Shanti Beem Friends Educated Unemployed Co-operative Society Ltd Vs Commissioner of Central Tax (CESTAT Hyderabad)
The CESTAT Hyderabad considered appeals filed by M/s Shanti Beem Friends Educated Unemployed Co-operative Society Ltd against orders of the Commissioner (Appeals) upholding orders-in-original confirming service tax demands along with interest and penalties. The appellant society was engaged in providing manpower supply services to M/s ONGC Ltd. The dispute principally concerned the valuation of taxable services under Section 67 of the Finance Act, 1994 and whether amounts relating to salaries, PF, ESI and other statutory payments could be excluded from the gross amount charged for manpower supply services.
The department had received information from ONGC that the appellant was supplying manpower to ONGC without discharging service tax liability under ‘Manpower Recruitment or Supply Agency Service’ (MRSAS), defined under Section 65(105)(k) of the Finance Act, 1994. The Rajahmundry Divisional Office advised the appellant to obtain service tax registration, but registration was not obtained. The appellant contended that, being a cooperative body, it was not a commercial concern and was therefore outside the service tax levy. It also approached the Hon’ble High Court of AP, which directed the department to pass an assessment order.
Before the Tribunal, the appellant did not dispute the manpower supply issue in isolation but challenged the fixation of taxable value. It submitted that the amounts received from ONGC substantially represented salaries and statutory payments such as ESI and PF, while the society retained only a nominal amount towards overheads and maintenance. The appellant relied upon decisions including MP Security Force Vs CCE & ST, Bhopal and the Supreme Court decision in Union of India Vs M/s Intercontinental Consultants and Technocrats Ltd., contending that only the service element should form part of the taxable value.
The Tribunal also considered Young Brothers Transporters & Contractors Vs CCE, Meerut-I and Manish Contractor Vs CCE, Indore, relied upon by the appellant, as well as the Revenue’s reliance on CCE & ST, Surat Vs Jalaram Security Services, Shri Bhagavathy Traders Vs CCE, Cochin, Saurashtra Kutch Stock Exchange Ltd Vs CCE & ST, Rajkot and CCE & ST, Bangalore (Adjn) Vs M/s Northern Operating Systems Pvt Ltd.
The Tribunal examined Section 65(105)(k), which covered taxable manpower recruitment or supply agency services, and Section 67 of the Finance Act, 1994 concerning valuation of taxable services. The Tribunal noted that ONGC paid the wages and statutory obligations relating to workers to the appellant society, which then disbursed the amounts to the workers and Government accounts. ONGC additionally paid Rs.2,500/- per month towards society maintenance.
However, the Tribunal found that the appellant had not produced a list showing the payments made to workers with bifurcation of salaries, PF, ESI and other statutory payments. The list furnished by ONGC and annexed to the show cause notice did not itself bifurcate the payments towards PF, ESI and other components. Consequently, the Tribunal held that the decision in Young Brothers Transporters & Contractors was not applicable to the facts of the present case.
The Tribunal accepted the Revenue’s reliance on the principle that the gross amount charged towards providing the service is liable to service tax. It concluded that the service recipient was concerned with the overall provision of the manpower/security service and that the salary, PF and ESI components could not, on the facts available before the Tribunal, be treated as reimbursable expenditure deductible from the gross value of the taxable service.
Accordingly, the Tribunal held that the gross amount charged towards providing the service was liable to service tax. Finding no merit in the appeals, the Tribunal dismissed both appeals.
Cases Discussed
- MP Security Force Vs CCE & ST, Bhopal [2020 (43) GSTL 253 (Tri-Del)]
- Intercontinental Consultants & Technocrats Pvt Ltd
- Young Brothers Transporters & Contractors Vs CCE, Meerut-I [2017 (6) GSTL 513 (Tri-Del)]
- Manish Contractor Vs CCE, Indore [2019 (22) GSTL 216 (Tri-Del)]
- CCE & ST, Surat Vs Jalaram Security Services [2019 (10) TMI 1207 – CESTAT Ahmedabad]
- Shri Bhagavathy Traders Vs CCE, Cochin [2011 (8) TMI 430 – CESTAT Bangalore]
- Saurashtra Kutch Stock Exchange Ltd Vs CCE & ST, Rajkot [2019 (3) TMI 875 – CESTAT Ahmedabad]
- CCE & ST, Bangalore (Adjn) Vs M/s Northern Operating Systems Pvt Ltd [2022 (5) TMI 967 – SC]
FULL TEXT OF THE CESTAT HYDERABAD ORDER
M/s Shanti Beem Friends Educated Unemployed Co-operative Society Ltd (hereinafter referred to as the appellant) are in Appeals against the OIA dt.26.07.2012, vide Appeal No.ST/3510/2012 and also against OIA dt.30.08.2012, passed by Commissioner (Appeals), wherein, the OIOs dt.20.12.2011 & 29.12.2011 were upheld along with interest and penalty respectively and the appeals filed by the appellant were set aside.
