Custom, Excise & Service Tax Tribunal
A Rajkumar vs Chennai-Iii on 30 March, 2026
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Service Tax Appeal No. 40537 of 2017
(Arising out of Order in Appeal No. 242/2016 (CXA - I) dated 31.10.2016 passed by
the Commissioner of Central Excise (Appeals - I), Chennai)
Shri A. Rajkumar Appellant
52-A, Vanavil Nagar
Opp. To Collector Office, Kanchipuram
Vs.
Commissioner of GST & Central Excise Respondent
Chennai Outer Commissionerate Newry Towers, 12th Main Road Anna Nagar, Chennai - 600 040.
And Service Tax Appeal No. 40538 of 2017 (Arising out of Order in Appeal No. 243/2016 (CXA - I) dated 31.10.2016 passed by the Commissioner of Central Excise (Appeals - I), Chennai) Shri N. Ravichandran Appellant No. 2, First Street, Gandhi Nagar Opp. To Collector Office, Kanchipuram Vs. Commissioner of GST & Central Excise Respondent Chennai Outer Commissionerate Newry Towers, 12th Main Road Anna Nagar, Chennai - 600 040.
APPEARANCE:
Shri N. Viswanathan, Advocate for the Appellant Smt. G. Krupa, Authorised Representative for the Respondent CORAM Hon'ble Shri M. Ajit Kumar, Member (Technical) Hon'ble Shri Ajayan T.V., Member (Judicial) FINAL ORDER NOS. 40443-40444/2026 Date of Hearing: 26.11.2025 Date of Decision: 30.03.2026 Per M. Ajit Kumar, As both appeals involve a common issue, they were heard together and are disposed of by this common order. The appeals 2 challenge Orders-in-Appeal Nos. 242 and 243/2016 (CXA-I) both dated 31.10.2016, passed by the Commissioner of Central Excise (Appeals-I), Chennai.
2. Brief facts of the case are that the appellants being contractors are engaged by M/s. Larsen & Toubro Ltd. (L&T), During the course of verification of the accounts of L&T, for the period July 2012 to March 2014, by the department, it was noticed that L&T had engaged the services of the appellants for carrying out various operations. As all materials, including power, were allegedly supplied and controlled by L&T, the department was of the view that the consideration paid to the appellants was towards supply of manpower and was taxable under the category of 'Supply of manpower'. Accordingly, Show Cause Notices dated 14.08.2014 were issued demanding service tax of Rs. 1,86,049 and Rs. 16,511 respectively, along with interest and penalty,. The demands were confirmed with equal penalty under Section 78 of the Finance Act, 1994. The appeals against these orders were rejected by the Commissioner (Appeals), leading to the present appeals.
3. The learned Advocate Shri N. Viswanathan appeared for the appellants and Ld. Authorized Representative Smt. G. Krupa appeared for the respondent.
3.1 Shri N. Viswanathan the Ld. Counsel for the appellants submitted as follows:
1. The appellants are independent contractors who undertook fabrication of towers for L&T under work orders providing payment on quantity/tonnage for specified job work activities.3
2. The work orders required compliance with labour laws, VAT registration and payment of VAT, expressly stated that no service tax was applicable, and payments were made after TDS under Section 194 of the Income Tax Act.
3. Without examining the work orders and relying solely on L&T's financial statements, the Department wrongly treated the job work as manpower supply merely because the work was executed at L&T's premises using its materials and power.
4. Show cause notices proposed service tax on 25% of the alleged value under Notification No. 30/2012-ST with interest and penalties, without raising any demand on the balance 75% against L&T.
5. The work orders, the Board's 2015 circular, and consistent Tribunal decisions clearly establish that the activity is principal-to-principal job work and not manpower supply, warranting setting aside of the impugned orders with consequential benefits.
6. The appellants submit that, in respect of the second appellant, the very same first appellate authority had earlier set aside the order of the original authority for failure to examine the merits of the case. The said order was accepted by the Revenue, as no further appeal was preferred.
