Custom, Excise & Service Tax Tribunal
Chaitany Industrail Services vs Visakhapatnam-Ii on 22 September, 2023
(1)
ST/1148/2012
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
REGIONAL BENCH - COURT NO. - I
Service Tax Appeal No. 1148 of 2012
(Arising out of Order-in-Original No.03/2012 (RS) dated 23.01.2012 passed by
Commissioner of Central Excise & Customs, Visakhapatnam - II)
Chaitanya Industrial Service .. APPELLANT
Co-operative Society Ltd., Narsapur,
West Godavari District, AP - 534 275
VERSUS
Commissioner of Central Tax .. RESPONDENT
Visakhapatnam- II GST Commissionerate, Port Area, Visakhapatnam, Andhra Pradesh - 530 035.
APPEARANCE:
None for the Appellant.
Shri Chittaranjan Wagh Prakash, AR for the Respondent.
CORAM:
HON'BLE Mr. R.MURALIDHAR, MEMBER (JUDICIAL) HON'BLE Mr. A.K. JYOTISHI, MEMBER (TECHNICAL) FINAL ORDER No. A/30287/2023 Date of Hearing:13.09.2023 Date of Decision:22.09.2023 [ORDER PER: R. MURALIDHAR] No one is present on behalf of the Appellant. During the last hearing on 10.08.2023, it was made clear that if the Appellant does not appear during the next Hearing, the appeal will be disposed off ex-parte. As the appeal pertains to the year 2012, we have taken up the same and perused the documents with the help of Learned AR. In this case, the allegation is that the Appellant, who is registered as a Society, has provided Manpower Recruitment or Supply Agency services to ONGC during the period 2005-06 to 2009-10. After due process, the Adjudicating Authority has confirmed the demand. Being aggrieved, the Appellant is before the Tribunal.
2. On going through the grounds of appeal, it is seen that the appellant has taken a similar ground that they are a Society registered under Andhra (2) ST/1148/2012 Pradesh Co-operatives Societies Act 1964. Therefore, they are not required to pay any Service Tax for the Manpower Supply Services rendered by them. Learned AR submits that the Service Tax is required to be paid when the services are rendered by "any person" to "any person", even the Society falls under the category of person. There is no exclusion or exemption granted to societies who has to avoid payment of service tax. On going through the Order-in-Original, it is observed that the appellant has not attended the PH though several opportunities were given. The Appellant is continuing the same attitude even in respect of the present Appeal by not appearing in spite of Notices being served.
3. The Adjudicating Authority has given very detailed findings and has held that the Appellant's arguments cannot be legally sustained. The relevant paragraphs are reproduced below:
20. In the present case, the service provider is supplying manpower to their client i.e. M/s ONGC for monetary consideration during the subject period. As could be seen from the terms of the service agreement between the service provider and the receiver (M/s ONGC), as stated in para VI of the agreement, the members of the society shall be providing jobs/services to ONGC and shall be under the supervision of supervisors appointed by society and remain the members of the society and shall in no way be construed to create an employee-employer relationship between the members of the society and ONGC. The Central Board of Excise & Customs (the Board) vide Circular No. 96/7/2007-ST (F.No. 354/28/2007-TRU) dated 23.08.2007 that "in the case of supply of manpower, individuals are contractually employed by the manpower recruitment or supply agency. The agency agrees for use of the services of an individual, employed by him, to another person for a consideration. Employer-
Employee relationship in such case exists between the agency and the individual and between the individual and the person who uses the services of the individual. Such cases are covered within the scope of the definition of the taxable service [section 65(105)(k)] and, since they act as supply agency, they fall within the definition of 'manpower recruitment or supply agency' [section 65(68)] and are liable to service tax" . In the present case also, it is observed that the contract workers payrolls are being maintained by the service provider and statutory obligations of the contract workers are being discharged by the service provider only. M/s ONGC is paying the wages along with statutory obligations pertaining to the workers engaged for the work to the service provider only but not to each contract worker. The contract workers deployed by the service provider is on the pay rolls of the service provider and the service provider discharges all the statutory obligations like PF, ESI etc. It is also evident from Para II at page No. 3 of the agreement entered with M/s ONGC Limited for job contract works of miscellaneous and intermittent nature that the service provider is engaged in supply of manpower to M/s ONGC. Further, under Para VI at (3) ST/1148/2012 page 6 of the said agreement, it was clearly mentioned that the Service Provider shall deploy the members for doing jobs / performing services. From the above observation, I find that the activities rendered by the service provider are clearly falling under the definition of "manpower recruitment or supply agency" service and they are liable to pay service tax on the amount received from M/s ONGC for providing the said service.
