Adiraj Manpower Services Pvt. … vs Commissioner Of Central Excise … on 18 February, 2022


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Supreme Court of India

Adiraj Manpower Services Pvt. … vs Commissioner Of Central Excise … on 18 February, 2022

Author: Hon’Ble Dr. Chandrachud

Bench: Hon’Ble Dr. Chandrachud, Surya Kant

                                                                        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




Signature Not Verified

Digitally signed by
Sanjay Kumar
Date: 2022.02.18
14:30:57 IST
Reason:




                                               1
                                               JUDGMENT



Dr Dhananjaya Y Chandrachud, J.

A Facts ………………………………………………………………………………………………… 3
B Submissions …………………………………………………………………………………….. 7
C Analysis ………………………………………………………………………………………….. 10

2
PART A

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”

3
PART A

(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;

4
PART A

(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

5
PART A

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 1970 3, 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”

                                            6
                                                                             PART B

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

7
PART B

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

8
PART B

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

9
PART C

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.

10

PART C

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

11
PART C

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

12
PART C

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 0.58
Handling
Packing
Pouring
Supply 2.49
Cast/Machined
Parts
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.

13
PART C

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.

14
PART C

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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