7. The appellants further submit that, in the case of another identically placed contractor, Mr. Vel Murugan, the first appellate authority, by a subsequent order for the same period, decided the issue on merits in his favour. This order too has been 4 accepted by the Revenue without any further appeal before this Hon'ble Tribunal.
The Ld. Counsel prayed that the appeals may be allowed.
3.2 Smt. G. Krupa Ld. A.R. who appeared for the respondent-
revenue, supported the impugned orders and submitted that the contractors merely supplied workmen. Since the materials, power and machinery were provided by the assessee and the work was carried out within the factory premises under its supervision and control, she contended that the activity was correctly classifiable as 'Manpower Recruitment and Supply Services' and that the appeals merit rejection.
4. We have heard the parties to the dispute and perused the appeals. The issue for consideration is whether the appellant supplies manpower to M/s L&T or that the activity is contractual in nature based on a principal-to-principal transaction.
5. We note that the show cause notices neither extract nor rely upon the relevant work orders, though copies have been produced by the appellant with the appeal memorandum. The finding in the OIO that the contractors "brought only workmen" is factually incorrect and contrary to the contractual terms. The appellants were engaged for specified fabrication activities, with consideration linked to quantity/tonnage of work executed, and not on the number of workmen or time basis. The contracts were not for supply of labour simpliciter. The Revenue's reliance on the use of the assessee's premises, materials, power or machinery is legally untenable. It is well settled that execution of job work at the principal's premises using the principal's materials does not, by itself, convert a job/works contract 5 into manpower supply. What is determinative is whether the contractor retains responsibility for execution of the work and deployment of labour, which, in the present case, clearly rests with the appellants.
6. A similar issue, involving an identical work order, was examined by this Bench in M/s. Larsen & Toubro Ltd. Vs Commissioner of GST & Central Excise [Final Order Nos. 40335-40338/2026 dated 09.03.2026] which was authored by one of us, [Shri M. Ajit Kumar, Member (Technical)], for the Bench. As the issues are identical and have already been examined from the perspective of M/s L&T, who engaged the contractors, the said order is apposite. The relevant portion thereof is reproduced below:
"5. Rule 2(g) of the Service Tax Rules, 1994 defines "supply of manpower" as the supply of manpower, temporarily or otherwise, to another person to work under that person's superintendence and control. The issue of manpower supply therefore turns on the existence of an employer-employee relationship of the appellant with the workmen, which is characterised by the employer's right to supervise and control the work performed. Such a relationship is contractual in nature and must be ascertained from the relevant agreement. However, Constitutional Courts have cautioned that no single determinative test can conclusively distinguish a contract of service from a contract for service. [Sushilaben Indravadan Gandhi Vs New India Assurance Co. Ltd., (2021) 7 SCC 151]
6. Recently the Hon'ble Supreme Court in GENERAL MANAGER, U.P. COOPERATIVE BANK LTD. Vs ACHCHEY LAL & ANR. [2025 INSC 1175 / Civil Appeal No.2974/2016, Dated: 11.09.2025], examined a catena of judgments so as to consolidate and lay down the relevant tests to determine the employer-employee relationship. It held:
"FEW TESTS TO DETERMINE EMPLOYER EMPLOYEE RELATIONSHIP TO BE KEPT IN MIND WHILE DECIDING MATTERS ARISING FROM LEGISLATIONS LIKE INDUSTRIAL DISPUTES ACT, 1947, THE FACTORIES ACT, 1948 ETC:6
1. Control Test
(i) The control test postulates that when the hirer has control over the work assigned and the manner in which it is to be done, an employer-employee relationship is established. The control test is derived from common law application in vicarious liability claims.