2. The brief facts are that the appellants are a society formed under Societies Act, 1964, and were engaged in providing Manpower Supply Services to M/s ONGC Ltd. Based on the information received from M/s ONGC, it was noticed that the appellants were supplying manpower to ONGC but not discharging the service tax liability for the services provided under ‘Manpower Recruitment or Supply Agency Service’ (MRSAS), as defined under section 65(105)(k) of the Finance Act 1994. The Divisional Office of Rajahmundry, vide their letter dt.18.11.2009, advised themto get service tax registration but the appellant did not obtain any registration. On behalf of the appellant, the ONGC contract workers federation, vide their letter dt.01.12.2009, contended that being a cooperative body, they are not placed under the ambit of definition of commercial concern and as such they are not liable to pay service tax. Thereafter, the appellant also approached the Hon’ble High Court of AP, wherein, the Hon’ble Court disposed of the writ petition filed by the appellant and directed the department to immediately pass an order of assessment.
3. The department contended before the Commissioner (Appeals) that as per the agreement between the appellant and ONGC, the appellant had provided MRSAS to ONGC and there is no employer-employee relationship. Therefore, the activities of the appellant rightly fall under the definition of taxable services of MRSAS and hence the appellant is liable to take registration and pay service tax, whereas, the appellant contended that they are not commercial entity and the amounts received from ONGC is the gross value containing the salaries and other statutory levies, which cannot be made liable to service tax. Therefore, Commissioner (Appeals) upheld the demand against which the appellants are in appeal before this Tribunal.
4. Learned Advocate for the appellant submits that the service of manpower was introduced w.e.f. 07.07.1997 and the definition has been amended a few times. He further submits that the value of the service has been calculated without taking into cognizance the expenses towards salaries and statutory payments such as ESI/PF, etc., which constitute major portion of the demand and if these amounts are removed from the taxable value, the appellants only receive a nominal amount as overhead charges and bulk of the amount received is spent towards salaries and other statutory payments which could not be included while calculating the service tax payable.
5. In this regard, he relied on the decision of Tribunal at Delhi in the case of MP Security Force Vs CCE & ST, Bhopal [2020 (43) GSTL 253 (Tri-Del)], wherein, it was categorically held that the demand of service tax needs to be made after giving abatement of the wages, ESI and PF paid by the appellant therein. While deciding this issue, the Tribunal at Delhi relied on the judgment of Hon’ble High Court of Delhi in the case ofIntercontinental Consultants & Technocrats Pvt Ltd, which was upheld by Hon’ble Supreme Court as reported at [2018 (10) GSTL 401 (SC)], wherein it was held that under provision of 67(1) of the Act, only service element has to be included for gross amount of such services.
6. He also relied on the following case laws where similar view has been taken.
a) Young Brothers Transporters & Contractors Vs CCE, Meerut-I [2017
(6) GSTL 513 (Tri-Del)] b) Manish Contractor Vs CCE, Indore [2019 (22) GSTL 216 (Tri-Del)]
7. On the other hand, learned AR of the Department reiterated the findings of the Commissioner (Appeals) in the impugned orders and relied on the following case laws in support of their contentions.
a) CCE & ST, Surat Vs Jalaram Security Services [2019 (10) TMI 1207 – CESTAT Ahmedabad] b) Shri Bhagavathy Traders Vs CCE, Cochin [2011 (8) TMI 430 – CESTAT Bangalore]
c) Saurashtra Kutch Stock Exchange Ltd Vs CCE & ST, Rajkot [2019 (3) TMI 875 – CESTAT Ahmedabad] d) CCE & ST, Bangalore (Adjn) Vs M/s Northern Operating Systems Pvt Ltd [2022 (5) TMI 967 – SC]
8. Heard both sides and perused the records. As the same issue is involved in both the appeals, we propose to take up both the appeals together for disposal.
