F.No. V2(MRS)3/STC-III/2012

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F.No. V2(MRS)3/STC-III/2012

F.No. V2(MRS)4/STC-III/2012

F.No. V2(MRS)5/STC-III/2012

F.No. V2(MRS)6/STC-III/2012

BRIEF FACTS OF THE CASE

These are four appeals filed by Assistant Commissioner, Central Excise Division, Gandhinagar, Ahmedabad-III (herein after referred to as ‘Revenue’ for the sake of brevity) against Order-in-Original No.AHM-STX-003-ADC-053 to 056-11 dated 31.10.2011 (hereinafter referred to as ‘the impugned order’) passed by Additional Commissioner, Central Excise, Ahmedabad-III (hereinafter referred to as ‘the adjudicating authority’) in the matter of M/s. Gayatri Enterprises, Sabarkantha, M/s. Shree Krishna Enterprises, Sabarkantha, M/s. Ghanshyam Enterprises and Shri Sureshbhai Patel, Sabarkantha (hereinafter referred to as ‘the respondents’ for the sake of brevity).

2.1 Brief facts of the case are that, intelligence received that the respondents had supplied manpower to M/s. Sabarkantha District Co-Op. Milk Producers Union Ltd., Himmatnagar [hereinafter referred to as “M/s. Sabar Dairy” for the sake of brevity], as per contract for carrying out specific assignments within the premises of M/s. Sabar Dairy by utilizing the machinery / facilities of M/s. Sabar Dairy and under the supervision of the officials of M/s. Sabar Dairy. However, the respondents have failed to pay the Service Tax on the amount received by them from M/s. Sabar Dairy against the taxable service viz. “Manpower recruitment or Supply Services” provided by them to M/s. Sabar Dairy. Statements of Shri Mahendra Dhulabhai Patel, Partner of M/s. Gayatri Enterprise, Shri Jasubhai Jivram Patel, currently proprietor of M/s. Shree Krishna Enterprise, Shri Sureshbhai A. Patel, Proprietor of M/s. Suresh A Patel and Shri Manubhai Hirabhai Patel, Proprietor of M/s. Shree Ghanshyam Enterprise, recorded during the course of investigation. Subsequently, statement of Shri Yashvantkumar Jaydevlal Brahmbhatt, Manager (HRD), M/s. Sabarkantha District Co-Op. Milk

Producers Union Ltd., Himmatnagar was also recorded. The payment received from M/s. Sabar Dairy and confirmed as received by the respondents are as under:

Sr.
No. / Name of the Service Provider / Year
2005-06
(Rs.) / 2006-07
(Rs.) / 2007-08
(Rs.) / 2008-09
(Rs.) / 2009-10
(Rs.)
1. / M/s.Gayatri Enterprise / 27,21,119 / 16,41,446 / 50,42,428 / 56,15,693 / 1,02,43,598
2. / M/s.Shree Krishna Enterprise / 40,06,173 / 60,46,730 / 64,44,087 / 13,68,293 / 25,465
3. / M/s.Suresh A. Patel / 0 / 7,92,578 / 17,28,424 / 63,77,111 / 1,29,91,189
4. / M/s.Shree Ghanshyam Enterprise / 26,33,926 / 55,02,572 / 73,77,882 / 59,13,202 / 11,24,675

2.2. Investigation has revealed that the said respondents had provided the services under the category of “Manpower recruitment or supply agency services” as defined under Section 65 (68) read with Section 65 (105)(k) of the Finance Act, 1994, to M/s. Sabar Dairy and collected amount as shown in the table at Para 2.1 above during the period from 16.06.2005 to 31.03.2010, towards the services and have not paid the service tax leviable thereon. Since the respondents have suppressed the material facts viz. providing taxable services and receipt of payment thereof, from the Department with an intention to evade payment of service tax, the service tax leviable on the value of service received by them is required to be recovered from them. Therefore, Show Cause Notices were issued upon the said respondents as well as upon (a) Shri Jasubhai Jivram Patel, present proprietor of M/s. Shree Krishna Enterprise, (b) Shri Rakesh Sureshbhai A. Patel, present Proprietor of M/s. Suresh A Patel and (c) Shri Manubhai Hirabhai Patel, Proprietor of M/s. Shree Ghanshyam Enterprise, for:

(i)  Considering the service provided as taxable service falling under the category of “Manpower recruitment or supply agency” as provided

under Section 65(68) of the Finance Act, 1994, read with Section 65

(105)(k) of the Finance Act, 1994;