(ii) The earliest instance of applying the control test in India is in Shivanandan Sharma Vs Punjab National Bank Ltd. reported in AIR 1955 SC 404. Here, a claim under the Industrial Disputes Act arose as to whether a head cashier was the bank's employee. The bank had an agreement with a contracted treasurer who nominated people to work for discharging function of the bank under the agreement, including the cashier in question. The court held that although the treasurer chose the nominees who discharged the functions, yet the bank had complete control over the nominee's disciplinary matters, leave of absence, how the nominees discharged their functions, and, importantly, their salaries were paid by the treasurer from the funds provided by the bank. It was held that the bank manager had the same degree of control over the nominees as he did over numerous other employees, and thus an employer-
employee relationship existed. The bank also had the right to select bank personnel who would have the authority to supervise how the cash department conducted its work. The court concluded that the cashier was an employee of the bank. The scope of indirect employment was expounded as under:
"If a master employs a servant and authorises him to employ a number of persons to do a particular job and to guarantee their fidelity and efficiency for a cash consideration, the employees thus appointed by the servant would be equally with the employer, servants of the master." (emphasis supplied)
(iii) While Shivanandan Sharma (supra) was the first instance of the control test being applied, an important step in the test's evolution was in Dharangadhara Chemical Works Ltd. Vs State of Saurashtra reported in (1957) 1 LLJ 477. The dispute was whether agarias (salt workers) were employees and whether the claim under the Industrial Disputes Act 1947 was maintainable. To establish that the hirer had control over the hired 7 person, it was ruled that control must exist in two aspects. First, control over the nature of the work performed and, secondly, the manner in which the work is conducted. It was argued that since agarias assisted several persons in performing work, they were independent contractors.
(iv) For the court, the true difference between the workers and independent contractors was whether the work was being committed for oneself or a third party. The existence of external help would not rule out an employer-employee relationship. The court opined that the greater the degree of control, the more likely the hired person would be an employee. Accordingly, the agarias were held as employees and eligible for benefits under the Industrial Disputes Act 1947.
(v) The court enunciates the manner to make this distinction as under:
"The correct method of approach, therefore, would be to consider whether having regard to the nature of the work there was due control and supervision by the employer"
(emphasis added)
(vi) Thus, the control test was expanded to mean due control and supervision. In numerous cases, the control test adopted in Dharangadhara (supra) remained the sole factor determining employer- employee relationship. The degree and level of control required would depend on the facts and circumstances of each case.
2. Organisation/Integration Test
(i) The first instance of the shift from the control test as a sole determinative factor was in Silver Jubilee Tailoring House Vs Chief Inspector of Shops and Establishments reported in (1974) 3 SCC 498. This Court observed that the earlier reliance on the control test was attributed to the agrarian economy, where masters often exercised control over workers. This occurred due to masters having more knowledge, skill and experience. The shift to a multifactor. test is due to modern work being conducted by professionals where masters lack the technical expertise to direct the manner in which the work is undertaken. The court arrived at these conclusions relying on judgements in the Market Investigations Ltd. Vs Minister of 8 Social Security reported in (1969) 2 WLR 1, Cassidy v Ministry of Health reported in (1951) 2KB 343, Montreal v Montreal Locomotive Works Ltd reported in 1947 1 DLR 161 (Privy council). In Silver Jubilee (supra) reliance was placed on a combination of the organisation test (also known as the integration test) as interpreted in the Market Investigations Ltd. (supra), Cassidy. (supra), Montreal Locomotive Works (supra) and the control test used in India.
(ii) The organisation test looks at the degree of integration in the work committed in the hirer's primary business with the understanding that the higher the level of integration, the more. likely the worker is to be an employee. A combination of control and integration tests allows the professional workers to be classified as employees, notwithstanding a lack of control over the manner of work. Furthermore, the existence and potential use of factors beyond the control and integration in future cases was also recognised. This opened the path for the multifactor test.
3. Multiple Factor test
(i) The multifactor test includes:
a) Control
b) Ownership of the tools
c) Integration/Organisation
d) Chance of profit
e) Risk of loss
f) the master's power of selecting his servant
g) The payment of wages or other remuneration
h) The master's right to control the method of
doing the work, and
i) The master's right of suspension or
dismissal.
(ii) In Steel Authority of India Limited Vs National Union Waterfront Workers, reported in 2017 NLS Bus L. Rev. 20, it was opined that where sham arrangements exist, the Contract Labour (Regulation and Abolition) Act, 1970 would not apply, and workers would be deemed employees and have the right to raise an industrial dispute in the same manner as an employee.
