Custom, Excise & Service Tax Tribunal
Talking Technology Pvt Ltd vs Service Tax - Chennai on 3 March, 2020
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. III
Service Tax Appeal No. 41151 of 2013
(Arising out of Order-in-Appeal No. 103/2013 (M ST) dated 20.02.2013 passed by the
Commissioner of Central Excise (Appeals), 26/1, Mahatma Gandhi Road,
Nungambakkam, Chennai - 600 034)
M/s. Talking Technology (P) Ltd., : Appellant
857, Poonamallee High Road,
Kilpauk, Chennai - 600 010
VERSUS
The Commissioner of Service Tax, : Respondent
No. 692, Anna Salai, MHU Complex,
Nandanam, Chennai - 600 035
APPEARANCE:
Shri. N. Viswanathan, Advocate for the Appellant
Shri. L. Nandakumar, Authorized Representative (A.R.) for the Respondent
CORAM:
HON'BLE MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL)
HON'BLE MR. ANIL G. SHAKKARWAR, MEMBER (TECHNICAL)
FINAL ORDER NO. 40679 / 2020
DATE OF HEARING: 03.03.2020
DATE OF DECISION: 03.03.2020
Order Per : Hon'ble Ms. Sulekha Beevi C.S.
Brief facts are that the appellants are registered
with the Service Tax Department for providing
Commercial Training and Coaching Service, Business
Support Service, etc. They had entered into an
agreement with M/s. WTI Advanced Technology Ltd.
('M/s. WTI' for short) by which it was agreed that the
appellants would offer the services of its selected
employees to work on the projects identified and
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allocated by M/s. WTI to carry out such functions and
project related activities as allocated by M/s. WTI from
time to time.
2. The Department was of the view that the said
activity would fall under the taxable service of 'Manpower
Recruitment and Supply Agency Service' for which the
appellants had not discharged any Service Tax. Show
Cause Notice dated 14.10.2009 was issued for the period
from 01.04.2008 to 31.03.2009 to demand Service Tax
under 'Manpower Recruitment and Supply Agency
Service' on the consideration received from M/s. WTI
during this period. After due process of law, the Original
Authority vide Order-in-Original No. 24/2011 dated
11.03.2011 confirmed the demand along with interest
and imposed penalties. On appeal, the Commissioner
(Appeals) vide order impugned herein upheld the same.
Hence, this appeal.
3.1 On behalf of the appellant, Learned Counsel Shri.
N. Viswanathan appeared and argued the matter. He
submitted that the appellant provided services as CAD
consultant involving customization of software for M/s.
WTI by deputing their engineers to the job site of M/s.
WTI. That such services do not fall under 'Manpower
Recruitment and Supply Agency Service'.
3.2 After the issuance of the Show Cause Notice dated
14.10.2009, on 10.11.2009 the Superintendent of the
concerned Commissionerate had issued a letter to the
appellant to pay up Service Tax under the category of
'Information Technology Software Service' which have
become taxable with effect from 16.05.2008. The
appellant thus paid the Service Tax on the consideration
received from M/s. WTI under Information Technology
Software Service for the period from 16.05.2008 to
31.10.2009. The appellant has been continuously paying
Service Tax under this category. The considerations
received from M/s. WTI during the disputed period is not
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for any Manpower Recruitment and Supply Agency
Service, but is in fact for providing Information
Technology Software Service.
3.3 He further submitted that Section 65 (68) of the
Finance Act, 1994, which defines 'Manpower Recruitment
and Supply Agency Service', was amended with effect
from 16.05.2008 by substituting the words "to a client"
with the words "to any person". The Department has not
established that M/s. WTI is the client of the appellant.
The transaction was only on principal to principal basis
and the authorities below have erred in holding that M/s.
WTI is the client of the appellant. That for such reasons,
the activity of the appellant will not fall under Manpower
Recruitment and Supply Agency Services.
3.4 It is also argued by the Learned Counsel that the
Show Cause Notice issued is not maintainable as the
same did not allege that the activities of the appellant
involved supply of manpower which involves work under
the control of M/s. WTI. The said category of taxable
service would be applicable only if the employees worked
under the control of M/s. WTI. As the Notice does not
allege that the employees worked under the control and
supervision of M/s. WTI, the demand under the category
of Manpower Recruitment and Supply Agency Service
cannot sustain.
3.5 Further, that the reliance placed by the
Commissioner (Appeals) on the decision of the Tribunal
rendered in M/s. Future Focus Infotech India (P) Ltd. v.
Commissioner of Service Tax, Chennai reported in 2010
(18) S.T.R. 308 (Tri. - Chennai) is incorrect as the facts
do not apply to this case.
