Adiraj Manpower Services Pvt. Ltd VS Commissioner of Central Excise Pune II

Adiraj Manpower Services Pvt. Ltd VS Commissioner of Central Excise Pune II

Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 313 of 2021
Adiraj Manpower Services Pvt. Ltd. .... Appellant
Versus
Commissioner of Central Excise Pune II ....Respondent
2
J U D G M E N T
Dr Dhananjaya Y Chandrachud, J.
A Facts ...............................................................................................................3
B Submissions ..................................................................................................7
C Analysis........................................................................................................10
PART A
3
1 Appeal admitted.
A Facts
2 This appeal arises from a judgment dated 15 July 2019 of the Customs,
Excise & Service Tax Appellate Tribunal1
.
3 The appellant obtained service tax registration under the category of
‘Manpower Recruitment or Supply Agency Service’. On 1 January 2012, the
appellant entered into an agreement with Semco Electric Pvt. Ltd. (later known as
Sigma Electric Manufacturing Corporation Pvt. Ltd.2
) and was required to provide
personnel for activities such as felting, material handling, pouring and supply of
material to furnace. Similarly, on 1 January 2013 and 1 January 2014, fresh
agreements were entered into between the appellant and Sigma.
4 On 26 September 2014, a notice to show cause was issued by the
Commissioner of the erstwhile Pune-I Central Excise Commissionerate
demanding service tax along with interest and with a proposed penalty of Rs.
10,50,23,672. The allegations in the show cause notice were that:
(i) The appellant had failed to pay their service tax dues on or before the due
date for the period from April 2012 to March 2014;
(ii) The appellant had failed to assess and discharge service tax liability on the
service value in accordance with their sales ledgers relating to Sigma for
the period from September 2012 to March 2014 regarding the supply of
manpower;
1
“CESTAT”
2
“Sigma”
PART A
4
(iii) The appellant had suppressed the facts and made a misrepresentation by
filing incorrect ST-3 returns for the above period and did not declare the
true and correct taxable value and service tax thereon; and
(iv) The appellant had filed ST-3 returns for the period between April 2013 to
September 2013 after the due date as stipulated under Section 70(1) of
the Finance Act 1994 and Rule 7 of the Service Tax Rules 1994.
5 The allegations in the show cause notice were based on material collected
during the course of an investigation by the Department, indicating that:
(i) The appellant had obtained service tax registration under the category of
‘Manpower Recruitment or Supply Agency Service’;
(ii) The bills were raised by the appellant on their customers on a monthly
basis for providing manpower supply services and service tax was charged
thereon;
(iii) The supply of manpower services by the appellant conformed to the
provisions of the Contract Labour (Regulation and Abolition) Act 1970;
(iv) In respect of the services of manpower supplied by the appellant to their
customer, namely Sigma, the appellant had charged and paid service tax
up to July 2012;
(v) From 1 August 2012, based on an agreement dated 1 January 2012, the
appellant had termed the service activity as ‘job work with tonnage rates’
and had not charged and paid service tax, classifying the provision of the
said services as business auxiliary services, claiming the benefit of a
service tax exemption specified at Serial No. 30(c) of Notification
No.25/2012-Service Tax dated 20 June 2012;
PART A
5
(vi) The invoices raised by the appellant and its agreement dated 1 January
2012 and 1 January 2013 indicated that the services provided by the
appellant were of supplying skilled/unskilled manpower for carrying out
activities like material handling, assembly, pouring, supply of cast machine
parts and painting within the factory premises of Sigma which was
confirmed by the director of the appellant in his statement recorded on 6
February 2014;
(vii) The nature of the services provided by the appellant was similar before
and after August 2012;
(viii) The appellant had not substantiated their claim of job work; and
(ix) The appellant had not obtained service tax registration under the category
of business auxiliary services for the period from September 2012 to
March 2014.
6 The show cause notice was adjudicated upon by the Commissioner of
Central Excise Pune-I, Commissionerate by an order dated 24 February 2015.
