CESTAT Hyderabad Sets Aside Demand for Manpower Supply Service

Rama Enterprises Vs Commissioner of Customs (CESTAT Hyderabad)

M/s Rama Enterprises filed Appeal No. ST/20573/2014 against Order-in-Appeal No. 227/2013 (H-IV) S. Tax dated 30.12.2013, while M/s Vinayaka Enterprises filed Appeal No. ST/20575/2014 against Order-in-Appeal No. 231/2013 (H-IV) S. Tax dated 30.12.2013. Since the issues in both appeals were the same, they were heard simultaneously and decided together.

The appellants were providing certain ‘quality works’ in the manufacturing unit of M/s Bagga Distilleries Hyderabad Pvt Ltd., engaged in the manufacture of alcoholic beverages (IML). The Department alleged that the services rendered under the relevant agreement constituted supply of manpower and attracted Service Tax under the category of ‘Manpower Recruitment or Supply Agency Services’ under Section 65(105)(k) read with Section 65(68) of the Finance Act, 1994.

The appellants contended that the Contract Deed covered specified quality work, including washing activities, stacking in godowns and cleaning of washing, bottling, blending and surrounding areas, using manpower employed by the appellants. According to them, consideration was based on the work carried out and not on the number of persons employed. They also submitted that they were responsible for fixed deliverables and that the manpower remained under their control and supervision.

The Tribunal examined the Contract Deed and found that the agreement was for providing specified ‘quality work’ and not for supplying manpower to M/s Bagga Distilleries Hyderabad Pvt Ltd. The Tribunal noted that payment was based on the work carried out rather than the number of persons employed and that the manpower worked under the control and supervision of the appellants.

Following the decisions relied upon by the appellants, including S.S. Associates Vs Commissioner of Central Excise, Bangalore, Bhagyashree Enterprises Vs Commissioner of Central Excise, Pune-I and Sivashakti Enterprises Vs Commissioner of Central Excise, Pune, the Tribunal held that the activities were not classifiable as ‘Manpower Recruitment or Supply Agency Service’. The demand was therefore held unsustainable on merits. Since the demand itself was not sustainable, the penalty also did not survive. The impugned orders were set aside and the appeals were allowed with consequential benefit, if any, as per law.

Background of the Appeals

M/s Rama Enterprises and M/s Vinayaka Enterprises had filed appeals against separate orders passed by the Commissioner of Customs, Central Excise & Service Tax (Appeals-II), Hyderabad. The two appeals involved the same issue and were accordingly heard together.

The appellants were engaged in providing certain quality works at the manufacturing unit of M/s Bagga Distilleries Hyderabad Pvt Ltd. The Department treated the services under the agreements as supply of manpower and issued Show Cause Notices proposing Service Tax under the category of ‘Manpower Recruitment or Supply Agency Services’.

The Adjudicating Authority confirmed the Service Tax demand with interest and penalty. The appellants thereafter approached the Commissioner (Appeals).

Earlier Proceedings

The appellants were directed to pre-deposit 50% of the Service Tax demand. Their miscellaneous applications seeking modification of the stay orders concerning the pre-deposit directions were rejected and the appeals were dismissed for non-compliance under Section 35F of the Customs Excise Act, 1944.

The appellants subsequently filed appeals against those orders. The Tribunal, vide Final Order No. 25489-25493/2013 dated 25.06.2013, set aside the orders and remanded the matter with observations that the activities carried out by the appellants, prima facie, would not be covered under “Manpower Recruitment or Supply Agency Services”, directing that the case be decided on merits.

On remand, the learned Commissioner (Appeals) upheld the order of the Adjudicating Authority and confirmed the Service Tax demand under the category of ‘Manpower Recruitment or Supply Agency services’, along with interest and with some modification concerning penalty under Sections 77 and 78 of the Finance Act, 1994.

Appellants’ Submissions

Learned Counsel for the appellants submitted that the Contract Deed between the appellants and M/s Bagga Distilleries Hyderabad Pvt Ltd. clearly showed that the activity agreed under the contract was for providing ‘quality work’ and not for supply of manpower.

The specified activities included washing activities, stacking in godowns, and cleaning of washing area, bottling area, blending area, godowns and surroundings using manpower employed by the appellants.

The appellants submitted that payments were based on the work carried out by the contractor and not on the number of persons employed for the work. They argued that this was a clear indication that the activity under the contracts was not for supply of manpower.

