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Brief facts of the case

M/s. IRM Ltd.. 5/6, Sun Complex, Nr. Stadium Circle, Navrangpura, Ahmedabad-15

(hereinafter referred to as ‘ the assessee’ for sake of brevity) are providing services under the

categories of “Rent-a-cab Scheme Operator Service”, “Manpower Recruitment Agency Service”,

“Outdoor Catering Service”, “Management, Maintenance and Repair Service”, “Air Travel Agent

Service” and “Business Auxiliary Service” which are taxable services under sub clause (o), (k),

(zzt), (zzg), (l) and (zzb) respectively of Section 65 (105) of the Finance Act, 1994. For

providing the above services, they are registered with service tax having Service Tax

Registration No. AAACI3678MST003.

2. During the course of audit of records belonging to M/s IRM Ltd, for the period 2007-08 to

2009-10, by the officers of audit section of service tax Commissionerate, Ahmedabad, it was

observed that the assessee was showing the income under the head ‘Bus Operating Income’ for

the buses operated by them for transportation of staff belonging to M/s Cadila Pharmaceuticals

Ltd.(herein after referred as “M/s.Cadila”). They were paying service tax on such income by

classifying the same under “Rent-a-Cab Operator Service” after claiming abatement under

Notification No.1/2006 dated 01.03.2006.

3. Whereas, it appears that the asseessee entered into an agreement dated 01.03.2008

with M/s. Cadila for the contract of transportation service. As per the agreement

the assessee has to provide requisite number of manpower like drivers, conductors,

cleaners, loaders, helpers etc. (hereinafter referred to as “manpower”) to conduct the

transportation services as assigned by M/s. Cadila;

the assessee have to maintain all records of manpower, provided to M/s. Cadila and

such record shall comprise personal details, attendance, leave, etc.;

the assesse shall be exclusively and fully responsible for complying with all legal

requirements as per the Contract Labour (Regulations & Abolition) Act, 1970;

the assessee have to pay remuneration / compensation /other payments as the case

may be, including expenses, if any;

the assessee have to deduct and deposit statutory dues such as PF, ESI, Pension,

Labour Welfare Fund, Workmen Compensation Insurance Premium and other

contribution to the relevant government authorities;

the assessee have to comply with all the applicable laws including Factories Act, 1948,

Employees’ Provident Funds & Misc. Provisions Act, 1952, Payment of Bonus Act, 1965,

Payment of Wages Act, 1936, Minimum Wages Act, 1948, Workmen Compensations

Act, 1923, The Contract Labour (Regulation & Abolition) Act, 1970, Industrial Dispute

Act, 1947, Industrial Employment (Standing Orders) Act, 1946, Labour and Welfare

Legislations and timely filling / submission of periodic forms / returns and obtaining

license or permission in context with this agreement.;

completing all the formalities as and when manpower are not required;

keeping strict watch and ensure that the manpower provided by the assessee shall not

indulge in any other activity or works in any other firm.

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4. The relevant paras of the above discussed agreement are reproduced here below for

reference: :-

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4

5

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4.1 It is further evident from Annexure-I to the agreement that depending on the size of bus

and route the assessee charged M/s Cadila the following amounts on monthly basis.

Sr. No. Bus and Route Amount Charged

1 Big Bus 54 seater for Dholka Rs.79,500/- per bus per month

2 Mini Bus 34 seater for Dholka Rs.35,000/- per bus per month

3 Big Bus 54 seater for Kadi Rs.1,16,000/- per bus per month

4 Big Bus 54 seater for Bhat Rs.51,750/- per bus per month

5 Mni Bus 40 seater for Bhat Rs.48,187/- per bus per month

5. The term “Manpower Recruitment or Supply Agency” is defined under Section 65(68) of

the Finance Act, 1994 w.e.f. 16.06.2005 as follows:

“manpower recruitment or supply agency” means any commercial concern engaged in

providing any service, directly or indirectly, in any manner for recruitment or supply of

manpower, temporarily or otherwise, to a client”

The statutory definition has been amended with effect from 16.05.2008 so as to read 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]”.

