Service Tax - To Determine If Service Is For Job Work Eligible For Tax Exemption, Agreement Has To Be Read As Composite Whole : Supreme Court

On Friday, the Supreme Court held that for the purpose of granting tax exemption based on the nature of agreements, the said agreements ought to be read as a composite whole. In the present matter, in order to decide whether the agreement entered into between the parties was a job work agreement and fit for granting benefit of service tax exemption in terms of Notification No. 25/2012-Service Tax dated 20 June 2012, the Apex Court read the agreement as a whole. It noted that just because the agreement contained a provision for payment on the basis of rates, the same would not make it a job work agreement. "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."A Bench comprising Justices D.Y. Chandrachud and Surya Kant dismissed an appeal filed assailing the order of the Customs, Excise & Service Tax Appellate Tribunal ("CESTAT"), which refused to extend the benefit of service tax exemption to the appellant and upheld the order of the Commissioner Central Excise Pune-I confirming demand of service tax, interest along with penalty. Factual Background Adiraj Manpower Services Pvt. Ltd. ("appellant") obtained service tax registration under the category of Manpower Recruitment or Supply Agency Service. On 01.01.2012, the appellant entered into a contract with Sigma Electric Manufacturing Corporation Pvt. Ltd., erstwhile Semco Electric Pvt. Ltd. ("Sigma"). Similar agreements were entered into between the parties on 01.02.2013 and again on 01.01.2014. As per the agreements, the appellant was required to provide personnel for felting, material handling, pouring and supply material to furnace. On 26.09.2014, the appellant was served with a show cause notice by the Commissioner Central Excise Pune-I, Commissionerate ("adjudicating authority") demanding service tax along with interest and penalty of Rs. 10,50,23,672. The allegations indicated that the appellant failed to pay service tax before due date for the period April 2012 to March 2014; to assess and discharge service tax with respect to the sales ledgers related to Sigma from September, 2012 to March, 2014; suppressed facts and made misrepresentation by filing incorrect ST-3 returns for the said period; the ST-3 return for April, 2013 to September, 2013 was filed after due date. The adjudicating authority held in favour of the Revenue. In appeal, CESTAT held that the service provided by the appellant to Sigma was a contract labour agreement and not in the nature of job work services exempted under Notification No. 25/2012-Service Tax issued on 20.06.2012. Contentions raised by the appellant Senior Advocate, Mr. Tarun Gulati, appearing on behalf of the appellant submitted that the definition of 'contractor' under Section 2(c) of the Contract Labour (Regulation and Abolition) Act 1970 ("CLRA") covers job workers and suppliers of manpower. However, the registration of the appellant under the statute would not automatically suggest that it was a supplier of manpower. Mr. Gulati contended that the agreements were in the nature of job work agreements. Placing reliance on Om Enterprise v. Commissioner of Central Excise, Pune-I (2018) 17 G.S.T.L. 260; Bhagyashree Enterprises v. Commissioner (2017) 3 G.S.T.L. 515, Dhanashree Enterprises v. Commissioner (2017) 5 G.S.T.L. and S. Balasubramani v. Commissioner 2019 SCC OnLine CESTAT 480, he argued that when the invoices were based on the work done on piece rate basis, the nature of work would be considered as job work and not manpower supply. Contentions raised by the respondent Senior Advocate, Mr. N. Venkataraman, Additional Solicitor General appearing on behalf of the Commissioner apprised the Court that as per Entry 30(c) of Notification dated 20.06.2012, in case of service provided in the nature of job work, the principal manufacturer (in this case Sigma) would pay the tax on the value of the final goods as well as the cost of the job work. Entry 30(c) reads as under - "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." But, he argued, that the contracts entered between the appellant and Sigma were contract labour agreements whereby the appellant was not exempted from paying service tax. It was asserted that the provisions of the agreements indicated that the appellant was required to supply manpower services which is distinct from performance of job work. Mr. Venkataraman, submitted that if the work was indeed job work, then the appellant would have had service tax registration in the category "intermediate production process as job work". He alleged that the appellants have clearly ...

Service Tax - To Determine If Service Is For Job Work Eligible For Tax Exemption, Agreement Has To Be Read As Composite Whole : Supreme Court

Sohini Chowdhury

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Service Tax - To Determine If Service Is For Job Work Eligible For Tax Exemption, Agreement Has To Be Read As Composite Whole : Supreme Court

Sohini Chowdhury

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INR 1099+GST

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