The adjudicating authority held that:
(i) The appellant habitually delayed paying service tax every month from April
2012 to March 2014;
(ii) The appellant did not have any machinery or equipment of its own and was
using the equipment and machinery of Sigma at the latter’s premises; and
(iii) The supply of labour by the appellant to Sigma for doing the work of
fettling, material handling, assembly and pouring on ‘piecemeal basis’ did
not alter the characteristics of the manpower services provided by the
appellant to Sigma. The adjudicating authority confirmed the demand of
PART A
6
service tax and interest besides imposing penalty.
7 The order of the adjudicating authority was challenged in an appeal before
the CESTAT, WZB, Mumbai. By its judgment dated 15 July 2019, the Tribunal
held that the service provided by the appellant to Sigma was not in the nature of
job work services exempted under the Notification bearing No.25/2012-Service
Tax dated 20 June 2012. The Tribunal held, after considering the terms of the
agreement between the appellant and Sigma and the relevant provisions of the
Contract Labour (Regulation and Abolition) Act 19703
, that the services provided
by the appellant were in the nature of contract labour and not job work. The
Tribunal held that (i) clause 10, 11 and 17 of the agreement required the
appellant to obtain a licence under the CLRA; (ii) the agreement imposed the
responsibility for the payment of wages to the employees/workmen and for
making payments under the Employees’ State Insurance Act 1948 and Provident
Fund in respect of the employees of the contractor on the appellant. The Tribunal
accordingly held that the agreement between the appellant and Sigma is a
contract labour agreement executed for the purpose of providing requisite
manpower and is not a job work contract to extend the benefit of Notification
No.25/2012-Service Tax dated 20 June 2012.
3
“CLRA”
PART B
7
B Submissions
8 Mr Tarun Gulati, senior counsel appearing on behalf of the appellant
assailed the decision of the Tribunal by urging the following submissions:
(i) The Tribunal held that the appellant satisfied the definition of the
expression ‘contractor’ under Section 2(c) of the CLRA;
(ii) The definition contained in the CLRA indicates that the expression
“contractor” means:
(a) A person who undertakes to produce a given result for the
establishment through contract labour; or
(b) A person who supplies contract labour in any work.
(iii) The former covers a job worker while the latter covers a supplier of
manpower. Since the definition of the expression “contractor” under the
CLRA includes within its ambit a job worker, the registration of the
appellant under the statute would not indicate that the appellant is a mere
supplier of manpower;
(iv) The Tribunal held that under the agreements dated 1 January 2012, 1
January 2013 and 1 January 2014 executed by the appellant, provisions
have been made from the payment of wages and other statutory dues in
accordance with labour legislation and for giving an indemnity to the
principal employer in the event of any liability arising due to a default by
the appellant. Sigma is a principal employer who can be made liable if
there is any breach in complying with labour legislation. This obligation of
the principal employer is imposed by Section 21(4) of the CLRA under
which the principal employer has to pay wages in the event of default by
PART B
8
the contractor. Service 21(4) permits the principal employer to recover the
amounts so paid from the contractor. The agreements merely replicate
what is contemplated by the statute;
(v) The agreements between the appellant and Sigma are job work
agreements. Under the terms of each agreement, the appellant is required
to provide specialized services in respect of felting, material handling,
assembly, pouring, supply of machine parts, and painting. The contractor
has to determine the persons to be engaged for performing the contract
and their service conditions and the appellant is entrusted with supervision
as the contractor. There is no supply of manpower to Sigma, since in that
case the control would have shifted to Sigma. However, in this case, it is
the appellant who exercises due supervision; and
(vi) The invoices were based on the work done on piece rate basis. A service
charge has been levied on the quantity of work done and not on the
quantity of the manpower supplied. In Om Enterprises v. Commissioner
of Central Excise, Pune-I,
4
the CESTAT held that when a contractor
carries out a process work and charges the principal employer on rate per
piece, the nature of work would be considered as job work and not
manpower supply. The CESTAT has rendered similar findings in
Bhagyashree Enterprises v. Commissioner5
, Dhanashree Enterprises
v. Commissioner6
, & S. Balasubramani v. Commissioner7
, where it
refused to consider piece rate work as manpower supply, and held that it
4 2018 (17) G.S.T.L. 260
5 2017 (3) G.S.T.L.515
6 2017 (5) G.S.T.L.