6. As discussed in para 3 and 4 supra, the terms and conditions are only related to supply

of manpower hence, the services provided by the assessee in the shape of providing drivers,

conductors, cleaners, loaders etc. for efficient transportation of employees of M/s Cadila fall

under the category of “Manpower Recruitment or Supply Agency Service” and not under “Rent a

Cab Operator services” as categorized by them. Thus, the gross amount charged by the

assessee as bus hire charges are towards supply of manpower service only.

6.1 In view of the above, it appears that to evade service tax, the assessee has wrongly

classified the above said service under “Rent-a-cab operator scheme service” and has

discharged their service tax liability by availing abatement of 60 % under Notification No.

01/2006-ST dtd.01.03.2006 on the gross amount charged / received from M/s. Cadila. As per

Section 67 of the Finance Act, 1994, taxable value as regards the “Manpower Recruitment and

Supply Agency Service” shall be the gross amount charged by the assessee and no

abatement is notified for this service. Hence, the abatement, taken by the assessee under

Notification No.1/2006 dated 01.03.2006, by mis-classifying their service under “Rent-a-cab

operator service” appears to be in-admissible and the same is required to be disallowed.

7. The Superintendent, AR-X, Division-II, Service Tax, Ahmedabad, issued letter dated

23.08.2012 asking the assessee to provide bus operating income received by them during the

period 2010-11 and 2011-12 and also to provide a copy of agreement dated 1.3.2008 between

M/s Cadila and the assessee. Since, no reply to the said letter was received, summons dated

11.09.12 and 19.09.12 were issued to the assessee asking them to provide the aforesaid details

and to remain present for recording of statement. The said assessee vide letter dated 24.09.12

sought for extension. Further, the said assessee vide their letter dated 29.09.2012 submitted the

details regarding bus operating income during the period 2010-11 and 2011-12. The details of

the same are as below :-

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Period Bus operating

income as per

ledger (in Rs.)

Rate of Service

Tax (in Rs.)

Service Tax

payable (in Rs.)

Service Tax paid

(in Rs.)

2010-11 18390402 4.12% 757685 761602

2011-12 24359008 4.12% 1003591 1002797

8. Further, the said assessee vide letter dated 1.10.2012 authorised Shri Lalji Patel to

remain present before the service tax authorities.

8.1 A statement of Shri Laljibhai Popatlal Patel, Deputy Manager (Accounts) of M/s. IRM

Limited, Ahmedabad was recorded by the Superintendent, Range-X, Service Tax, Division-II,

Ahmedabad on 01.10.2012 under Section 14 of the Central Excise Act, 1944 read with Section

83 of Finance Act, 1994. Shri Laljibhai Patel has in his statement interalia stated that their

company is providing to and fro bus service to transport the staff members of M/s. Cadila from

various points; that the buses are owned by M/s. Cadila and their company are providing man

power and maintaining the buses, including cost of fuels and managing to provide manpower

like Drivers, conducters etc.

8.1.1 On being further asked about the inception of bus services provided to M/s. Cadila

Pharmaceuticals Ltd., he stated that the company is providing bus services to the staff

members of M/s. Cadila since beginning and that their company is charging amount on the

basis of sitting capacity and distance, details of which are mentioned in Annexure-I, attached

with the Agreement dated 01.03.2008, copy of which is already provided by their company to

the Audit party; that they have never submitted Agreement dated 01.03.2008, made between

M/s. Cadila and M/s. Green Channel Travel Services (Div. of IRM Ltd.) to Service Tax

Department. On being asked about existance of any Agreement between these two companies

regarding Bus services before 01.03.2008, he stated that there was no agreement between their

company and M/s. Cadila before 01.03.2008, however, the said bus services were in

existance from begining.

8.1.2. On being asked to peruse the Agreement (entered in the name of ‘Transport Service

agreement’) made on 01.03.2008 between M/s. Cadila Pharmaceuticals Ltd. and M/s. Green

Channel Travel Services (Div. of IRM Ltd.), he admitted that that their company is providing

requisite number of manpower like drivers, and the cost towards maintainance of the buses.

