ST - Service brought under tax net 'Manpower Recruitment' envisages supply of labour per se - work undertaken is harvesting of sugarcane and transporting same to factory – activity is one of procuring and processing of goods which is classifiable under BAS: CESTAT
By TIOL News Service
MUMBAI, JULY 21, 2013: THE appellant is a private limited company whose share holders are mainly farmers. They entered into an agreement with M/s. Sanjivini SSK Ltd., for harvesting of sugar cane at the fields of member-farmers and transporting the same to the sugar factory. Remuneration for harvesting and transportation were paid on a tonnage basis i.e per ton of the sugarcane delivered at the factory. The department was of the view that the act of providing harvesting sugar cane and transporting the harvested sugar cane from the farmers' fields to the factory site is classifiable as ‘manpower recruitment or supply agency service' and is chargeable to service tax.
Accordingly, a Service Tax demand of Rs.1,03,71,911/- was issued and confirmed by the CCE, Aurangabad.
Before the CESTAT, the appellant submitted that they are coordinating between the sugar factory and the labour contractors (who supply labour for harvesting and for transportation) for which they receive consideration from the sugar factory towards supervision charges and they discharge service tax liability thereon under the head ‘Business Auxiliary Service'.
For supply of transportation by means of truck/tractors, etc., the sugar factory pays freight and service tax thereon, whereas for supply of harvesting sugar cane, the appellant pays to the contractor harvesting charges which they get reimbursed from the sugar factory at actual.
Inasmuch as since the activity undertaken by the appellant is harvesting of sugar cane and transporting the same on behalf of the farmers it does not come under the category of ‘manpower recruitment or supply agency service'; that the charges for the harvesting and transportation are paid on tonnage basis and not on the number of labour employed. The sugarcane being a standing crop is covered under the Sale of Goods Act, 1930 and in view of the agreements between the farmers and the sugar factory, it is transfer of property in goods to the sugar factory by the farmer and the transaction is one of sale; the activity of harvesting and transportation is incidental to sale.
The Bench after going through the agreements and extracting the definition of ‘Manpower Recruitment or Supply Agency service' observed -
“5.3 From the above definition it is clear that the service brought under the tax net under the ‘Manpower Recruitment or Supply Agency Service' envisages supply of labour per se. In the instant case, we notice that there is no supply of labour per se to the sugar factory. The work undertaken is harvesting of sugar cane and transporting the same to the sugar factory for which labour is employed. The sugar cane belongs to the sugar factory in terms of the agreement of sale executed between the farmers and the sugar factory. Therefore, the activity undertaken by the appellant is one of procuring or processing of the goods belonging to the client which is classifiable under ‘Business Auxiliary Service' and not under ‘Manpower Recruitment of Supply Agency Service. On the supervision charges paid to the appellant for the said activity, they have already discharged service tax liability under Business Auxiliary service.”
Holding that there was no merit in the order classifying the service under the category of ‘Manpower Recruitment or Supply Agency service', the same was set aside and the appeal was allowed with consequential relief.
(See 2013-TIOL-1097-CESTAT-MUM)