7 2019 SCC OnLine CESTAT 480
PART B
9
was job work.
9 Opposing the above submissions, Mr N Venkataraman, Additional Solicitor
General submitted that
(i) Entry 30(c) of Notification 25/2012-Service Tax dated 20 June 2012
envisages the carrying out of intermediate production process as job-work
in relation to any goods on which appropriate duty is payable by the
principal manufacturer.
(ii) The above provision contemplates carrying out of intermediate production
process as job work in relation to any goods on which duty is payable by
the principal manufacturer. In other words, it covers a situation where the
principal manufacturer pays tax on the value of the final goods which
would include the cost of the job work;
(iii) The agreements which have been executed by the appellant with Sigma
are not for carrying out job work and camouflage the supply of manpower
services;
(iv) The provisions of the agreements executed by the appellant indicate that
appellant is required to cover the supply of manpower services to Sigma
as distinct from the performance of job work. The contracts are pure labour
contracts in which there is a conspicuous absence of details or
specifications pertaining to the work which is to be performed, the output to
be generated, and delivery schedules, among other crucial elements of a
genuine contract for job-work ; and
(v) If the services provided by the appellant were of the category of
“intermediate production process as job work”, the appellant would have
PART C
10
declared them under the category of “business auxiliary services” or would
have claimed exemption to the extent of the value of services under
Notification No. 25/2012-Service Tax dated 20 June 2012. However, the
appellants suppressed the taxable value. They neither amended their
service tax registration, nor declared these services in their ST-3 returns
as business auxiliary services.
10 The rival submissions now fall for consideration.
C Analysis
11 The appellant has sought the benefit of Notification No. 25/2012-Service
Tax dated 20 June 2012. Under the terms of the notification, the Central
Government exempted certain taxable services from the whole of the service tax
leviable under Section 66(B) of the Finance Act 1994. Para 30(c) of the
notification reads as follows:
“30. Carrying out an intermediate production process as
job work in relation to
(c) any goods on which appropriate duty is payable by the
principal manufacturer.”
This provision therefore comprehends: (i) carrying out an intermediate production
process; (ii) as job work; (iii) in relation to goods on which appropriate duty is
payable by the principal manufacturer.
PART C
11
12 The agreement which was entered into between the appellant and Sigma
on 1 January 2012, inter alia contains the following provisions:
“7, The "Contractor" shall decide its own complement to
be engaged for performance of this contract and the
Company will not interfere in the decision of the
Contractor in
this respect.
[…]
9. It will be the sole duty and discretion of the Contractor
to recruit his own personnel of this own choice. The
personnel engaged by the Contractor will work under the
direct control, supervision ·and administration of the
Contractor and the Company will have no right to interfere
in it.
10. It is also agreed between the parties that the
contractor shall decide the service conditions of the
employees engaged by the contractor but ensure that he
will pay them the wages not less than the rates of
minimum wages as applicable for his scheduled industry.
The mode of payment will be as described by the
Government Authorities.
11 It is agreed between the parties that the contractor
shall take necessary licence whenever required under the
provisions of Contract labour (Regulation & Abolition) Act,
1970 and shall submit a copy of the same to the
Company.
12. The Contractor shall maintain various records,
registers, and shall submit timely returns required under
legislation, rules and regulations as applicable to him and
his personnel. The contractor shall submit xerox copies of
musters vouchers to the company in respect of his
personnel.
13. The Contractor indemnifies the Company that he shall
bear any burden of whatsoever nature like fees, fines,
penalty, damages, rise in wages, HRA, Back-wages etc in
respect of his personnel under the provisions of any law.
[…]
16. The Contractor ensures that he will maintain the
discipline among his own employees. In case of any
PART C
12
misbehavior or misconduct by the personnel engaged by
the Contractor, the Contractor shall take proper action
against such person, the Company shall not have any
right to take such action. In the event if the Contractor
docs not take proper action the contract is liable to be
terminated without notice.
17. The Contractor shall pay timely dues under ESI Act,
Provident Fund if applicable in respect of his persons I
employees and shall maintain Registers, submit returns
under
ESI Act and Provident fund Act. If due to failure of the
Contractor any financial or otherwise burden costs on the
Company is at liberty to recover the same from the bills of
the Contractor.
