CESTAT- Mumbai : Where assessee as per agreement with one ‘K’ provided service in respect of producing or processing goods in premises of ‘K’ and rate was on per piece of goods produced, said service would not fall under category of ‘manpower recruitment or supply agency service’

CESTAT, Mumbai Bench

Dhanashree Enterprises vs. Commissioner of Central Excise, Pune-I

Section : 65(68)

Ramesh Nair, Judicial Member And Raju, Technical Member

Final Order Nos. A/88286-88287/2017-Wzb/Stb

Appeal Nos. St/565-566/2012-Mum

July 10, 2017

Circulars & Notifications: Circular No. 96/7/2007-S.T., dated 23-8-2007


Ramesh Nair, Judicial Member – The fact of the case is that the appellant as per the contract with M/s. Kalyani Lemmerz Ltd. (Kalyani for short), providing the job of producing or processing in the premise of Kalyani. The terms of the job is on per piece basis. The department issued show cause notice alleging that the service provided by the appellant to Kalyani is of Manpower Recruitment or Supply Agency service, which is liable for service tax accordingly, the demand of service tax was issued which was culminated into adjudication order and the same was upheld by the Commissioner (Appeals) by rejecting the appeal of the appellant, therefore, the appellants are before us.

2. Shri M.P. Joshi, ld. Counsel appearing on behalf of the appellant submits that as per the contract entered into between the appellant and the service recipient Kalyani, the service provided is in the nature of processing or producing in the premises of the recipient of the service. The job is on per piece of the goods irrespective of how much labour is deputed for carrying out the job, therefore the service is not of Manpower Recruitment or Supply Agency service. The payment terms is also on per piece basis and not on reimbursement of wages or salary. Therefore, the demand raised under Manpower Recruitment or Supply Agency service is not correct. He submits that an identically worded contract was entered into with Bhagyashree Enterprises & Sonawane Indl. [Order No. A/86253-86254/17/STB, dated 8-3-2017] held that the service is not of Manpower Recruitment or Supply Agency service; accordingly, the demand was set aside. He submits that in similar arrangement this Tribunal has taken a consistent view that such type of work does not fall under the category of Manpower Recruitment or Supply Agency service, he placed reliance on the following judgments :—

(i) Ritesh Enterprises v. CCE [2010] 24 STT 283 (Bang. – CESTAT)

(ii) Divya Enterprises v. CCE [2010] 25 STT 60 (Bang.)

(iii) Future Focus Infotech India (P.) Ltd. v. CST [2010] 25 STT 373 (Chennai)

3. On the other hand, Ms. Vinita Shekhar, Jt. Commissioner (AR) appearing on behalf of the revenue submits that agreement submitted by the appellant is not a credible piece of evidence for the reason that the existence of agreement was not mentioned at the time of recording the statement. The agreement was not submitted along with reply. The agreement stated to have been made on 1-4-2007 however, stamp paper bears the date of May, 2007 which is after 1-4- 2007. She further submits that in Annexure A to the agreement the nature of work is production ancillary associates i.e. it is a supply of labour. In the letter head of the appellant, the status of the appellant was shown as labour supply and security supply. No invoice or bills were submitted to the lower authorities to ascertain the nature of work performance for which charges received. The Order-in-Appeal records that the appellants have not been supplied raw material or semi finished goods. She further submits that merely because consideration towards the service in piece rate basis that alone will not be a determinative basis of classification. Since the entire transaction is of only labour supply by the appellant the service is rightly classifiable under Manpower Recruitment or Supply Agency service. She places reliance on the Board Circular No. 96/7/2007-S.T., dated 23-8-2007 and submits that as per this clarification, the service is classifiable under Manpower Recruitment or Supply Agency service.

4. We have carefully considered the submission made by both sides and perused the records.

5. We find from the show clause notice that though the department has proposed the service of the appelant as classifiable under Manpower Recruitment or Supply Agency service but no evidence was adduced to conclusively hold that the service is of Manpower Recruitment or Supply Agency service. The figure of the service tax was retrieved from the bank account which does not show what is the basis of the service charge by the appellant to the service recipient. Therefore, we do not find any material evidence in the show-cause notice to hold that the appellant are providing Manpower Recruitment or Supply Agency service. On the contrary, the appellant submitted an agreement with the service recipient. The relevant clause of the agreement are reproduced below :—

“This AGREEMENT made at Pune on this 1st day of April month of the year Two Thousand Seven BETWEEN Kalyani Lemmerz Limited incorporated under the Companies Act, 1956 having its office and chief place of business at Kuruli Chakan (hereinafter referred, to as the “Company”) represented by Kalyani Lemmerz Limited, on the one part’ and M/s. Dhanashree Enterprises, a represented by Proprietor (hereinafter referred to as “Contractor”) of the other part.

WHEREAS the company required a contractor for carrying out the work in the premises of the company, which is listed in Annexure “A”.

AND WHEREAS the company accepted the offer of the contractor and in pursuance of the discussions, trial operations were carried out between the period 1st April, 2007 to 31st March, 2008.

AND WHEREAS after discussions and trial operations the company and the contractor agreed to enter into a contract on the same terms and conditions mentioned hereinafter.