9. Appellants have challenged only against fixation of value of taxable services under Section 67 of the Finance Act, 1994, reckoning the ‘gross amount’ without segregating the expenses towards salaries and statutory payments under the ESI/EPF is not correct.
10. The contract workers’ payrolls are being discharged by the service provider. M/s ONGC was paying the wages along with statutory obligation pertaining to the workers engaged for the work to the service provider (appellant) and not to such worker individually. The contract workers were not employees of M/s ONGC. At this juncture, it is important to mention the section 65(105)(k) of the Finance Act provides that in relation to MRSAS – ‘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.’
11. Section 67 of the Finance Actprovides how to arrive at the value of taxable services, which is reproduced for ease of reference.
“67. Valuation of taxable services for charging Service tax –
(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,—
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.
(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.
Explanation: For the purposes of this section,—
(a) “consideration” includes –
(i) any amount that is payable for the taxable services provided or to be provided;
(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;
(iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.
(b) “money” includes any currency, cheque, promissory note, letter of credit, draft pay order, travelers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value;
(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.”
12. Learned Amicus Curiae has also relied on the decision of Coordinate Bench at Delhi in the case of Young Brothers Transporters & Contractors Vs CCE, Meerut-I [2017 (6) GSTL 513 (Tri-Del)]. The relevant portion is as under:
“6. The Employees Provident Fund & Miscellaneous Provisions Act, 1952 and the Employees State Insurance Act, 1948 created the liability upon the principal employer to contribute to the respective funds, an amount equal to employees contribution. Thus, in compliance of the said provisions, the service receiver M/s HNGIL had contributed to such funds, the amount towards the workmen deployed by the appellant. The fact is not under dispute that such contributed amount was never given by such service receiver to the appellant. Thus, the gross value for the computation of service tax liability in the hands of the appellant will not take into consideration the amount of contribution made by the service receiver M/s HNGIL directly into the respective heads of account. Therefore, in our considered view, service tax demand cannot be confirmed on the employer’s contributed amount towards P.F., E.P.F. and E.S.I.”
13. M/s ONGC calculates the wages payable as per agreement, PF, ESI and any other statutory dues and remits the same to the society for disbursal to the members of the society and for payment to Government accounts respectively. In addition, M/s ONGC pays an amount of Rs.2,500/- per month towards society maintenance. Appellants state that the amount is only liable to be calculated for tax. M/s ONGC submitted a list which is annexed to the SCN, which contains amounts paid by M/s ONGC to service provider/appellants. In this list, they have not bifurcated payments with regard to PF/ESI, etc. Appellants have not provided any list containing the payments made to workers with details showing any bifurcations. In view of these facts and circumstances, decision in the case of Young Brothers Transporters & Contractors Vs CCE, Meerut-I (supra) is not applicable to the instant case.
14. Learned AR relied on the decision of Coordinate Bench at Ahmedabad in the case of CCE & ST, Surat Vs Jalaram Security Services, wherein, it was held that as per section 67, the gross amount charged towards providing service shall be liable to service tax. As regards the salary of security guards, PF and ESI, the same is not an expenditure incurred by the appellant on behalf of the service recipient. The service recipient is concerned about the overall provision of security service irrespective of bifurcation of payment of service paid by the service recipient to the appellant. Therefore, it cannot be said that salary of guards, PF, ESI, etc., are reimbursable expenditures to be deducted from the gross value of security service. Therefore, it was decided that only the commission portion is liable to tax and not the gross value.
15. Therefore, we find that the gross amount charged towards providing service shall be liable to service tax. The service recipient was concerned about the overall provision of security service irrespective of bifurcation of payment of service paid by the service recipient to the appellant. Therefore, it cannot be said that salary of guards, PF, ESI, etc., are reimbursable expenditures to be deducted from the gross value of security service.
16. In view of the above discussion and analysis, we do not find any merits in the Appeals. Therefore, these appeals are liable to be dismissed.
17. Accordingly, Appeals are dismissed.
(Pronounced in the Open Court on 06.05.2025)
