ADIRAJ MANPOWER SERVICES PVT. LTD. versus COMMISSIONER OF CENTRAL EXCISE PUNE on 18 February 2022

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SUPREME COURT REPORTS

[2022] 1 S.C.R.

AADIRAJ MANPOWER SERVICES PVT. LTD.

v.

COMMISSIONER OF CENTRAL EXCISE PUNE II

(Civil Appeal No. 313 of 2021)

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FEBRUARY 18 , 2022

[DR DHANANJAYA Y CHANDRACHUD ANDSURYA KANT, JJ.]

The Contract Labour (Regulation and Abolition) Act, 1970 –CService Tax –Appellant obtained service tax registration under thecategory of ‘Manpower Recruitment or Supply Agency Service’ –Appellant entered into an agreement with a company ‘S’ and wasrequired to provide personnel for manufacturing activities-Commissioner of Central Excise, Pune issued show cause notice toDappellant demanding service tax – Allegations were that appellanthad failed to assess and discharge service tax liability regardingsupply of manpower to company ‘S’, suppressed the facts and madea misrepresentation by filling incorrect ST-returns – The adjudicatingauthority held that appellant habitually delayed paying service taxand that supply of labour by appellant to ‘S’ on piecemeal basis didEnot alter the characteristic of manpower services provided – Orderwas challenged in appeal before Tribunal – Tribunal held thatservice provided by appellant to ‘S’ was not in nature of job workservice liable to be exempted, but in the nature of contract labour –On appeal, held: Issue is whether the apellant is job worker or isFmerely a supplier of contract labour for the work of the establishment – The fact that the appellant is not a job worker is evident from aconspicuous absence in the agreement of crucial contractual termswhich would have been found had it been a true contract – Onreading the agreement as a whole, it is apparent that the contract ispure and simple a contract for the provision of contract labour –GAn attempt has been made to camouflage the contract as a contractfor job work to avail of the exemption from the payment of servicetax – Judgment of Tribunal does not suffer from any error ofreasoning.

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Dismissing the appeal, the Court

HELD:1.1. The substratum of the agreement between theappellant and company ‘S’ deals with the regulation of themanpower which is supplied by the appellant in his capacity as acontractor. The fact that the appellant is not a job worker isevident from a conspicuous absence in the agreement of crucialcontractual terms which would have been found had it been atrue contract for the provision of job work in terms of Para 30(c)of the exemption notification. There is a complete absence in theagreement of any reference to: (i) the nature of the process ofwork which has to be carried out by the appellant; (ii) provisionsfor maintaining (a) the quality of work; (b) the nature of the facilitiesutilised; or (c) the infrastructure deployed to generate the work;(iii) the delivery schedule; (iv) specifications in regard to the workto be performed; and (v) consequences which ensue in the eventof a breach of the contractual obligation. [Para 16][1161-D-G]

1.2. The decisions of CESTAT relied upon by the appellantalso do not help their submissions as they are fact-specific andbased on a reading of the contracts in those cases. In this case,though ostensibly, the agreement contains a provision for paymenton the basis of the rates mentioned in Schedule II, the agreementhas to be read as a composite whole. On reading the agreementas a whole, it is apparent that the contract is pure and simple acontract for the provision of contract labour. An attempt has beenmade to camouflage the contract as a contract for job work toavail of the exemption from the payment of service tax. Thejudgment of the Tribunal does not, in the circumstances, sufferfrom any error of reasoning. [Para 17][1161-G-H; 1162-A-B]

Om Enterprises v. Commissioner of Central Excise,Pune-I 2018 (17) G.S.T.L. 260 ; BhagyashreeEnterprises v. Commissioner 2017 (3) G.S.T.L.515;Dhanashree Enterprises v. Commissioner 2017 (5)G.S.T.L. 7 2019 SCC OnLine; S. Balasubramani v.Commissioner 2019 SCC OnLine CESTAT 480-referred to.