[…]
23. The Contractor shall fix the duty and timings of his
own personnel as per his own requirement. However, it
shall not conflict with the working of the Company and its
employees.
24. The Contractor indemnifies the Company against any
liability that may arise because of the persons engaged by
him.
25. The Contractor will issue the equipment's materials
etc. to his personnel on his (Contractor's) responsibility
and will keep proper record of it. In case of any
shortcomings the Contractor is liable to pay the costs of
the same to the Company. In the event of any doubts as
to interpretation of the clauses in this agreement, the
interpretation of the Company shall be final and binding
on the Contractor.”
13 Schedules (I) and (II) of the agreement have been extracted in the
judgment of the Tribunal and are reproduced below:
“SCHEDULE “I”
Provide services for Felting, Material Handling, Assembly,
Pouring, Supply of Cast & machine part, Painting, at our
establishment situated at Gate No. 154/1 & 155/1,
Mahalunge, Chakan, Pune, 410501, which consists of
PART C
13
plant area, offices, stores, canteen, utilities, open land,
scrap yard etc.
SCHEDULE “II”
The rate per Kg is given below
Particulars Copper/kg Zinc/kg Aluminium/kg Steel/kg
Felting 0.83
Material
Handling
0.58
Packing
Pouring
Supply
Cast/Machined
Parts
2.49
Painting
Total 2.49 1.41 0.00 0.00
14 The submission of the appellant is that under the terms of the CLRA, the
definition of the expression “contractor” covers both a person who undertakes to
produce a given result as well as a supplier of manpower service. Hence it is
urged that though the appellant has to be registered as a contractor under the
CLRA, that is because the appellant falls within the definition of the expression
“contractor” in Section 2(c), as a person who undertakes to produce a given
result for the establishment by engaging contract labour.
15 Under the CLRA, the expression “contractor” is defined to mean:
(i) A person who undertakes to produce a given result for the establishment,
other than a mere supply of goods or articles of manufacture through
contract labour; and
(ii) A person who supplies contract labour for any work of the establishment
including a sub-contractor.
PART C
14
The definition covers, in the latter part, the supply of contract labour for any work
of the establishment. But in the first part noted above, it comprehends a person
who undertakes to produce a result for the establishment other than a mere
supply of goods and services. The issue before the Court is whether the
appellant is a job worker within the meaning of the exemption notification dated
20 June 2012 or is merely a supplier of contract labour for the work of the
establishment.
16 The substratum of the agreement between the appellant and Sigma deals
with the regulation of the manpower which is supplied by the appellant in his
capacity as a contractor. The fact that the appellant is not a job worker is evident
from a conspicuous absence in the agreement of crucial contractual terms which
would have been found had it been a true contract for the provision of job work in
terms of Para 30(c) of the exemption notification. There is a complete absence in
the agreement of any reference to:
(i) the nature of the process of work which has to be carried out by the
appellant;
(ii) provisions for maintaining (a) the quality of work; (b) the nature of the
facilities utilised; or (c) the infrastructure deployed to generate the work;
(iii) the delivery schedule;
(iv) specifications in regard to the work to be performed; and
(v) consequences which ensue in the event of a breach of the contractual
obligation.
PART C
15
17 The decisions of CESTAT relied upon by the appellant also do not help
their submissions as they are fact-specific and based on a reading of the
contracts in those cases. In this case, though ostensibly, the agreement contains
a provision for payment on the basis of the rates mentioned in Schedule II, the
agreement has to be read as a composite whole. On reading the agreement as a
whole, it is apparent that the contract is pure and simple a contract for the
provision of contract labour. An attempt has been made to camouflage the
contract as a contract for job work to avail of the exemption from the payment of
service tax. The judgment of the Tribunal does not, in the circumstances, suffer
from any error of reasoning.
18 For the above reasons we have come to the conclusion that there is no
merit in the appeal. The appeal shall accordingly stand dismissed.
19 Pending application(s), if any, stand disposed of.
..…………...…...….......………………........J.
 [Dr Dhananjaya Y Chandrachud]
…..…..…....…........……………….…........J.
 [Surya Kant]
New Delhi;
February 18 , 2022

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