It was further submitted that the appellants were responsible for fixed deliverables and responsibilities agreed under the Contract Deed.

Department’s Submissions

Learned AR reiterated the findings given by the Lower Authorities.

Issue Before the Tribunal

The Tribunal framed the issue as whether the services rendered by the appellants were classifiable under ‘Manpower Recruitment and Supply Agency’ or otherwise.

Definition of Manpower Recruitment or Supply Agency

The Tribunal referred to Section 65(105)(68) of the Finance Act, 1994, which defined ‘manpower recruitment or supply agency’ as follows:

“manpower recruitment or supply agency” means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person;

The Tribunal observed that under the definition, the activity should involve providing a service directly or indirectly in any manner for recruitment or supply of manpower, temporarily or otherwise.

Tribunal’s Findings on the Contract

The Tribunal considered the Contract Deed between the appellants and M/s Bagga Distilleries Hyderabad Pvt Ltd. to be important for deciding the appeals.

Under the contract, M/s Bagga Distilleries Hyderabad Pvt Ltd. agreed to engage the contractor, namely the appellants, for quality work including unloading, washing activities, stacking in godowns, and cleaning of the washing area, bottling area, blending area, godowns and surroundings.

The Tribunal found from the recitals that the activity agreed under the contract was for providing quality work using the manpower of the contractor employed by the appellants themselves, and not for supply of manpower as such to M/s Bagga Distilleries Hyderabad Pvt Ltd.

The Tribunal also found that payment was based on the work carried out by the contractor and not on the number of persons employed for the work. It considered this a clear indication that the activity under the contract was not for supply of manpower.

It was also important that the manpower worked under the control and supervision of the appellants and not under the control or supervision of M/s Bagga Distilleries Hyderabad Pvt Ltd.

Accordingly, the Tribunal concluded that the contract showed that there was no supply of manpower and that it was for providing specified works mentioned in the contract. The demand based on classification of the services as supply of manpower service was therefore held unsustainable.

Reliance on Earlier Tribunal Decisions

S.S. Associates

The Tribunal considered the decision of the Co-ordinate Bench, Bangalore in S.S. Associates Vs Commissioner of Central Excise, Bangalore. In that case, the contract was for execution of work involving loading, unloading, bagging, stacking and destacking. The Tribunal noted that there was no indication of supply of manpower and that the essence of the contract was execution of work.

The decision also relied upon the principle that a document has to be read as a whole and that the purport and object of the contract have to be ascertained from its terms and conditions. The tenor of the agreement and purchase orders indicated execution of lump-sum work rather than supply of manpower.

The Tribunal in the present appeals considered the above decision applicable to the factual matrix before it.

Bhagyashree Enterprises

The Tribunal also considered Bhagyashree Enterprises Vs Commissioner of Central Excise, Pune-I. In that matter, consideration was based upon the number of units produced in the factory premises and there was no restriction regarding the specific number of employees to be brought for the work. The work force was on the role of the appellant and supervised by the appellant.

The Tribunal had held that such a contract could not be considered a contract for supply of manpower and was instead lump-sum work awarded to the appellant.

Sivashakti Enterprises

The Tribunal also referred to Sivashakti Enterprises Vs Commissioner of Central Excise, Pune, concerning employees deployed in the factory premises of Tata Motors for specific job work under purchase orders. Consideration was based upon the number of pieces manufactured by the appellant.

The Tribunal in that matter held that the lump-sum work was not covered under ‘Manpower Recruitment or Supply Agency Service’ and was not taxable under that category. The decision also referred to other decisions concerning lump-sum contracts for harvesting, loading and unloading of sugarcane.

Demand Held Unsustainable

The Tribunal held that the decisions relied upon by the appellants were squarely applicable to the factual matrix of the instant appeals.

Following the ratio laid down by the Co-ordinate Bench, the Tribunal found that the demand under ‘Manpower Recruitment or Supply Agency Service’ was not sustainable.

Since the demand was not sustainable on merits itself, the imposition of penalty also did not survive. The impugned orders were therefore liable to be set aside.

Final Decision

The Tribunal set aside the impugned orders and allowed the appeals.

The final order stated:

“Appeals allowed with consequentional benefit, if any, as per law.”

The order was pronounced in the open court on 09.01.2026.

