CESTAT: Deletion of Service Tax Demand on Manpower Recruitment or Supply Agency Service

CESTAT: Deletion of Service Tax Demand on Manpower Recruitment or Supply Agency Service

The Customs, Excises, Service Taxes Appellate Tribunal (CESTAT), Chennai Bench on 24 February 2021, in the case titled M/s Sak Soft Ltd (Appellant) v. Commissioner of GST & Central Exercise (Respondent), deleted the service tax demand on Manpower Recruitment or Supply Agency Service (MRSA).

The Coram of Sulekha Beevi and P. Anjani Kumar passed an order favoring the appellant and stated, "In the case before us, apart from a bald allegation that the appellant had suppressed facts with the intention to evade payment of service tax, there is no positive act brought out before us to establish the allegation of suppression."

The appellant had been engaged in providing information technology-related solutions including maintenance of software etc. They were paying service tax under Information Technology Software Services after such services became taxable in 2008.

The revenue department was of the view that for the period prior to 2008, as per the agreements entered by the appellant with various clients, the appellants had rendered MRSA services to these clients.

The appellant refused the said allegations and claimed that the services were nothing but Information Technology Software Services for which they have been paying service tax after 2008 and that these activities will not fall under the definition of MRSA.

It was further contended by the appellants that the services were predominantly provided by the appellant to companies who were not in the field of IT or software development. This will go to show that the appellant was providing Information Technology Software Services to these clients and not MRSA service.

The appellant stated that the core competence was of IT services and software consultancy. The tone and tenor of all the agreements executed by the appellant with its client were focused on providing specialized software services. The transactions under dispute stipulated that the agreement with the appellant was for IT-related services only.

It was further urged by the appellant that from a fair perusal of the contract, it was beyond doubt that the characteristics of the transaction were software services and the personnel was only resources deputed for providing the said software services.

An appeal was filed before the CESTAT and it clarified that the definition of 'manpower recruitment supply agency service' required that the activity should be recruitment or supply of manpower, temporarily or otherwise.

It further stated that the essence would be that the service provider who rendered MRSA service would have no control or supervision on the work/job done by such persons supplied/recruited.

The CESTAT after taking into consideration the evidence on record stated that there was no iota of evidence to show that the appellants were rendering MRSA service during the disputed period.

It put reliance on the judgment of the Supreme Court in the case titled, Continental Foundation Jt. Venture v. CCE, 2007 (216) ELT 177 (SC), wherein the Court held there cannot be suppression or misstatement of fact which is not willful and yet constitute a permissible ground for the purpose of the proviso to Section 11A of Central Exercise Act, 1944.

The CESTAT deleted the service tax demand and stated that "We do not find any evidence to support the allegation that the appellant has suppressed facts with the intention to evade payment of service."