By TIOL News Service

MUMBAI, NOV 22, 2013: THE officers of DGCEI searched the premises of the appellant and recovered incriminating documents. It was noticed that the appellants are rendering manpower supply services to various shipping companies such as M/s ABG Shipping, M/s Pranik Shipping, M/s South India Corporation Agency Ltd. (SICAL), M/s Essar and are in receipt of sums of money towards the wages/salaries of the officers and crew members so supplied in addition to service charges for the service rendered.

The department was of the view that the service undertaken by the appellants is liable to be taxed under the category of "Manpower Recruitment or Supply Agency Service" for the period prior to 01.05.2006 and under the category of "Ship Management Services" w.e.f 01.05.2006.

Since the Commissioner of Service Tax, Mumbai confirmed the Service Tax demand of Rs.1.82 crores along with imposition of equivalent penalty and other penalties and interest, the appellant filed a Stay application before CESTAT.

The following were the submissions of the appellant:-

(i) Services rendered by the appellant prior to 1.5.2006 are not taxable under 'Manpower Recruitment and Supply Agency Service' and the services rendered by them are correctly classifiable under "Ship Management Services" w.e.f 1.5.2006.

(ii) For the period subsequent to 1.5.2006, M/s SICAL, the main contractor has paid Service Tax on the entire amount and they were only sub-contractor and, therefore, they are not required to pay any Service Tax as the main contractor has discharged the Service Tax liability.

(iii) With regard to the services rendered to M/s ABG Shipping Co., although they have recovered Service Tax from the customers they are not required to discharge the Service Tax liability to the exchequer, as section 73A which mandates deposit of Service Tax with exchequer in respect of Service Tax collected from the customers came into force only from 18.04.2006 and, therefore, they are not liable to discharge any service tax liability even though they have recovered the service tax from their customers.

(iv) It is also their contention that they are not required to discharge service tax liability on the emoluments recovered from the customers towards supply of manpower and if at all, the service tax liability should be confined only on the service charges received for supply of manpower excluding the emoluments received for the manpower supplied by them.

(v) The demand is time barred as the notice has been issued much after the normal period of one year.

Reliance is also placed on the decisions in Creative Marine Services [2011(24)STR 557(Tri-Mum)] , Semac Pvt. Ltd. vs. CST, Bangalore - (2006-TIOL-1546-CESTAT-BANG), Synergy Audio Visual Workshop P. Ltd. vs. CST, Bangalore - (2008-TIOL-809-CESTAT-BANG) and OIKOS vs. Commissioner of Central Excise, Bangalore-III - (2006-TIOL-1760-CESTAT-BANG).

The Revenue representative derived support from the Board's Circular no. 334/1/2008-TRU dated 29.02.2008 where it is clarified that "specifying a service separately as a taxable service does not necessarily mean or suggest that services falling within the scope of newly specified service were not earlier classifiable under any one of the existing taxable services". Reliance is also placed on the decision in Jetlite (India) Ltd. - (2010-TIOL-1715-CESTAT-DEL). Attention of the Bench was also invited to the fact that the appellant had collected Service Tax from M/s ABG Shipping Co., but had not deposited the same to the exchequer and in respect of M/s SICAL, the applicant at the first instance issued invoices charging Service Tax but later on issued other set of invoices without Service Tax bearing the same serial numbers as earlier one. Inasmuch as since the conduct of the appellant clearly indicated that they were aware of their liability to discharge Service Tax, they should be put to terms, the representative submitted.

The CESTAT did not agree with the submissions made by the appellant and after referring to the provisions of section 65A of the Finance Act, 1994, observed that earlier the better principle should be adopted for classifying the service and since the 'Manpower Recruitment or Supply Agency Service' came into Service Tax net before 'Ship Management Service', prima facie , the appellants are liable to discharge the Service Tax liability under the category of 'Manpower Recruitment or Supply Agency Service'." On the submission that since Service Tax has been paid by sub-contractors and hence the appellant are not required to discharge any more ST, the Bench observed that the argument is totally incorrect especially in the context of a Value Added Tax regime, which is in force in India. After distinguishing the decision in Creative Marine Services relied upon by the appellant, the CESTAT found merit in the reliance placed on the decision in Jetlite (India) Ltd. and the Board Circular dated 29.02.2008 cited by the Revenue representative and held that since the appellant had collected the tax from their customers but never informed the department of the same, the extended period was rightly invoked.