(iii) To identify whether sham arrangements exist, this Court in Workmen of Nilgiri Coop. Mktg. Society Ltd. v. State of T.N. reported in (2004) 5 9 SCC 514 ruled that piercing the veil was necessary. Whether the arrangement was a sham was not considered as a question of law. Such a determination must be adjudicated based on the evidence adduced in the court by either party and not merely by referring to the provisions. The relevance of factors other than the control and integration to determine whether the workers are employees or independent contractors was brought out. The court examined the following factors:
a) who is the appointing authority?
b) who is the paymaster?
c) who can dismiss?
d) the duration of an "alternative service";
e) the extent of control and supervision;
f) the nature of the job, e.g. whether it is
professional or skilled work;
g) nature of establishment;
h) the right to reject.
(iv) This Court in Bengal Nagpur Cotton Mills v. Bharat Lal reported in (2011) 1 SCC 635 laid down two factors to be considered to determine the true nature of the hiring entity, i.e., whether it is the principal employer or contractor:
(i) Whether the principal employer pays the salary instead of the contractor; and
(ii) Whether the principal employer controls and supervises the work of the employee?
4. Refinement of the multifactor test
(i) The courts, over the years, have refined the scope of the multifactor test by adding various factors based on the facts and circumstances. This Court, in many cases, has applied the refinement of the multifactor test.
(ii) In Sushilaben Indravadan Gandhi v The New India Assurance Company Limited, reported in (2021) 7 SCC 151, this Court revisited the distinction between a contract of service and a contract for service. After analysing Market Investigations Ltd. (supra), Cassidy (supra) and Montreal Locomotive Works (supra), the multifactor test was reiterated, consisting of the following factors:
10a) Control over the work and manner in which it is conducted
b) Level of integration into employers' business
c) Manner in which remuneration is disbursed to workers
d) Economic control over workers
e) Whether work being conducted is for oneself or a third party
(iii) In Sushilaben (supra) priority was given to factors of control and mode of remuneration, noting these would ordinarily suffice to identify the true nature of the relationship unless other contractual terms indicated otherwise.
(iv) In Sushilaben (supra) the articulation of the control test has been given importance as it varies from that in Balwant Rai Saluja Vs Air India Ltd.
reported in 2014 9 SCC 407. This was elucidated as under:
"The three-tier test laid down by some of the English judgments, namely, whether wage or other remuneration is paid by the employer; whether there is a sufficient degree of control by the employer and other factors would be a test elastic enough to apply to a large variety of cases." (emphasis added)
(v) The use of the term "sufficient degree of control" is in stark contrast to the "effective and absolute control" ruling in Balwant Rai Saluja (supra). However, no reference to Balwant Rai Saluja (supra) was made while discussing the evolution of the various tests. (Referral: IIMA, Working Paper by M.P. Ram Mohan and Sai.
Muralidhar K.) (emphasis added) The Court held that everything would depend upon the facts that are involved in the particular case.
7. We find that the CBIC has taken a similar view in its Circular No. 190/9/2015-ST dated 15.12.2015, relevant portion of which is extracted below;
"2. The matter has been examined. The nature of manpower supply service is quite distinct from the service of job work. The essential characteristics of manpower supply service are that the supplier provides manpower which is at the disposal and temporarily under 11 effective control of the service recipient during the period of contract. Service providers accountability is only to the extent and quality of manpower. Deployment of manpower normally rests with the service recipient. The value of service has a direct correlation to manpower deployed, i.e., manpower deployed multiplied by the rate. In other words, manpower supplier will charge for supply of manpower even if manpower remains idle.
2.1 On the other hand, the essential characteristics of job work service are that service provider is assigned a job e.g. fabrication/stitching, labeling etc. of garments in case of apparel. Service provider is accountable for the job he undertakes. It is for the service provider to decide how he deploys and uses his manpower. Service recipient is concerned only as regard the job work. In other words service receiver is not concerned about the manpower. The value of service is function of quantum of job work undertaken, i.e. number of pieces fabricated etc. It is immaterial as to whether the job worker undertakes job work in his premises or in the premises of service receiver.