(ii)  Service tax as shown below, leviable on the value of taxable service falling under the category of “Manpower recruitment or supply agency” provided by them to M/s. Sabar Dairy should not be demanded and recovered from them under proviso to sub section (1) of Section 73 of the Finance Act, 1994, by invoking extended period of limitation;

Sr.
No. / Name of Service Provider / SCN No. & Date / Value of Service (Rs) / Service Tax demanded (Rs.)
1. / Gayatri Enterprise / V.ST/15-56/Off/OA/2010 – 30.07.2010 / 2,52,64,284 / 27,84,253
2. / Shree Krishna Enterprise / V.ST/15-31/Off/OA/2010 – 27.07.2010 / 1,84,90,748 / 21,37,382
3. / Sureshbhai A. Patel / V.ST/15-34/Off/OA/2010 – 19.07.2010 / 2,21,10,961 / 22,42,343
4. / Shree Ghanshyam Enterprise / V.ST/15-51/Off/OA/2010 – 27.07.2010 / 2,25,52,263 / 26,53,891

(iii)  Demanding interest under Section 75 of the Finance Act, 1994,;

(iv)  Imposing penalty under Section 76,77 and 78 of the Finance Act, 1994;

2.3. The adjudicating authority vide the impugned order, dropped the charges initiated in the show cause notices by considering the facts that; the show cause notices does not point out any particular work assigned to the said respondents and on the contrary it mentions various works undertaken by them in different sections of M/s. Sabar Dairy; even the contracts made between the labour contractors and M/s. Sabar Dairy refers the various works to be executed at different sections of the dairy and includes activities like packing of powder, shrikhand, ghee, table butter, butter milk, pane, milk pouch, dahi etc. and there was no evidence on record to establish that the payments made by M/s. Sabar Dairy to the respondents/ labour contractors were on the basis of number of labourers employed by them; that the contract stipulates fixed rate for undertaking a specific work and not for engaging a specific number of labourers; the

payments were made to the respondents/labour contractors in lump-sum depending upon the quantum of work done. This fact has also been confirmed by Shri Yashwantkumar J. Brahmbhatt, Senior Manager (Legal & Marketing) of M/s. Sabar Dairy during the course of cross-examination. The adjudicating authority further find that, in the instant case also the respondents received the payments for the specific work done as per the rate fixed under the contract and not on the basis of manpower / labour engaged or supplied to the recipient i.e., M/s. Sabar Dairy. He relied the following judgments: K. Damodarareddy Vs.CCE, Tirupathi [2010 (19) STR 593 (Tri-Bang)], M/s. Ritesh Enterprises Vs. CCE, Bangalore [2010 (18) STR 17(Tri-Bang)], M/s. Divya Enterprises Vs. Commissioner of Central Excise, Mangalore [2010 (19) STR 370 (Tri-Bang)]. He found that the aforesaid case-laws were quite identical and the ratio thereof was squarely applicable in the present case and held that the services provided by the said respondents / labour contractors is not covered under the category of “Manpower recruitment or Supply Agency Services” as defined under Section 65(68) read with 65 (105) (k) of the Finance Act, 1994. Therefore, the demands made for service tax on such activities are not sustainable and vacated the proceedings initiated against the 4 respondents / labour contractors under the four show cause notices.

3. Being aggrieved by the impugned orders, the Department filed the present four appeals on the ground that; in terms of specific conditions of the contracts made explicitly clear that the essential character of the contracts is to supply of manpower only and the labourers employed by the respondents/labour contractors did complete the given work or specific task within time as per requirement and expectation under the specific direction of the officers of the respective department of M/s. Sabar Dairy; as per the condition of contract, the respondents/labour contractors have

to provide appropriate number of labourers as per the directions of the officer of the respective department so as to complete the work in time and should also deduct the provident fund and deposit it in PF account and the copy of receipt should be deposited with the accounts section of the union; it also clear from the statement of the Manager (HRD) of M/s. Sabar Dairy that, no payment was made to the contractors if the production of items were no of the expected quality or if the products were spoiled by the workers and the adjudicating authority has not appreciated these facts while passing his order; all the contractors had supplied unskilled laborers to M/s. Sabar Dairy as per their directions and as per the terms and conditions of the contracts , in order to complete the various tasks within time schedule under the direct supervision and control of M/s. Sabar Dairy only; the contractors have raised supplementary bills to M/s. Sabar in respect to service tax charged and M/s. Sabar Dairy would reimburse the service tax amount as per terms and conditions of contracts and there is no dispute about the chargeability of service tax on the taxable services rendered by them to M/s. Sabar Dairy; as per Circular No.341/27/2005-TRU dated 7.7.2005, services rendered by commercial concerns for supply of such manpower to clients would be covered under the purview of service tax, and here the labourers are not contractually employed by the recipient M/s. Sabar Dairy but come under his direction only; the Board vide Circular No. 96/7/2007 dated 23.8.2007 clarified that, in case of supply of manpower, individuals are contractually employed by the manpower recruitment or supply agency; employer – employee relationship in such case exists between the agency and the individual and not between the individual and the person who uses the services of the individual and such cases are covered within the scope of the definition of ‘manpower recruitment or supply agency’ and are liable to service tax The Revenue had relied upon the following judgments:

1.  M/s. Charanjeet Singh - 2011(021) S.T.R. 0635(Tri.-Del)

2.  M/s. Future Focus Infotech India – 2010

3.  M/s. Jivanbhai Makwana - 2010 (18) S.T.R. 206(Tri.- Ahmd)

4.  M/s. Azur Zyber Pvt. Ltd. 2009(13) S.T.R. 294 (Tri.- Ahmd)

5.  M/s. Renu Singh – 2007(11) STT 123

6. M/s. K.K. Appachan – 2007(7) S.T.R. 230.

The Revenue has further contended that, the above referred judgments are squarely applicable in this case and therefore the order of the adjudicating authority is not proper and legal, and requested to confirm the charges initiated vide the show cause notices.

4. Personal hearing was granted to the respondents and Smt. Shilpa P Dave, Advocate, appeared on behalf of the respondents on 07.08.2012 and reiterated the facts in the written submission. The salient points raised by the respondents in the written submissions are that, there was no employer-employee relationship existed between the dairy and the individuals; they never carried out any work allotted to them under the contracts independently; the works to be executed by them under the contracts made it clear that the activity was not that of supplying labour or manpower to the dairy but it was an activity where they had to execute a number of operations in the dairy for which payment was made to them; it is stipulated in the contracts that, they shall ensure that number of persons as required by them were brought for executing the concerned works and for undertaking the series of activities on timely basis; the contracts are composite works contracts for a series of activities or works and they are not for employing manpower through the agencies with whom the contracts are made; the amount to be paid to the contractor for all the varieties of activities in on fixed or lump-sum basis and not on the basis of a number of employees or labour employed by them; the payments are

made by the dairy to them in accordance with the work performed and not with reference to the number of persons engaged by them for the work; there was nothing clandestine about the whole activities undertaken by them; that they have not deliberately suppressed or withheld any facts or information from the department therefore the extended period of limitation cannot be invoked; that any imposition of penalty under the section 76,77 and 78 is also bad in law as there is no violation of any nature; the proposal for penalty is also an action without jurisdiction because the person cannot be penalised under different sections for the same alleged offence. The respondents submitted against the recovery of interest also. The respondents have relied on a catena of decisions in support of their arguments. The respondents has requested for rejecting the Revenue appeal.

DISCUSSION & FINDINGS:-

5. I have gone through the records of the case, submissions made in the appeal memorandum, various submissions made in the cross objection and those made at the time of personal hearing as well as other available documents. As all the four appeals are of the same issue, arising out of one common order, regarding employing and deploying manpower/labour within the factory premises of M/s. Sabar Dairy by the four respondents, as such, I take up all the four appeals together for decision.

6.1. I find that the issue before me is to decide, whether the activities carried out by all the four respondents, i.e. employing and deploying manpower/labour within the factory premises of M/s. Sabar Dairy for carrying out specific assignments by utilising the machinery/facilities of M/s. Sabar Dairy and under the supervision of the officials of M/s. Sabar

Dairy, can be classified as services under the category of “Manpower Recruitment or Supply of Agency’s Service” and whether the amount received by them for rendering such services is liable for levy of Service Tax or otherwise.

6.2. It was alleged in the show cause notices that the various activities/services provided by all the above named four respondents to M/s. Sabar Dairy, Himmatnagar under various job orders fall under the category of “Manpower recruitment or supply agency” services as defined under Section 65 (105) (k) of the Finance Act, 1994 and were not paying service tax on the value of service received by them during the period from 2005-06 to 2009-10. Therefore, the subject show cause notices propose recovery of Service tax leviable on the value of service received, under Section 73(1) of the Finance Act, 1994 along with recovery of interest under Section 75 of the Finance Act, 1994. There is also proposal for penalty under Section 76, 77 & 78 of the Finance Act, 1994.