In Service Tax Appeal Nos. 42265 – 42269 of 2013- CESTAT - Services on piece rate basis with contractor's supervision and employee-employer relationship not classified as 'Manpower Recruitment or Supply Agency': CESTAT (Chennai)
Members P. Dinesha (Judicial) & Vasa Seshagiri Rao (Technical) [03-05-2023]

Read order: Suresh Contracts and Ors v. The Commissioner of Central Excise & ST

LE Correspondent

Chennai, May 24, 2023: In a favourable decision for M/s. Suresh Contracts and others, the Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal has held that when contracts involve payment of services on a piece rate basis and the supervision over the employed workers remains with the contractors, and an employee-employer relationship exists between the contractor and the workers supplied, such services cannot be classified under the category of ‘Manpower recruitment or Supply Agency’ service.

In the matter at hand, the appellants, i.e., M/s. Suresh Contracts, Ms. P. Indirani, Shri. S. Palanivelu, M/s. Akila Contracts and M/s. Suriya Contracts were the service providers to M/s. Livia Polymer Bottler Pvt. Ltd. (M/s. Livia), who were engaged in the manufacture of pet bottles and jars. The appeals were filed by the service providers against the orders of the Commissioner of Customs & Central Excise (Appeals), Tiruchirapalli, confirming the demand for service tax, interest, and penalty imposed on the grounds of classifying their services under the category of ‘Manpower recruitment or supply agency’ service.

The bench comprising of P. Dinesha (Judicial) and Vasa Seshagiri Rao (Technical) reviewed the written labour contract agreements between the appellants and M/s. Livia. They noted that the payment to the contractor was based on a rate contract, determined according to the nature of the work performed. The contractor or their representatives had the authority to supervise and control the personnel they employed. M/s. Livia had no involvement in supervising the appellants' employees, and the appellants were held accountable for the actions and conduct of their workers and in the event of any losses or costs, the appellants were required to reimburse M/s. Livia.

The bench concluded that the tax demands raised under the category of ‘Manpower Recruitment or Supply Agency’ service was not sustainable.