3. Therefore, the exact nature of service needs to be determined on the facts of each case which would vary from case to case. The terms of agreement and scope of activity undertaken by the service provider would determine the nature of service being provided. . ."
(emphasis added)
8. Although the burden of proof lies on the Revenue, the SCN dated 15.10.2014 neither contains extracts of the contract or work order nor treats them as relied-upon documents, despite these being the best evidence of the nature of work performed. The SODs are similarly deficient. The appellant has however submitted a few copies of the workorder along with their appeals. The terms of service as per the contract has however been examined by the Commissioner in an earlier contract between one contractor (G. Velmurugan) and the Appellant (L&T - TLTRs). In that case, it was alleged by revenue that services rendered during April 2014 to March 2015 fell under "manpower supply services." The appellant contends that the contracts in the present cases are identical and has submitted a comparative chart in the 'Synopsis' filed during the public hearing and is reproduced below:
12S. Clauses of work order as Clauses as per L&T (ECC No. per OIA No. Workshop) work orders.
64/2018/Audit II Dated [Work Order for C. Mani 08.03.2018 Construction - Page No. 62 of Appeal No. ST/41823/2018] 1 Work order is issued for Yes, [Page No. 62, 23 undertaking a specific work.
description of work in work order] 2 There is no restriction on Yes, there is no restriction on number of workers number of workers and the contractor is at liberty to complete the work with any number of workers.
3 Consideration is based on Yes [Page No. 64, clause 2]
quantum of work
4 Workforce employed is on the Yes, [ Page No. 65 - clause
roll and 24]
supervision of the
contractoras
responsibility is on the
contractor to
The comparison ensure
above safety
has not been refuted by revenue nor
procedure is followed.
are there any allegations that the work orders are a sham. The OIO passed in the case of G. Velmurugan, was set aside by the Ld. Commissioner (Appeals) vide Order-in-Appeal No. 64/2018/Audit II dated 08.03.2018. for the following reasons:
A. The consideration is based on quantum of work completed in the factory of L&T. B. There is no restriction on the number of workers to be employed by the contractor for carrying out the work. C. The work force employed is on the roll of the contractor and under the supervision of the contractor as the contractor has to ensure that the workmen strictly follow the safety procedure.
9. As evident from the First Appellate Authority's order, no master-servant relationship exists between the appellant and the workers. The work is executed entirely by the contractor, who is paid based on the work completed. This arrangement satisfies the essential characteristics of job work service under Board's Circular No. 190/9/2015-ST, which is binding on the department. Further, in light of the Hon'ble Supreme Court's judgment in Achchey Lal (supra), the relationship fails the 'control test', as the workmen are on the contractor's rolls and under his supervision. The degree of control rests predominantly with the contractor, and the workmen are neither integrated into nor directly remunerated by the appellant's organization. Given the straightforward nature of the arrangement, the 'multiple factor test' is not applicable. Accordingly, applying the tests laid down in Achchey Lal (supra), the workmen are job 13 workers, and the allegation of manpower supply by the contractor is unsustainable.
10. The appellant submits that, to their knowledge, the Department has not filed an appeal against the order dated 08.03.2018. This submission has not been disputed by the Revenue. Accordingly, the order has attained finality, and its ratio is binding on the Department. The impugned order is hence liable to be set aside."
(emphasis as in the original)
7. Further as pointed out by the appellant, in identical circumstances, in the case of the second appellant, a prior order of the same first appellate authority setting aside the demand was accepted by the Revenue, and in the case of another similarly placed contractor, Mr. Vel Murugan, the issue was decided on merits in favour of the contractor for the same period, and the said order was also accepted without further appeal. In the absence of any distinguishing facts, the Revenue is not justified in taking a contrary stand in the present appeals. The impugned orders are hence liable to be set aside.
8. We accordingly set aside the impugned orders and allow the appeals. The appellants are eligible for consequential relief as per law.
The appeals are disposed of accordingly.
(Order pronounced in open court on 30.03.2026) Sd/- Sd/-
(AJAYAN T.V.) (M. AJIT KUMAR) Member (Judicial) Member (Technical) Rex