date of this work order, COGNIZANT will be able to work as a Functional Service Provider (FSP) on a project basis. Upon COGNIZANT moving to the FSP model, the parties agree to enter into a new Work Order for FSP services. (emphasis supplied). (6) Further, this attachment specifies the number of staff and the discipline in which required. Totally, 30 numbers were required to be recruited in the month of Feb., 2005 and 56 in the month of July, 2005. The functional descriptions are Associate Biometrician Programming, Associate Biometrician Data Management, Associate Biometrician Study Start-up, Clinical Communications Specialist Pfizer will procure all required hardware and software for the staff of the appellant to carry out activities for Pfizer. By Change Order I dated 27-12-2005, 31 additional staff was to be recruited. Another Change Order effective from 1-2-2006 placed order for recruitment of additional staff. Thus the activity under taken as per this work order read with amendments confined to recruit and supply manpower to Pfizer. Since the hardware and software were also supplied by Pfizer, it is not correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dministrative costs - all go to arrive at 'per seat cost'. Since these are included under the fees for each person, these charges cannot be omitted. (10) The budget allocation under this head is a total amount and it can not be vivisected and the tax has to be paid on the full amount. Since this amount spent on providing infrastructure is in relation to providing the requisite ambience for the staff, this is integrally connected with the manpower supply. Hence, there is no merit in this argument. (11) Being a hi-tech corporate, it is expected of them to abide by the law. Being in the field of providing consultancy, software solutions, design, development of software, the appellant cannot plead ignorance. Other than anybody else, the appellant ought to have known that the services rendered as per the work order in question, did not amount to providing software related work. Further IT Software services came under service tax net only from 16-5-08, and hence they could not have anticipated this earlier. Whereas, manpower recruitment service was in force from 7-7-1997. When the work order specifically required only supply of manpower and when Pfizer volunteered to help the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork order, and in the event of any conflict between MSA and the work order, the provisions in the work order only will prevail. As per the work order effective from 1-12-2004 (Page 189), entered into under MSA, the appellant was to recruit and retain a defined number of employees as part of the retained work force. Service description is given in Attachment I to the work order. The appellant will provide the number of Full Time Equivalent staff as defined in Attachment 2 to the work order. Attachment 2 to the work order very clearly states that for the first 2 years of service under this work order, the retained Fit model will be employed. Appellant will recruit and retain a defined number of persons, and Pfizer will assist the appellant in recruitment and Pfizer will also train the staff. Pfizer will also provide the functional supervision in such a manner that at the termination date of this work order, the appellant will be in a position to move to the second stage, namely, FSP model. The number of persons to be recruited and the functional description of the staff is also given in this Attachment. Once the appellant is ready to move to FSP model, another work order will be exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they did not possess any professional qualification as a computer engineer. (5) As for the argument that the staff worked under the control of the Project Manager of the appellant it is pointed out that even he is approved by Pfizer and paid by Pfizer. (6) The work order has a separate budget for providing the staff and the payment is 'per seat cost'. This includes fixed and variable costs such as space rental, utilities etc. Management costs towards management recruitment and administrative costs are also included in the budget. Thus Pfizer provides for the entire costs, including creation of infrastructure, management and administration. Therefore, the argument that the staff were retained and worked under the control of the appellant loses significance and relevance, when everything is paid for by Pfizer. The physical location of the staff is not material, so long as they were paid for by Pfizer, and worked for Pfizer in theft projects and when they were trained and functional supervision was exercised by Pfizer. The role of the appellant was restricted to recruit the staff, and exercise supervision only on administrative matters. (7) To sum up (i) The natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Pvt. Ltd. would come under the value limit of Rs. 4 lakhs provided for exemption arid consequently the demand of Rs. 40,188/- on that count also will not survive. 8. We find that the Department's case against the appellants is primarily based on the fact that the appellants have recruited the entire staff only on the basis of requirement of Pfizer. The learned special counsel for the Department also highlights that Pfizer assisted in recruitment and training of the staff, computer hardware and software were provided by Pfizer, the work order is covered by a separate budget which is made on 'per seat cost' including creation of infra structure facilities. The learned special counsel for the Department also refers to the work order and the attachments and states that the appellants would have to provide service under FSP model in the subsequent period when there will be functional responsibilities on them but not so under the FTE model in the initial period. According to him, the appellants only recruited and provided the staff to Pfizer. 9. However, the learned senior counsel appearing for the appellants has very forcefully argued that even during the initial period under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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