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ACIVIL APPELLATE JURISDICTION: Civil Appeal No.313 of2021.

From the Judgment and Order dated 15.07.2019 of the Customs,Excise & Service Tax Appellate Tribunal, West Zonal Bench, Mumbaiin Service Tax Appeal No.86153 of 2015 in Final Order No.A/86237 ofB2019.

Tarun Gulati, Sr. Adv., Rohit Rathi, Kumar Sambhav, SameerShrivastava, Advs. for the Appellant.

N. Venkataraman, ASG, Arijit Prasad, Sr. Adv., Mukesh KumarMaroria, Ms. Alka Agarwal, Rupesh Kumar, Ms. Vimla Sinha, B. K.CSatija, Raghav Sharma, Advs. for the Respondent.

The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.

AFacts.........................................................................3

D

BSubmissions..............................................................7

CAnalysis..................................................................10

E1. Appeal admitted.

A Facts

2. This appeal arises from a judgment dated 15 July 2019 of theCustoms, Excise & Service Tax Appellate Tribunal[1].F

3. The appellant obtained service tax registration under thecategory of ‘Manpower Recruitment or Supply Agency Service’. On 1January 2012, the appellant entered into an agreement with Semco ElectricPvt. Ltd. (later known as Sigma Electric Manufacturing CorporationPvt. Ltd.[2]) and was required to provide personnel for activities such asGfelting, material handling, pouring and supply of material to furnace.Similarly, on 1 January 2013 and 1 January 2014, fresh agreements wereentered into between the appellant and Sigma.

4. On 26 September 2014, a notice to show cause was issued bythe Commissioner of the erstwhile Pune-I Central Excise Commissioneratedemanding service tax along with interest and with a proposed penalty ofRs. 10,50,23,672. The allegations in the show cause notice were that:

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(i) The appellant had failed to pay their service tax dues on orbefore the due date for the period from April 2012 to MarchB2014;

(ii) The appellant had failed to assess and discharge servicetax liability on the service value in accordance with theirsales ledgers relating to Sigma for the period fromSeptember 2012 to March 2014 regarding the supply ofmanpower; C

(iii) The appellant had suppressed the facts and made amisrepresentation by filing incorrect ST-3 returns for theabove period and did not declare the true and correct taxablevalue and service tax thereon; and D

(iv) The appellant had filed ST-3 returns for the period betweenApril 2013 to September 2013 after the due date as stipulatedunder Section 70(1) of the Finance Act 1994 and Rule 7 ofthe Service Tax Rules 1994.

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5. The allegations in the show cause notice were based on materialcollected during the course of an investigation by the Department,indicating that:

(i) The appellant had obtained service tax registration underthe category of ‘Manpower Recruitment or Supply AgencyService’; F

(ii) The bills were raised by the appellant on their customerson a monthly basis for providing manpower supply servicesand service tax was charged thereon;

(iii) The supply of manpower services by the appellantconformed to the provisions of the Contract Labour(Regulation and Abolition) Act 1970; G

(iv) In respect of the services of manpower supplied by theappellant to their customer, namely Sigma, the appellant hadcharged and paid service tax upto July 2012; H

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[2022] 1 S.C.R.

A(v)From 1 August 2012, based on an agreement dated 1 January2012, the appellant had termed the service activity as ‘jobwork with tonnage rates’ and had not charged and paidservice tax, classifying the provision of the said services asbusiness auxiliary services, claiming the benefit of a servicetax exemption specified at Serial No.30(c) of NotificationBNo.25/2012-Service Tax dated 20 June 2012;

(vi) The invoices raised by the appellant and its agreement dated1 January 2012 and 1 January 2013 indicated that the servicesprovided by the appellant were of supplying skilled/unskilledmanpower for carrying out activities like material handling,Cassembly, pouring, supply of cast machine parts and paintingwithin the factory premises of Sigma which was confirmedby the director of the appellant in his statement recordedon 6 February 2014;

(vii) The nature of the services provided by the appellant wasDsimilar 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 underEthe category of business auxiliary services for the periodfrom September 2012 to March 2014.