Cases Discussed

• Uniworth Textiles Ltd., Vs Commissioner of Central Excise, Raipur — [2013 (288) E.L.T. 161 (S.C.)]
• S. S. Associates Vs Commissioner of Central Excise, Bangalore — [2010 (19) S.T.R. 438 (Tri-Bang)]
• Bhagyashree Enterprises Vs Commissioner of Central Excise, Pune-I — [2017 (3) G.S.T.L. 515 (Tri-Mumbai)]
• Shivshakti Enterprises Vs Commissioner of Central Excise, Pune — [2016 (41) S.T.R. 648 (Tri-Mumbai)]
• Divya Enterprises Ltd. — [2010 (19) S.T.R. 370]
• Ritesh Enterprises — [2010 (18) S.T.R. 17]
• Shriram Sao TVS Ltd. — [2015 (39) S.T.R. 75]
• Bhogavati Janseva Trust Vs CCE, Kolhapur — [2014 (34) S.T.R. 410 (Tri-Mum)]
• Satara Sahakari Shetu Audyogik Oos Todani Vahtook Society Vs CCE, Kolhapur — [2014 (36) S.T.R. 123 (Tri-Mum)]
• Godavari Khore Cane Transport Company Pvt Ltd., — Central Excise Appeal No. 19 of 2014

FULL TEXT OF THE CESTAT HYDERABAD ORDER

M/s Rama Enterprises (hereinafter referred to as appellant) has filed Appeal No. ST/20573/2014 against the Order-in-Appeal No. 227/2013 (H-IV) S. Tax dated 30.12.2013 passed by Commissioner of Customs, Central Excise & Service Tax (Appeals – II), Hyderabad.

2. M/s Vinayaka Enterprises has filed Appeal No. ST/20575/2014 against the Order-in-Appeal No. 231/2013 (H-IV) S. Tax dated 30.12.2013 passed by Commissioner of Customs, Central Excise & Service Tax (Appeals-II), Hyderabad.

3. In these both appeals issues are same, so heard simultaneously to decide together.

4. Appellants are providing certain ‘quality works’ in the manufacturing unit of M/s Bagga Distilleries Hyderabad Pvt Ltd., who are engaged in the manufacture alcoholic beverages (IML).

5. The Department issued Show Cause Notices against the appellants alleging that the services rendered by the appellants in terms of the agreement mentioned above constitutes supply of manpower service and therefore, attracts Service Tax under the category of ‘Manpower Recruitment or Supply Agency Services’ under Section 65(105)(k) read with Section 65(68) of the Finance Act, 1994.

6. The appellants have filed their replies on various grounds, both on merits as well as on limitation. The Adjudicating Authority passed the OIO’s and confirmed the demand with interest and penalty as proposed in Show Cause Notices.

7. Appellants have filed appeals before the Commissioner of Customs, Central Excise and Service Tax (Appeals-II), Hyderabad. They were directed to pre-deposit 50% of Service Tax demand. The appellants filed a misc. application requesting for modification of Stay orders with regard to pre-deposit directions, which were rejected and the Appeals were dismissed for non-compliance of the said order in terms of Section 35F of Customs Excise Act, 1944.

8. Appellants have filed the appeals against those O-I-A and the Hon’ble Tribunal vide Final Order No. 25489-25493/2013 dated 25.06.2013 set asided the order and remanded the matter with observations that the activities carried out by the appellants, prima facie, would not be covered under “Manpower Recruitment or Supply Agency Services” and directed to decide the case on merits.

9. Learned Commissioner (Appeals), upheld the order of the Adjudicating Authority and confirmed the demand of Service Tax under the category of ‘Manpower Recruitment or Supply Agency services’, along with interest and with some modification about penalty under Section 77 and 78 of the Finance Act, 1994.

10. Learned Counsel for the appellants submits that the “Contract Deed” between appellants and M/s Bagga Distilleries Hyderabad Pvt Ltd., clearly shows that the activity agreed under the contract for providing ‘quality work’ i.e., washing activities, stacking in godowns, cleaning of washing area, bottling area, blending area godowns and surroundings using the manpower of the contractor employed by the M/s Bagga Distilleries Hyderabad Pvt Ltd., and not for supply of manpower by the appellants.

11. Learned Counsel for the appellants submits that the payment are based on the work carried out by the contractor and not on the number of persons employed for the work, which are a clear indication that the activity under the contracts are not for ‘supply of manpower’ at all.

