By TIOL News Service

MUMBAI, JULY 26, 2013: THE appellant, a Trust, entered into an agreement with M/s. Samarth Sahakari Sakhar Karkhana Ltd. for the cutting/harvesting of sugarcane and transportation of the same from the farmers' fields to the sugar factory. The farmers had already entered into a contract with the sugar factory for sale of sugarcane.

The Trust had also entered into agreements with truck/tractor/trailer owners along with their team of labourers and as per the agreement, the transporters, by engaging labourers would harvest the sugarcane and transport the same to the sugar factory either by truck or tractor or by engaging labourers for carrying head loads. The sugar factory agreed to pay charges for the services rendered based on the tonnage of sugarcane supplied and different rates were agreed to be paid for sugarcane cutting and transportation by various means. The sugar factory paid commission to the contractors at rates ranging from 15 to 20% of the charges for harvesting and transportation. All these payments were made through the Trust and the Trust, in turn, distributed the amounts to the contractors. For the services rendered by the Trust to the sugar factory, the sugar factory paid them supervision charges to meet the expenses incurred by the Trust for undertaking these transactions.

The department was of the view that the activity undertaken by the Trust conforms to the definition of taxable service of “manpower supply” and the appellant was liable to discharge service tax liability on the whole of the consideration paid to them, excluding the transportation charges.

Accordingly a notice demanding service tax of Rs.1,34,16,595/- for the period 2005-06 to 2007-08 was issued and the same was confirmed with aplomb by the CCE, Aurangabad.

Before the CESTAT, the appellant submitted that the agreement between them and the sugar factory was for cutting/harvesting of sugar cane and transportation of the same from the farmers' fields to the sugar factory and it was not for supply of any labour; the Trust received only supervision charges and nothing else; the Trust did not engage any labour for this purpose, but got the work done through contractors; the activity undertaken did not attract the provisions of “manpower supply services”but may be classifiable under “business auxiliary services” but since that is not the proposition in the show cause notice the SCN and the o-in-o are not sustainable in law. Reliance is placed on the decision in Amrit Sanjivni Sugarcane Transport Co. Pvt. Ltd. vs. CCE, Aurangabad - (2013-TIOL-1097-CESTAT-MUM) in their support for allowing the appeal.

The Revenue representative submitted that in the statements given by the Deputy Chief Accountant of the sugar factory as also the Secretary of the Trust, they have agreed that the activity undertaken by them amounted to supply of manpower and hence the confirmation of demand is proper in law.

The Bench observed -

“6. We have carefully considered the rival submissions and also perused the agreements entered into by the appellant with the sugar factory as also with the transporters. From the agreement dated 2.1.2006 with the sugar factory, it is seen that the same is for cutting and transportation of sugarcane from the farmer's fields to the sugar factory, who have agreed to sell their sugarcane to the sugar factory. The agreement is not for supply of any labour. The rates agreed upon for the said work are per tonnage of sugarcane supply, both for harvesting as well as transportation. This would clearly indicate that the activity undertaken cannot, by any stretch of imagination, be called supply of manpower. We have also perused the agreement entered into between the Trust and the transporters and as per this agreement, it is for the transporter to engage labour for harvesting and transporting the sugarcane to the sugar factory and the rates agreed to be paid are on tonnage basis of the sugarcane supplied and not for the supply of any manpower. From these agreements, it is obvious that no manpower has been supplied by the appellant to the sugar factory to constitute supply of manpower. As per Section 65(105)(k) of the Finance Act, 1994, taxable service means “any service provided or to be provided to any person, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner”. From the documents available on record, we do not find any activity undertaken by the Trust either for the recruitment of manpower or for supply of manpower to the sugar factory. This Tribunal, in similar circumstances, in the case of Amrit Sanjivni Sugarcane Transport Co. Pvt. Ltd. (supra) held that harvesting of sugarcane and transportation thereof to the sugar factory from the farmers' fields would not come under the purview of manpower recruitment or supply agency service and would be more appropriately classifiable under “business auxiliary services”. These decisions relied upon by the appellant and the orders of the Commissioner (Appeals) also support this view. Merely because in the statements, the deponents therein, based on their understanding agreed that the services come under the manpower supply, the same cannot be the basis for demand of service tax. The demand has to be made in accordance with law, taking into account the contracts entered into by the appellant with the various parties involved in the transaction. The demands cannot be confirmed on the basis of a wrong understanding entertained by the appellant or anybody else. In view of the above, we find that the impugned order is not sustainable in law….”

In fine, the order was set aside and the appeal was allowed but not before directing the Department to refund forthwith the amount of Rs.15,00,000/- made as pre-deposit by the appellant without waiting for any letter/application from the appellant.

In passing: Hope the refund is as sweet as the success of the appeal.

(See 2013-TIOL-1129-CESTAT-MUM)