6. The show cause notice was adjudicated upon by theCommissioner of Central Excise Pune-I, Commissionerate by an orderdated 24 February 2015. The adjudicating authority held that:

F(i)The appellant habitually delayed payingservice taxeverymonth from April 2012 to March 2014;

(ii) The appellant did not have any machinery or equipment ofits own and was using the equipment and machinery ofSigma at the latter’s premises; and G

(iii) The supply of labour by the appellant to Sigma for doingthe work of fettling, material handling, assembly and pouringon ‘piecemeal basis’ did not alter the characteristics of themanpower services provided by the appellant to Sigma. Theadjudicating authority confirmed the demand of service taxHand interest besides imposing penalty.

7. The order of the adjudicating authority was challenged in anappeal before the CESTAT, WZB, Mumbai. By its judgment dated 15July 2019, the Tribunal held that the service provided by the appellant toSigma was not in the nature ofjob work services exempted under theNotification bearing No.25/2012-Service Tax dated 20 June 2012. TheTribunal held, after considering the terms of the agreement between theappellant and Sigma and the relevant provisions of the Contract Labour(Regulation and Abolition) Act 1970[3], that the services provided by theappellant were in the nature of contract labour and not job work. TheTribunal held that (i) clause 10, 11 and 17 of the agreement required theappellant to obtain a licence under the CLRA; (ii) the agreement imposedthe responsibility for the payment of wages to the employees/workmenand for making payments under the Employees’ State Insurance Act1948 and Provident Fund in respect of the employees of the contractoron the appellant. The Tribunal accordingly held that the agreementbetween the appellant and Sigma is a contract labour agreement executedfor the purpose of providing requisite manpower and is not a job workcontract to extend the benefit of Notification No.25/2012-Service Taxdated 20 June 2012.

B Submissions

8. Mr Tarun Gulati, senior counsel appearing on behalf of theappellant assailed the decision of the Tribunal by urging the followingsubmissions:

(i) The Tribunal held that the appellant satisfied the definitionof the expression ‘contractor’ under Section 2(c) of theCLRA;

(ii) The definition contained in the CLRA indicates that theexpression “contractor” means:

(a) A person who undertakes to produce a given resultfor 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 asupplier of manpower. Since the definition of the expression“contractor” under the CLRA includes within its ambit a 3 “CLRA”

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job worker, the registration of the appellant under the statutewould not indicate that the appellant is a mere supplier ofmanpower; A

(iv) The Tribunal held that under the agreements dated 1 January2012, 1 January 2013 and 1 January 2014 executed by theBappellant, provisions have been made from the payment ofwages and other statutory dues in accordance with labourlegislation and for giving an indemnity to the principalemployer in the event of any liability arising due to a defaultby the appellant. Sigma is a principal employer who can bemade liable if there is any breach in complying with labourClegislation. This obligation of the principal employer isimposed by Section 21(4) of the CLRA under which theprincipal employer has to pay wages in the event of defaultby the contractor. Service 21(4) permits the principalemployer to recover the amounts so paid from the contractor.DThe agreements merely replicate what is contemplated bythe statute;

(v) The agreements between the appellant and Sigma are jobwork agreements. Under the terms of each agreement, theappellant is required to provide specialized services inErespect of felting, material handling, assembly, pouring,supply of machine parts, and painting. The contractor hasto determine the persons to be engaged for performing thecontract and their service conditions and the appellant isentrusted with supervision as the contractor. There is nosupply of manpower to Sigma, since in that case the controlFwould have shifted to Sigma. However, in this case, it is theappellant who exercises due supervision; and

(vi) The invoices were based on the work done on piece ratebasis. A service charge has been levied on the quantity ofwork done and not on the quantity of the manpower supplied.GIn Om Enterprises v. Commissioner of Central Excise,Pune-I,[4] the CESTAT held that when a contractor carriesout a process work and charges the principal employer onrate per piece, the nature of work would be considered as job work and not manpower supply. The CESTAT hasrendered similar findings in Bhagyashree Enterprises v.Commissioner[5], Dhanashree Enterprises v.Commissioner[6], & S. Balasubramani v. Commissioner[7],where it refused to consider piece rate work as manpowersupply, and held that it was job work.