12. Learned Counsel for the appellants submits that the appellant are responsible for fixed deliverables and responsibilities for an agreed under the Contract Deed.

13. Learned Counsel for the appellants also relied on the following case laws:

i. Uniworth Textiles Ltd., Vs Commissioner of Central Excise, Raipur [2013 (288) E.L.T. 161 (S.C.)]

ii. S. S. Associates Vs Commissioner of Central Excise, Bangalore [2010 (19) S.T.R. 438 (Tri-Bang)]

iii. Bhagyashree Enterprises Vs Commissioner of Central Excise, Pune-I [2017 (3) G.S.T.L. 515 (Tri-Mumbai)]

iv. Shivshakti Enterprises Vs Commissioner of Central Excise, Pune [2016 (41) S.T.R. 648 (Tri-Mumbai)]

14. Learned AR reiterates the findings given by the Lower Authorities.

15. We have considered the submissions made by both sides and perused the records.

16. The issue is, whether the services rendered by the appellants are classifiable under holding the “Manpower Recruitment and Supply Agency” or otherwise?

17. The definition of the ‘Manpower Recruitment and Supply Agency’ under Section 65(105)(68) reads as under:

(68) “manpower recruitment or supply agency” means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person;

18. As per the above definition, we find that the activities should be providing of any service directly or indirectly in any manner for recruitment or supply of manpower temporarily or otherwise.

19. The Contract Deed between appellants and M/s Bagga Distilleries Hyderabad Pvt Ltd., are very important documents for disposal of these appeals. By this contract, the M/s Bagga Distilleries Hyderabad Pvt Ltd., has agreed to engage the contractor (Appellants) for the Quality Work i.e. unloading, washing activities, stacking in godowns, cleaning of washing area, bottling area, blending area, godowns and surroundings.

20. From the recitals, it is clear that the activity agreed under the contract is for providing ‘quality work’, i.e., washing activities, stacking in godowns, cleaning of washing area, bottling area, blending area, godowns and surroundings using the manpower of the contractor, employed by the appellant himself and not for supply of manpower as such to M/s Bagga Distilleries Hyderabad Pvt Ltd. As per the contract, the appellants will be paid based on the work carried out by the contractor and not on the basis of number of persons employed for the work, which is a clear indication that the activity under the contract is not for ‘supply of manpower’ at all. It is also important that the manpower works under the control and supervision of the appellants and not under the control of supervision of M/s Bagga Distilleries Hyderabad Pvt Ltd. Therefore, the contract clearly shows that there is no supply of manpower, and it is for providing certain specified works as mentioned in the contract. Hence, demand based on classification of the services provided by the appellants as supply of manpower service would not sustainable as per law.

21. The Co-ordinate Bench, Bangalore in the case of S.S. Associates Vs Commissioner of Central Excise, supra, wherein, it is also held as follows:

“9. On a careful consideration of the above reproduced is from the entire case papers, we find that the contract which has been given to the appellants is for the execution of the work of loading, unloading, bagging, stacking destacking etc. In the records, we find that there is no whisper of supply manpower to the said M/s Aspin Wall & Co. or any other recipient of the services in both these appeals. As can be seen from the reproduced contracts and the invoices issued by the appellant that the entire essence of the contract was an execution of work as understood by the appellant and the recipient of the services. We find that the Hon’ble Supreme Court in the case of Super Poly Fabriks Ltd., Vs CCE, Punjab (supra) in paragraph 8 has specifically laid down the ratio which is as under:

“There cannot be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive.”

An identical view was taken up by Hon’ble Supreme Court in the case of State of AP Vs Kone Elevators (India) Ltd., (supra) and UOI Vs Mahindra and Mahindra is a similar issues. The ratio of all the three judgments of the Hon’ble Supreme Court, is that the tenor of agreement between the parties has to be understood and interpreted on the basis that the said agreement reflected the role of parties. The said ratio applies to the current cases in hand. We find that the entire tenor of the agreement and the purchase orders issued by the appellants’ service recipient clearly indicates the execution of a lump-sum work. In our opinion this lump-sum work would not fall under the category of providing of service of supply of manpower temporarily or otherwise either directly or indirectly.”