3.6 He prayed that the demand may be set aside.
4.1 Learned Authorized Representative Shri. L.
Nandakumar appeared and argued the matter on behalf
of the Department. He supported the findings in the
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impugned order. He adverted to the contract entered
between the appellant and M/s. WTI to contend that from
the terms of the contract it is very much clear that the
contract is for supply of manpower. The consideration is
paid on the basis of man-hours and it is clearly stated
that the employees of the appellant will not be entitled to
overtime charges or to work on any holidays, etc. That
the agreement is not for providing services under
'Information Technology Software Service' as argued by
the appellant.
4.2 He submitted that the Commissioner (Appeals) has
rightly relied upon the decision in M/s. Future Focus
Infotech India (P) Ltd. (supra) wherein the Tribunal held
that when computer engineers were supplied to IT
companies to work on software projects and the said
engineers were under the supervision and control of the
IT companies, the activity would fall under Manpower
Recruitment and Supply Agency Service. In the present
case also the contract reveals that the employees were
under the supervision and control of M/s. WTI to whom
the manpower was supplied. The consideration received
by the appellant from M/s. WTI during the disputed
period as per the agreement would thus be taxable under
Manpower Recruitment and Supply Agency Service.
4.3 He argued that the impugned order does not call
for any interference.
5. Heard both sides.
6. The moot point for consideration is whether the
activity would fall within the definition of "Manpower
Recruitment and Supply Agency Service". For better
appreciation, the said definition is reproduced as under :
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"SECTION 65. Definitions. -- In this Chapter, unless
the context otherwise requires, -
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.
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[(68) "manpower recruitment or supply agency" means any [person] engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, [to any other person];]"
7.1 The following clauses in the agreement entered between the appellant (BA) and M/s. WTI would bring out the nature of the transaction :
"WHEREAS, WTI, among other business, is in the business of developing, constructing, licensing, updating, enhancing, implementing, maintaining, supporting and marketing computer application software system;
AND WHEREAS, BA has represented to WTI that it has a pool of highly skilled and specialized Employees experienced in the development, enhancement, implementation and maintenance of Software Projects and proposed to WTI that it is willing to provide on subcontract basis technical assistance in respect of computer application software system development, implementation and maintenance work undertaken by WTI from its various clients by deputing its Employees to WTI/WTI Client locations to work on the project along with WTI Project team.
.
.
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3. SCOPE OF BA ACTIVITIES: As WTI' Business Associate, BA shall engage in the following activities with due diligence;
a) Upon the request of WTI, BA will offer the technical assistance to WTI through services of its selected Employees to work on the computer software application development, implementation and maintenance of specific projects to be identified and allocated by WTI at its sole and absolute discretion and to carry out such functions and project related activities as may be allocated by WTI from time to time on a fixed man month (consisting of all days in a month excluding weekly offs and holidays declared by WTI or its Clients) fee basis as hereunder agreed 6 Appeal. No.: ST/41151/2013-DB under overall guidance and supervision of WTI, as per terms of this agreement.
b) BA and its Employees on the project will perform all activities commonly known and referred to as "Software Development and Maintenance" activities.
Such activities include without limitation development, installation, demonstration, Parameters Setting, User Training, Providing Guidance to User, warranty support functions, etc. The Employees deputed by BA will also perform such other functions as may be called upon to do by WTI from time to time.
c) BA shall secure all necessary registrations, authorizations and licenses as required to formalize its appointment hereunder or engagement of Employees by it and fully comply with from time to time and at all times all rules, regulations and laws as may be applicable to performance of its obligations and/or the obligations of its Employees hereunder.
d) BA and its Employees assigned by WTI to its clients shall, at all times, comply with security and confidentiality policies and procedures of WTI and clients.
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.
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6. CONSIDERATION 6.1. For the work to be carried out by BA for WTI, WTI shall pay BA technical fees as under:
a) WTI will pay to BA at the rates agreed in terms of Schedule of Technical Fees attached hereto. A person month shall consist of minimum eight (8) hours per day multiplied by number of working days in a calendar month at the location of work.
b) In case of deputation of BA Employees on overseas assignments, WTI shall bear all expenses connected with visa, travel and pay the living expenses of the BA Employees.
c) All payments to BA in terms of clause (a) above shall be made in Indian Rupees only as under:
1. 50% of invoice value within thirty (30) days of submission of invoice
2. Balance payable within thirty (30) days thereafter after proper scrutiny of the invoice submitted by BA
d) BA Employees shall not be entitled to any overtime charges or to work on any holidays as a compensation for the leave taken or absence from work on any other working days. BA employees shall 7 Appeal. No.: ST/41151/2013-DB also not be paid for working on any week ends or holidays declared by WTI or its Clients.