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9. Opposing the above submissions, Mr N Venkataraman,Additional Solicitor General submitted that

(i) Entry 30(c) of Notification 25/2012-Service Tax dated 20June 2012 envisages the carrying out of intermediateproduction process as job-work in relation to any goods onCwhich appropriate duty is payable by the principalmanufacturer.

(ii) The above provision contemplates carrying out ofintermediate production process as job work in relation toany goods on which duty is payable by the principalDmanufacturer. In other words, it covers a situation wherethe principal manufacturer pays tax on the value of the finalgoods which would include the cost of the job work;

(iii) The agreements which have been executed by the appellantwith Sigma are not for carrying out job work and camouflagethe supply of manpower services; E

(iv) The provisions of the agreements executed by the appellantindicate that appellant is required to cover the supply ofmanpower services to Sigma as distinct from theperformance of job work. The contracts are pure labourcontracts in which there is a conspicuous absence of detailsor specifications pertaining to the work which is to beperformed, the output to be generated, and deliveryschedules, among other crucial elements of a genuinecontract for job-work ; and F

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(v) If the services provided by the appellant were of thecategory of “intermediate production process as job work”, 5 2017 (3) G.S.T.L.515

6 2017 (5) G.S.T.L.7 2019 SCC OnLine CESTAT 480

Athe appellant would havedeclared them under the categoryof “business auxiliary services” or would have claimedexemption to the extent of the value of services underNotification No. 25/2012-Service Tax dated 20 June 2012.However, the appellants suppressed the taxable value. Theyneither amended their service tax registration, nor declaredBthese services in their ST-3 returns as business auxiliaryservices.

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10. The rival submissions now fall for consideration.

C AnalysisC11. 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 thewhole of the service tax leviable under Section 66(B) of the Finance Act1994. Para 30(c) of the notification reads as follows:

D“30. Carrying out an intermediate production process as jobwork in relation to …

(c) any goods on which appropriate duty is payable bythe principal manufacturer.”

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This provision therefore comprehends: (i) carrying out anintermediate production process; (ii) as job work;(iii)in relation to goodson which appropriate duty is payable by the principal manufacturer.

12. The agreement which was entered into between the appellantand Sigma on 1 January 2012, inter alia contains the following provisions:F

“7, The “Contractor” shall decide its own complement to beengaged for performance of this contract and the Company willnot interfere in the decision of the Contractor in this respect.

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9. It will be the sole duty and discretion of the Contractor to recruithis own personnel of this own choice. The personnel engaged bythe Contractor will work under the direct control, supervision ·andadministration of the Contractor and the Company will have noHright to interfere in it.

10. It is also agreed between the parties that the contractor shalldecide the service conditions of the employees engaged by thecontractor but ensure that he will pay them the wages not lessthan the rates of minimum wages as applicable for his scheduledindustry. The mode of payment will be as described by theGovernment Authorities.

11 It is agreed between the parties that the contractor shall takenecessary licence whenever required under the provisions ofContract labour (Regulation & Abolition) Act, 1970 and shall submita copy of the same to the Company.

12. The Contractor shall maintain various records, registers, andshall submit timely returns required under legislation, rules andregulations as applicable to him and his personnel. The contractorshall submit xerox copies of musters vouchers to the company inrespect of his personnel.

13. The Contractor indemnifies the Company that he shall bearany burden of whatsoever nature like fees, fines, penalty, damages,rise in wages, HRA, Back-wages etc in respect of his personnelunder the provisions of any law.