22. In the case of M/s Bhagyashree Enterprises, supra, decided by Tribunal Mumbai is also important to cite wherein, Hon’ble Tribunal held as follows:

“6.3 As regards the Service Tax liability under the category of manpower recruitment or supply agency service, for the services rendered to KLL, we find that the Adjudicating Authority has misconstrued the provisions and misdirected the findings to hold that the services would fall under the category of ‘manpower recruitment or supply agency services’. On perusal of the agreement entered by the appellants with KLL, we find that the said agreement specifically indicates about the consideration to be paid to the appellants based upon the number of units produced in the factory premises of KLL land there is no restriction as to the specific number of employees to be brought for such purposes; and work force employed by the appellant was on the role of the appellant only and is supervised by the appellant. In our considered view this contract cannot be considered as a contract for supply of manpower to KLL. This, in our considered view is nothing but lump-sum work awarded to appellants by KLL. We find strong force in the contentions put forth by the Learned Counsel that the issue is covered by the decision of Divya Enterprises (supra) and Ritesh Enterprises (supra).”

23. In the case of Sivashakti Enterprises Vs Commissioner of Central Excise, Pune, supra, decided by Tribunal Mumbai, it is also important to mention wherein, appellant had deploying his employees in the factory premises of Tata Motors for doing of specific job work in accordance with the purchase order placed and the manufacture paying consideration to appellant based upon the number of pieces that would be manufactured. Hon’ble Tribunal held that the lump sum work not covered under ‘Manpower Recruitment or Supply Agency Service’ and held not taxable. The relevant part of the decision is as under:

“5. We find that facts are not much in dispute. Appellant had deployed his employees in the factory premises of Tata Motors for doing specific job work in accordance with the purchase order placed by Tata Motors. We perused the sample / specimen of purchase orders of Tata Motors Ltd., We find that Tata Motors Ltd., had agreed to pay consideration to the appellant based upon the number of pieces that would be manufactured by appellant in the factory premises of Tata Motors. We find that the issue is no more res-integra inasmuch as, in the case of Divya Enterprises Ltd., [2010 (19) S.T.R. 370]. Tribunal based on laser of contract purchase orders indicated execution of lump sum work as understood by appellant and service recipients. The case is in hand, the appellant as well as the service recipients understood the agreement between them as the lump sum agreement and not for supply of manpower. We find that this Bench in the case of Shriram Sao TVS Ltd., [2015 (39) S.T.R. 75], in a similar kind of service of lump sum contract for harvesting, loading and unloading of sugarcane held as under:

“4. We find that the issue is no more res-integra inasmuch as this Bench has held in the case of Bhogavati Janseva Trust Vs CCE, Kolhapur [2014 (34) S.T.R. 410 (Tri-Mum)] on an identical issue has held in favour of the assessee. The same view was expressed by the Bench in Satara Sahakari Shetu Audyogik Oos Todani Vahtook Society Vs CCE, Kolhapur p2014 (36) S.T.R. 123 (Tri-Mum)]. It was brought to our notice that identical view was expressed by the Bench in the case of Godavari Khore Cane Transport Company Pvt Ltd., Central Excise Appeal No. 19 of 2014. The judgment of the Godavari Khore Cane Transport Company Pvt Ltd., was taken in appeal by the Revenue before the Hon’ble High Court of Bombay at Aurangabad. Their Lordships has upheld the order of the Tribunal reported as in Appeal Nos. ST/256/2008, S.T./68, 7/2009-Mum [2012 (26) S.T.R. 310 (Tri-Mum)]. The ratio of the judgment of the Hon’ble High Court at Paras 6 & 7; we with utmost respect reproduce the same.”

6. In view in the facts of circumstances of this case, and various judicial pronouncements, we find that the impugned order challenged by the appellant before us, is liable to be set aside and the appeal needs to be allowed to that extent. The impugned order is set aside, to the extent challenged before us and the appeal is allowed with consequential relief, if any.”

24. The above decisions are squarely applicable in factual matrix, in the instant appeals.

25. Therefore, in view of the discussions, supra, and following the ratio laid down by the Co-ordinate Bench, we find that the demand under ‘Manpower Recruitment or Supply Agency Service’ is not sustainable.

Further, since the demand is not sustainable on merit itself, the imposition of penalty will also not sustain. Thus, in view of the same, the impugned orders are liable to be set aside.

26. Appeals allowed with consequentional benefit, if any, as per law.

(Pronounced in the open court on 09.01.2026 )