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6.4. In case, on verification of an invoice, it is found that the BA personnel have not worked for the number of hours invoiced, WTI shall be at liberty to adjust the invoice value proportionately.
6.5. BA shall provide to WTI all, documents, data and information about the salary and other benefits provided by it to its Employees as and when called upon to do so by WTI. However in case of BA Employees sent on Overseas deputation, BA shall provide this said information in the prescribed form every month.
.
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6.7. WTI shall have the right to withhold payment under the following circumstances,
(a) If, upon a request by WTI, BA has not replaced any Employee(s) within a period of fifteen (15) days from such request having been made, which Employee(s) is (are), in the sole discretion of WTI, incapable of performing the functions assigned to him/her/them by the WTI Project Leader and/or is otherwise considered by WTI in its sole discretion to be replaced for whatsoever reason.
(b) If, BA has not replaced the Employee(s) who has become incapable of performing the obligations of BA under the terms of this agreement, such incapability arising due to death, disease, resignation or by whatsoever means, within a period of fifteen days from such incapability. ..."
(Emphasis added) 7.2 From the above excerpts of the contract, it can be safely concluded that the nature of the contract is for supply of manpower. The consideration is paid on the basis of man-hours. It can also be seen that the work is executed as per the guidance of M/s. WTI. Thus, for carrying out the development, maintenance, etc., of software, the persons so deployed by the appellant to M/s. WTI are under the control of M/s. WTI and they work under the guidance and supervision of M/s. WTI.
8Appeal. No.: ST/41151/2013-DB
8. The very same issue was discussed by the Tribunal in M/s. Future Focus Infotech India (P) Ltd. (supra). The relevant portion of the order is extracted as under :
"12. We find that the arguments advanced on behalf of the appellants are mainly based on the various clauses in the agreements executed between them and their clients namely TCS and Infosys. We are of the view that not only the wordings of these clauses are to be considered but also how different clauses of the contracts actually operate have to be seen. We find that the appellants are supplying various skilled personnel to TCS and Infosys to work on software projects undertaken by TCS and Infosys from their respective clients. The personnel deputed by the appellants appear to be working at the site of the clients of TCS and Infosys or in the premises of TCS and Infosys. There is no evidence produced before us to indicate that any of the software projects undertaken by TCS and Infosys from their respective clients has been sub-contracted to the appellants or that the appellants are working on any such project on their own. What has emerged clearly is that the appellants have deputed skilled personnel including computer engineers to work under the supervision and control of TCS and Infosys personnel in- charge of projects undertaken by TCS and Infosys. The appellants are getting paid in terms of the man hours for the persons deputed to work under the control and supervision of TCS and Infosys.
13. No doubt there are clauses relating to deliverables and quality of work in the contracts but these by themselves do not indicate that the appellants are providing information technology software services to TCS and Infosys. Any person or organization obtaining skilled personnel has to ensure that such men deliver work of standard quality. No one would employ a person who is not skilled enough and no one would pay for shoddy work even if done by a skilled man. The relevant clauses in the contract in this regard on which much emphasis was sought to be put by the learned senior counsel for the appellants have to be viewed in the light that TCS and Infosys are merely seeking to obtain personnel from the appellants with necessary skill who will work diligently on the projects undertaken by TCS and Infosys.
14. The learned special counsel for the Department has rightly pointed out a significant provision in the contracts which require the appellants to replace personnel who leave the job by suitably trained personnel as substitutes. Such provisions in the contract go to show that the number of skilled persons supplied 9 Appeal. No.: ST/41151/2013-DB is important from the point of view of TCS and Infosys. If the appellants were actually to deliver the software projects, TCS and Infosys would have nothing to say about how many personnel the appellants engage to complete the project or who they employ.
15. Looking at all aspects of the case and taking into account all the arguments made before us, we come to the conclusion that the appellants are only supplying skilled manpower for which they are liable to pay Service tax for supply of manpower services. We note that for similar activities of the appellants in respect of two other clients namely IBM and CAP GEMINI, the appellants have paid Service tax under the category 'manpower supply service' and their clients in turn took credit of such Service tax paid by the appellants."
9. Learned Counsel for the appellant has made much effort to contend that the services are 'Information Technology Software Services' and not 'Manpower Recruitment and Supply Agency Services'. However, from the agreement entered by the appellant with M/s. WTI it is very much clear that activity falls within the four corners of Manpower Recruitment and Supply Agency Service. We therefore hold that the demand is legal and proper.
10. The appeal is without any merits and is dismissed accordingly.
(Operative part of the order pronounced in open court) Sd/-
(SULEKHA BEEVI C.S.) MEMBER (JUDICIAL) Sd/-
(ANIL G. SHAKKARWAR) MEMBER (TECHNICAL) Sdd