21. The notice was issued in pursuance of the Hon'ble AP High Court judgment in writ petition No. 28875 of 2009 dated 26.04.2010 wherein it was directed to pass an order of assessment. It is seen from the records that following the court direction, the department has asked the service provider to file the required details for assessing the liability vide jurisdictional divisional office letter dated 27.07.2010. But the service provider has failed to respond to the correspondence made and has not come forward to submit the particulars called for, that are required to assess the liability of the service provider. Following non co-operation of the service provider, the department has to follow up the matter with M/s ONGC to gather the details. Service Tax is an indirect tax where under the provisions of the Finance Act, 1994, - except in few specified cases, not applicable to the present case - the service providers as in the present issue are liable to pay service tax to the government on the services provided. So M/s CISCSL contention before the jurisdictional authorities that the notice be served on the service receivers i.e., M/s ONGC is not proper.
22. I find from the record that M/s ONGC Contract Workers Federation, Rajahmundry, corresponding on behalf of its members (of whom M/s CISCSL is a member) vide their letter dated 1.12.2009 addressed to jurisdictional office at Rajahmundry have contended that the cooperative societies being service oriented and functioning on no profit and no loss basis cannot be placed within the ambit of the definition, "commercial concern" and accordingly not being a commercial concern is not liable to levy of service tax. As per the corresponding definitions relating to Manpower Recruitment or Supply Agency Services, the manpower supply services provided by a commercial concern are liable to service tax during the period 16.06.2005 to 30.04.2006 and services provided by 'a person' are liable to service tax with effect from 01.05.2006. The word 'Person' in the context of taxation refers to a juristic person. The Hon'ble High Court of Calcutta while discussing the definitions in the context of service tax, in the case of MN Dastur and Co. Ltd. vs Union of India (reported vide 2006 (4) STR 3 (Cal)) has stated the following:
"Section 65: The definitions: Scheme and context:
12. In order to ascertain the situation, the principles of interpretation have to be followed. The court in order to construe the definition comprehensively may apply the golden rule of interpretation according to the ordinary grammatical meaning having regard to the scheme of definitions and in the context of the provisions contained in the statue. And the object and purpose for which it was enacted. It is apparent that the expressions "person", "concern"
or "commercial concern" have been used to define all other assessees liable to (4) ST/1148/2012 pay service tax except section 65(13) defining "consulting engineer". The Word "person" as defined in section 3(42) of the General Clauses Act includes an individual, a company or an association of persons. A "person" includes a juristic person. (emphasis provided) A company is a juristic person and therefore would be no difficulty to include a company when the definition uses the expression "person". Similarly, a "concern" without any qualification can include any business or professional establishment and the "commercial person" would include all concerns connected with commerce carrying on trade or profession or any kind of commercial activities and includes a company."
