Top Court denies service tax exemption and foils Assessee’s attempt to camouflage ‘contract labour’ as ‘job-work’

Read Judgment: Adiraj Manpower Services Pvt. Ltd. V. Commissioner of Central Excise Pune

Pankaj Bajpai

New Delhi, February 21, 2022: The Supreme Court has upheld the order of the CESTAT denying service tax exemption on ‘manpower services’ supplied by assessee (Adiraj Manpower Services – Appellant) registered as ‘contractor’ under the Contract Labour (Regulation and Abolition) Act, 1970. 

Emphasizing on the whole contract reached between the assessee and its service recipient, a Division Bench of Justice Dr. D.Y Chandrachud and Justice Surya Kant found that “contract” is pure and simple contract for the provision of contract labour, and, therefore, CESTAT’s order does not suffer from any error of reasoning. 

The Assessee urges that the services provided to the recipient were by way of ‘job-work agreements’ which is exempt as per Sr.No. 30(c) of Notification No.25/2012-S.T dated June 20, 2012. To substantiate, they submitted that the definition of “contractor” u/s 2(c) of the CLRA includes within its ambit a ‘job worker’, and his registration under the statute would not indicate that he is a mere supplier of manpower. Hence, it was urged that CESTAT erred in holding that he was a ‘contractor’. 

Defending the CESTAT order, the Revenue Department submitted that if assessee provided services in the category of “intermediate production process as job work”, they would have declared them under “business auxiliary services” or would have claimed exemption under Notification No. 25/2012-S.T. 

However, the Department submitted that instead of claiming exemption, the assessee suppressed the taxable value, and didn’t amend their ServiceTax registration and filed incorrect ST-3 returns. 

After considering the submissions, the Apex Court elucidated that Sr.No. 30(c) of the exemption notification 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. 

From the substratum of the agreement, the Top Court extracted that, it deals with the regulation of the manpower which is supplied by the assessee in his capacity as a contractor.

Speaking for the Bench, Justice Chandrachud found that, had it been a true contract for provision of job work in terms of Paragraph 30(c), there wouldn’t be a conspicuous absence in the agreement of crucial contractual terms. 

Therefore, reading the agreement as a composite whole, the Division Bench remarked that 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. 

Hence, the Apex Court dismissed the assessee’s appeal and answered in favour of the Revenue.