[…]

16. The Contractor ensures that he will maintain the disciplineamong his own employees. In case of any misbehavior ormisconduct by the personnel engaged by the Contractor, theContractor shall take proper action against such person, theCompany shall not have any right to take such action. In the eventif the Contractor docs not take proper action the contract is liableto be terminated without notice.

17. The Contractor shall pay timely dues under ESI Act, ProvidentFund if applicable in respect of his persons I employees and shallmaintain Registers, submit returns under ESI Act and Provident fund Act. If due to failure of the Contractorany financial or otherwise burden costs on the Company is atliberty to recover the same from the bills of the Contractor.

[…]

23. The Contractor shall fix the duty and timings of his ownpersonnel as per his own requirement. However, it shall not conflictwith the working of the Company and its employees.

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A24. The Contractor indemnifies the Company against any liabilitythat may arise because of the persons engaged by him.

25. The Contractor will issue the equipment’s materials etc. to hispersonnel on his (Contractor’s) responsibility and will keep properrecord of it. In case of any shortcomings the Contractor is liableBto pay the costs of the same to the Company. In the event of anydoubts as to interpretation of the clauses in this agreement, theinterpretation of the Company shall be final and binding on theContractor.”

13. Schedules (I) and (II) of the agreement have been extractedCin 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 establishmentsituated at Gate No. 154/1 & 155/1, Mahalunge, Chakan, Pune,D410501, which consists of plant area, offices, stores, canteen,utilities, open land, scrap yard etc.

SCHEDULE “II”

The rate per Kg is given below

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14. The submission of the appellant is that under the terms of theCLRA, the definition of the expression “contractor” covers both a personGwho undertakes to produce a given result as well as a supplier ofmanpower service. Hence it is urged that though the appellant has to beregistered as a contractor under the CLRA, that is because the appellantfalls within the definition of the expression “contractor” in Section 2(c),as a person who undertakes to produce a given result for theHestablishment by engaging contract labour.

15. Under the CLRA, the expression “contractor” is defined tomean:

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(i) A person who undertakes to produce a given result for theestablishment, other than a mere supply of goods or articlesof manufacture through contract labour; and BC

(ii) A person who supplies contract labour for any work of theestablishment including a sub-contractor.

The definition covers, in the latter part, the supply of contractlabour for any work of the establishment. But in the first part notedabove, it comprehends a person who undertakes to produce a result forthe establishment other than a mere supply of goods and services. Theissue before the Court is whether the appellant is a job worker within themeaning of the exemption notification dated 20 June 2012 or is merely asupplier of contract labour for the work of the establishment.

16. The substratum of the agreement between the appellant andSigma deals with the regulation of the manpower which is supplied bythe appellant in his capacity as a contractor. The fact that the appellantis not a job worker is evident from a conspicuous absence in theagreement of crucial contractual terms which would have been foundhad it been a true contract for the provision of job work in terms of Para30(c) of the exemption notification. There is a complete absence in theagreement of any reference to:

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(i) the nature of the process of work which has to be carriedout by the appellant;

(ii) provisions for maintaining (a) the quality of work; (b) thenature of the facilities utilised; or (c) the infrastructureFdeployed 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 thecontractual obligation.

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17. The decisions of CESTAT relied upon by the appellant also donot help their submissions as they are fact-specific and based on a readingof the contracts in those cases. In this case, though ostensibly, theagreement contains a provision for payment on the basis of the rates H

Amentioned in Schedule II, the agreement has to be read as a compositewhole. On reading the agreement as a whole, it is apparent that thecontract is pure and simple a contract for the provision of contract labour.An attempt has been made to camouflage the contract as a contract forjob work to avail of the exemption from the payment of service tax. Thejudgment of the Tribunal does not, in the circumstances, suffer from anyBerror of reasoning.

18. For the above reasons we have come to the conclusion thatthere is no merit in the appeal. The appeal shall accordingly standdismissed.

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Bibhuti Bhushan Bose

Appeal dismissed.

(Assisted by : Shubhanshu Das, LCRA)

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