23. A society is an association of individuals for common ends i.e. especially, an organized group working together or periodically meeting because of common interests, beliefs, or profession and accordingly is an association of individuals. Section 3(42) of the General Clauses Act, 1897 defines that a "person" "shall include any company or association or body of individuals, whether incorporated or not". In the present case, the co-operative society being a registered body and a juristic person, it would be falling within the meaning of person for purpose of taxation as defined under the provisions chapter V of the Finance Act, 1994. The contention is that their being a co-operative society, they cannot be considered as a commercial concern and levied to service tax during the period 16.6.05 to 01.05.06 when only commercial concerns engaged in providing manpower supply services are liable to service tax. In this regard as already brought out above, Hon'ble High Court of Calcutta (cited supra) has observed that the commercial concern would include all concerns connected with commerce carrying on trade or profession or any kind of commercial activities. This aspect of commercial concern is discussed in detail by CESTAT, New Delhi, in the case of Punjab Ex-Servicemen Corpn. Vs CCE, Chandigarh (reported vide 2009 (13) STR 529 (Tri-Del)) where in it was held that a test for determination as to whether a concern is commercial concern would be as to whether it charges fully commercial price for goods or services sold by it. Monitoring of performance by preparing balance sheets and profit and loss accounts also relevant. From mere objectives of an organisation like welfare of ex-servicemen or other sections of the society requiring help, promotion of sports, etc., it cannot be concluded that it is not a commercial concern. The relevant para 5.3 from the said case law is reproduced hereunder.
"5.3 Hon'ble Supreme Court in its judgment in the case of Indian Chamber of Commerce and others v. Commissioner of Income Tax, West Bengal-II (Calcutta) reported in 1976 (1) SCC 324 while examining the scope of the term "charitable purpose" in Section 2(15) of the Income-tax Act has observed as under :-
"The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them, namely, the newspaper industry, which while (5) ST/1148/2012 running its concern on commercial lines, can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse the definition in such cases, the Select Committee felt that the words "not involving the carrying on of any activity for profit"
should be added to the definition."
The above observations of the Hon'ble Supreme Court, though with regard to the scope of the term "charitable purpose", also throw light on the question as to what is a "commercial concern" and according to the above-mentioned observations of the Hon'ble Supreme Court, a "commercial concern" is the one which get fully paid for the services provided by it. Therefore, in our view, the test for determining as to whether a concern is a "commercial concern" would be as to whether it charges fully commercial price for the goods or services sold by it and monitors its commercial performance by preparing annual balance sheet and profit and loss account. From mere objectives of an organization - like welfare of ex-servicemen or other sections of the society requiring help, promotion of sports etc. it cannot be concluded that it is not a commercial concern. The Appellant - corporation is charging fully commercial price from its clients, - which includes besides the salaries of the security personnel, its commission to cover the administrative expenses and profit. It prepares annual profit and loss account and balance sheet. It is expected to generate resources to sustain itself and not fall into insolvency. It is free to deploy its funds in carrying out its functions which include marketing, processing, supply and storage of agricultural produce, small scale industry, building construction, transport and other business, trade or activity, as approved by the Government and it can invest the surplus funds generated in Government securities or in such other manner as it may decide. The Appellant - corporation, therefore, functions like a 'commercial concern'."
24. I find that, in fact the service provider is a society registered under the Andhra Pradesh Co-operative Societies Act, 1964. The society is providing the services to M/s ONGC on commercial basis at commercially agreed upon terms and conditions. However, in the present case there is nothing on record to show that they were providing the services on a non-commercial basis and without any profit to the society. Thus in the absence of any evidence in this regard to show that the society is providing the services on non-commercial basis, the service provider's contention that they are not commercial concern cannot be accepted and hence they are liable to pay the service tax w.e.f 16.6.2005 onwards. As regards period after 1.5.06, the society is liable to pay service tax within the meaning of 'Person' included in the definition in the statute.
25. Further, at clause IX (iv) (page 10) of the agreement, it is provided that the sums specified in sub clauses (ii) and (iii) are inclusive of all existing taxes, duties, cesses or other levies whatsoever payable by the society for or in connection with the provision of the said services. In para (v) it is provided that if any new tax is imposed with (6) ST/1148/2012 respect to the services provided by society after effective date, such new tax shall be reimbursed by ONGC to society in addition to the price of the services as specified in sub clauses (ii) and (iii) hereof above. In clause XXIX of the contract it is provided that the responsibility of the payment of all taxes is with the society only. The above clauses of the agreement clearly speak about the responsibility of the service provider to pay all the taxes to the government. Further, I observe that the service provider has been providing the said services from the year 2005 onwards.