(a) The contractor shall perform the work listed in the Annexure “A” which is part of this agreement and as directed by the concerned officers of the company from time-to-time.

(b) The contractor will be available for the aforesaid Piece work on all working days/shifts and even on holidays if required. He will be carrying out jobs on job order basis and job charges will be paid on piece rate basis.

(c) The contractor will be accountable for required quantum of units to produced within the span of time as be scheduled. He shall ensure that workmen employed by him possess qualification skill and fitness to undertake work of contractor.

(d) The contract does not continue supply of labour as the object or order is for processing/producing the jobs on piece rate basis, using the labour who will be under your control, supervision. Contractor will be responsible for quality problem for which debit for material is issued to you, the material accounting is to given by contractor, so that recording can be done in separate out ward register and contractor payment is subject to material produced and quality, quantity reconciled from time-to-time.


(a) For performing the work mentioned in clause 1 (Annexure-A) hereinabove the contractor shall be paid at the rates mentioned in Annexure “A” as follows :—

(b) The contractor’s bills for Piece Contract should be submitted on a monthly basis latest by the 3rd of every month, for the previous month and shall be certified by the Head of the Department/shop, where the contract work was entrusted.

(c) The amounts specified hereinabove are agreed inclusive of all costs, charges, expenses, wages to workmen and any other expenses that may be incurred by the contractor and the contractor shall not be entitled to make any other demands monitory or otherwise whatsoever from the company during the term of agreement.


(a) For performing the above said work the contractor should arrange to sufficient workforce to carry out the task as per requirement time to time.

(b) The contractor shall employ sufficiently experienced person to undertake the supervision of work being carried out by the per piece basis.

(c) The quality and quantity of work at all stages should be as per the standard laid down in Annexure “A”.

(d) The contractor shall ensure that he complies with and observes all the provisions of the Contract Labour (Reg. & Abol.) Act, 1970. The Minimum Wages Act, 1948, Payment of Wages Act, 1936, Employees Provident Fund and Misc. Provisions Act, 1952, the E.S.I. Act, 1948:’ and such other statutory encasements, rules and regulations laid down by the Govt. or local body in force/coming into force which may apply to this agreement and any liability on account of non-compliance or violation thereof shall be the contractor’s responsibility.

(e) The workmen employed by the contractor shall be his employees and the company shall be in no way responsible or liable for their wages, salaries, bonus, gratuity, and other allowances, if any.

(f) The contractor shall regularly make payment for P.F. Family Pension, Employees State Insurance Contribution, Deposit Linked Insurance Scheme and all other statutory dues that may become, due and payable by the contractor for the labour employed by him and maintain all such records as may be statutorily required and present the same to the officers of the company when required.

(g) The contractor shall during the term of this agreement, at his cost insure all workmen in his employment and connected with the execution of this contract against all accidents fatal or otherwise, injuries that may be suffered by them and all claims arising there from shall be concluded by the contractor directly.

(h) The contract labour and other supervisory staff engaged by Party No. 2 shall conduct themselves properly while on the premises of the party No. 1 and shall maintain absolute discipline during working hours and Party No. 2 shall ensure that the labour employed by him shall maintain discipline and proper conduct during working hours on the premises of Party No. 1. Party No. 2 shall take such necessary steps to deal with any person employed by him not complying with the terms mentioned in (h) above. He shall also see that recurrence in misconduct or misbehavior of the contract labour is not repeated on the premises of part No. 1.

(i) In the event of contractor is provided or use material and tools belonging to the company, contractor undertakes to return the same in good condition, failing which contractor shall be responsible for the cost, etc.





iii. Production Ancillary Associates (Per Piece of Quantity manufactured – Product decided time to time).

iv. All rate are finalized as per the pieces produced (Piece Rate) time to time.


i. To maintain good cleanliness and housekeeping in Factory premises after carrying the piece rate activity.


i. To ensure adequate supervision and control for all above mentioned activities.”

6. The identically worded agreement was also entered into by both the appellants with Kalyani. From the reading of the agreement and Annexure A it can be seen that the service is the production ancillary associates and rates for the service is on per piece rate of the pieces produced. Therefore, the appellant’s job is not to depute the labour to the service recipient irrespective of the number of labours, the respondent has to perform the job of producing piece for the service recipient and the rate is on per piece basis. Therefore, the wages/salary or emolument paid to the labour is not relevant to the service recipient. That is the responsibility of the appellant. Against this evidence the department right from show-cause notice up to the Commissioner (Appeals) could not bring any material to show that there is arrangement between the appellants and service recipient there is arrangement of supply of manpower. We also consider the decision of this Tribunal in the case of M/s. Bhagyashree Enterprises & Sonawane Indl. (supra) wherein identically worded agreement was existing that too with the same service recipient i.e. Kalyani. Hence the identical facts were involved. Therefore the ratio of that decision is squarely applicable in the facts of the present case also. As per our above discussion, we find that since the department could not establish that the service provided by the appellant are of supply of manpower, the demand on the said service is not sustainable. We therefore, set aside the impugned order and allow the appeals.

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