ST - As per compromise scheme factory given under leave & licence - ST demand on salary of employees received from FACOR not sustainable as appellant did not function as a commercial concern engaged in supply of manpower : CESTAT
By TIOL News Service
MUMBAI, AUG 17, 2015: THE appellant is engaged in the business of manufacture of steel ingots. Due to slump in the steel industry, the appellant could not keep the operation continued due to which the creditors filed a petition for winding up of the company.
As a remedial measure, the Bombay High Court approved a compromise scheme wherein the factory along with the machinery of the appellant was to be given under leave and licence to Ferro Alloys Corporation Ltd. (FACOR) initially for a period of 5 years for the survival of the appellant and the said agreement was renewed from time to time.
The department wanted to have its pound of flesh in the above arrangement.
It contended that the appellant ought to have discharged service tax liability on an amount received for the salary of employees from FACOR. Accordingly, show cause notice was issued demanding Service tax.
The CCE, Nagpur did not accept the submissions of the appellant and confirmed the demand of ST as well as imposed penalty and interest. While doing so, the adjudicating authority emphasised that the agreement provides for payment of salaries and wages to the employees by FACOR to appellant for further payments; the role of the appellant as per compromise scheme was to supply staff; that they are discharging the tax liability on an amount received as a rent under the same agreement and, therefore, cannot take a stand that amount received towards the salaries is not taxable.
The appellant is, therefore, before the CESTAT.
It is submitted that the appellant had no commercial interest in the salaries paid to their employees by the said FACOR and the arrangement was as per the direction of the High Court; that the issue is covered by the judgments in the cases of Arvind Mills Ltd., vs. CST - 2014-TIOL-441-HC-AHM-ST and Computer Sciences Corporation India Pvt. Ltd. vs. CST, Noida - 2014-TIOL-1896-HC-ALL-ST.
The AR adverted to clause 8 of the leave and licence agreement in terms of which the employees of the appellant were to be used by FACOR during the period of leave and licence; that additional staff if any, were also to be appointed by the appellant on their rolls and which indicates that appellant was supplying manpower to the FACOR and were paid the amount of salaries and other dues. Reliance is also placed on the decision in Daurala Organics - 2009-TIOL-657-CESTAT-DEL for the proposition that salaries paid towards the deputation of staff to sister concern is taxable under manpower recruitment and supply agency service.
The CESTAT observed -
++ The stand of the adjudicating authority holding that the service tax liability arises is incorrect for more than one reason. Firstly, we find that clause 8 of the leave and licence agreement specifically states that the employees will be on the muster roll of the appellant and salaries to be paid by the appellant on receipt from FACOR. It is undisputed that the appellant had received only the actual dues towards the employees. Secondly, the arrangement of continuation of the services of the employees by FACOR was an arrangement approved by the Hon'ble High Court of the compromise scheme in order not to deprive the employees of their job and livelihood. Thirdly, there is nothing on record to show that the appellant functioned as a commercial concern engaged in supply of manpower to FACOR during the material period. In our view, the arrangement of the employees of appellant continuing the job and getting paid will be akin to the deputation of personnel to the FACOR.
Noting that the issue involved is squarely covered by the judgment of the High Courts in the case of Arvind Mills(supra) and Computer Sciences Corporation (supra), the Bench held thatthe amounts received by the appellant as actual salaries cannot be considered as an amount received for rendering of “Manpower recruitment and supply agency” services.
After setting aside theorder, the appeal was allowed.
In passing: Incidentally, the appellant was asked by the Tribunal - 2012-TIOL-568-CESTAT-MUM to make a pre-deposit of Rs.50 lakhs while seeking stay of the Tax demand of Rs.3.86 crores.
(See 2015-TIOL-1710-CESTAT-MUM)