26. Further, on verification of the case records, it is seen that certain amounts received prior to 16.06.2005 i.e., introduction of service tax on supply of manpower against services previously provided have been included in the notice. The details of the same are as follows:
Month of Dt of Value of ST Ed. Cess provision of Remarks receipt service amount amount service Shown April 2005 12.05.05 9,74,372 97.437 1,949 against May 2005 Shown May 2005 09.06.05 12,05,031 1,20,503 2,410 against June 2005 2,17,940 4,359 These amounts are liable to be reduced from the demand and accordingly, an amount of Rs.91,03,830/- (Rs.88,71,106/- towards service tax, Rs.1,77,422/- towards Education Cess and Rs.55,302/- towards Secondary & higher education cess) are liable to be confirmed.
29. Regarding invoking of extended period, I find that the reasons for invoking extended period have been brought out in the notice. Further, there is clear mention about the all taxes leviable for providing the service which are to be borne by the service provider only. I also find that M/s ONGC is ready to reimburse the taxes (as stated by M/s ONGC in the High Court order cited). The service provider has been engaged in the said service from 2005 onwards. Further, it is observed that the service provider was reluctant to furnish the information relating the payments received from M/s ONGC. The department has obtained the information from M/s ONGC only but not from the service provider, in respect of payments received for the services provided. This attitude of the service provider clearly shows the malafide intention to evade payment of service tax. Thus, issue of show cause notice invoking the extended period of five years under the proviso to Section 73 of the Finance Act, 1994 is justified. Since the service provider has suppressed the facts to evade payment of service tax, I find that the assessee is liable for penal action under the provisions of Section 76 and 78 of hte Finance Act, 1994. However, as I am proposing to impose penalty under Section 78 of the Finance Act, in view of the proviso under section 78 that if penalty is payable under this (section 78) section, the provisions of section 76 shall not apply, I do not propose to impose any penalty under section 76 of the Finance Act, 1994. Further, I find that the service provider neither obtained (7) ST/1148/2012 registration nor filed any periodical returns despite persuasion by the department.
Thus, they are also liable for penalty under section 77 of the Finance Act, 1994.
30. In view of the above findings, I pass the following order;
a) I confirm the demand of Rs.91,03,830/- under the category of "Manpower Recruitment or Supply Agency Service" for the period from 16.06.2005 to March, 2010, under Section 73(2) of the Finance Act, 1994;
b) I confirm the demand of interest on the service tax amount as mentioned at
(a) above under Section 75 of the Finance Act, 1994;
c) I impose penalty of Rs.50,000/- under Section 77(1) of the Finance Act, 1994 for failure to get registered themselves under section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 under the category of 'Manpower Recruitment or Supply Agency services';
d) I impose penalty of Rs.5,000/- under Section 77(2) of the Finance Act, 1994 for failure to file returns as required under section 70 of the Finance Act, 1994; and
e) I impose penalty of Rs.91,03,830/- under Section 78 of the Finance Act, 1994;
f) Under first proviso to section 78 of the Finance Act, 1994, the penalty imposed at (e) above, stand reduced to twenty five percent of the service tax determined, in case the service provider pays the entire service tax determined under Section 73 of the Finance Act, 1994 along with interest under Section 75 ibid and the reduced penalty of twenty five percent, within thirty days of the receipt of this order." [emphasis supplied]
4. We do not see any reason to interfere with the detailed and considered decision given by the Adjudicating Authority. Accordingly, we dismiss the appeal filed by the Appellant.
(Pronounced in Open Court on 22.09.2023) (R.MURALIDHAR) MEMBER (JUDICIAL) (A.K. JYOTISHI) MEMBER (TECHNICAL) Veda