Holding that appellant had not made out any prima facie case, the Bench directed the appellant to make a pre-deposit of Rs.85 lakhs and report compliance. We reported this order as 2012-TIOL-358-CESTAT-MUM.

Against this order the appellant preferred an appeal before the Bombay High Court and when it was ordered thus –

"4. It is the case of the appellant that the services rendered by the appellant - assessee would be covered under the heading "Ship Management Services" from 1st May 2006 and not under heading 'Manpower Recruitment and Supply Agency's Services' prior to 1st May 2006. The question, therefore, to be considered in the appeal filed before the Tribunal is whether the services rendered by the appellant for the period prior to 1st May 2006 were covered under "Manpower Recruitment and Supply Agency Services". From the judgment of the Tribunal in the case of Creative Marine Services V/s. Commissioner of Central Excise reported in 2011 (24) STR 557 (Tri.Mumbai), it appears that the Revenue was seeking to tax such services under the head 'Management Consultancy Services'. Thus, it is seen that prior to 1st May 2006, there is inconsistency in the stand of the Revenue. The fact that the assessee in the year 2007 has collected and paid tax from ABG Shipping under the heading 'Manpower Recruitment and Supply Agency Services' for the period prior to 1st May 2006 would not mean that the assessee has accepted that the tax is leviable under the heading 'Manpower Recruitment and Supply Agency Services'. In these circumstances, in view of the fact that there being inconsistency in the stand of the Revenue in relation to the head under which the service tax was leviable, prior to 1st May 2006, in our opinion, it would be just and proper in the facts of the present case to hear the appeal on merits without insisting on any pre-deposit.

5. Accordingly, the impugned order dated 23rd February 2012 passed by the CESTAT is quashed and set aside and the CESTAT is requested to hear the appeal on merits in accordance with law without insisting on any pre-deposit."

We reported this as 2012-TIOL-1046-HC-MUM-ST.

The appeal was heard recently.

Extensive submissions were made by both sides and which obviously included those that were made during the hearing of the Stay application.

The Bench after hearing both sides inter alia observed –

"5.6 The argument that after 1.5.2006, there is a specific service namely “Ship Management Service” which covers supply of crew for the ships and, therefore, the activity is liable to be taxed only on or after 1.5.2006 does not stand to any logic or reason. The definition of ‘Ship Management Service' includes 10 categories of activity. Supply of manpower was only one of the activities among ten. Even if it were not included, the service would have been taxable under ‘Manpower Recruitment or Supply Agency Service'. Section 65A of the Finance Act, 1994, provides that earlier the better principle should be adopted for classification and taxation of service. Since ‘Manpower Recruitment or Supply Agency Service' came into Service Tax net before ‘Ship Management Service', the appellant is liable to discharge service tax liability on the said service rendered by him under the category of ‘Manpower Recruitment or Supply Agency Service'.

5.11 If we follow these principles laid down by the Hon'ble Apex Court with regard to interpretation of statutes and apply the same to the facts of the present case, it is obvious that the activity undertaken by the appellant, for the period prior to 1.5.2006, has to be held as classifiable under “Manpower recruitment or supply Agency Services”. If that is not done, we would be making the provisions of Section 65 (68) read with Section 65 (105)(k) relating to “man power recruitment or supply agency service” redundant and ineffective so far as such services are rendered to a ship. For the period with effect from 1-5-2006, there is no dispute with regard to the classification of service."

After holding that the taxable value would be the gross amount charged for the rendering of the service and would include the salaries paid to the workers/personnel provided and after rejecting the plea of time bar and distinguishing the case laws cited by the appellant, the CESTAT concluded thus -

"6. In sum, we uphold the Service Tax demand confirmed against the appellant in the impugned order along with interest thereon. We also uphold the imposition of penalty form the appellant under Section 76, 77 and 78 of the Finance Act, 1994 subject to the modification that for the period with effect from 10.5.2008, penalty under Section 76 is not imposable…."

The appeal was disposed of in the above terms.

In passing, safely: One thing is sure and that is that this is not the last that we hear of this case...logic, s. 73A notwithstanding! See also 2011-TIOL-61-CESTAT-DEL.

(See 2013-TIOL-1741-CESTAT-MUM)