On being specifically asked that there is no mention about the maintenance of buses etc in the

agreement dated 01.03.2008, he stated that the said agreement dated 01.03.2008 is only

related to Manpower supply and its related provisions or act as per statutary law in existence.

He further stated that besides this agreement dated 01.03.2008, there is no other agreement in

force as on today in respect of “Bus Operating services” between their company and M/s.

Cadila .

8.1.3. On being asked about the ownership of the buses, used by M/s. IRM Ltd. for providing

transportation services to the staff members of M/s. Cadila, he stated that the buses are

owned by M/s. Cadila and the same are given to their company and M/s. Cadila is not

charging any remuneration from M/s. IRM Ltd. ; that the proof regarding ownership of buses, the

copies of RC Book has already been provided to the Audit conductors, cleaners, loaders,

helpers, etc. (hereinafter refer to as” Manpower”) in r/o buses, owned by M/s. Cadila and

besides this their company is also incurring the expenditure towards fuel Party during the

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course of Audit and as per the said RC Book, the ownership of all the buses, which are used by

their company for the above said purpose belongs to M/s. Cadila.

8.1.4. On being asked regarding classification of such bus service / payment of service tax on

such “Bus operating income” under the category of “Cab Operator service”, he stated that the

company is not paying service tax on such Bus services previously, however, after

amendment in definition of the “Rent-a- cab operator” services w.e.f. 01.06.2007, the company

has self-classified such bus services under the category of “Rent-a-cab operator” services and

started paying service tax on “Bus operating income”, received from M/s. Cadila under cab

operator services from 01.06.2007; that they have not paid service tax on “Bus Operating

income” pertaining to the period 2007-08 and the same was paid later on in the year 2008-09

with interest by self-classifying such income under the category of “Cab Operator services”, i.e.

after agreement dated 01.03.2008.

8.1.5 On being asked regarding payment of service tax under “ Rent a cab Service’, he

stated that they are providing bus service to the Staff members of M/s Cadila for which they

have charged fixed amount from M/s Cadila as per sitting capacity of the buses and distance

and the amount charged from M/s Cadila is towards the bus services provided by their

company and as per Notification No.1/ 2006 dtd..01.03.2006, they have discharged the

Service Tax liability after availing the abatetment of 60% on Bus operating Income received

from M/s Cadila Pharmaceuticals Ltd, Ahmedabad under the category “Cab operator services”.

9. Shri Laljibhai Patel during the recording of statement could not produce any

documentary evidence with regard to expenditure incurred by them on account of fuel and

maintenance of buses. In fact, the said assessee could also not provide the documentary

evidences in respect of their above contention that they have been incurring expenditure

towards fuel and maintenance. Hence, it appears that they were just taking a shelter of incurring

expenditures so as to avail the deduction thereof and thereby evade payment of service tax.

Further, it was noticed that the assessee has not been co-operating with investigation and has

been dilly delaying the issue on one pretext or the other. The Agreement discussed at para-3

and 4 supra clearly mentions that the transporation contract between the asseessee and M/s.

Cadila was purely for supply of Drivers, Conducters, Cleaners, Loader etc. i.e. supply of

Manpower only. No where in the contract, there is a mention of payments other than the

payments to be made to the Manpower. The Annexure-1 to the said Agreement only talks about

the payment that M/s. Cadila would be making to the assessee per month. Further, the fact that

M/s. Cadila provided buses free of cost to the assessee clearly shows that the payment made

by them was towards manpower supply only. Had the assessee taken buses on lease from

some other parties, they would have incurred monthly expenses in the form of rent. Since, the

assessee did not incur rental expenses on account of the buses provided to them, the

expenditure incurred by them on account of fuel and maintenance gets balanced.Hence, the

contention of Shri Laljibhai Patel that they have been incurring expenditure towards fuel and

maintenance is not correct and the same appears to have been made with an intent to evade

service tax by claiming deduction on account of such fictitious expenditure.

9.1. In view of above, the bus operating income provided by the assessee has been taken as

gross amount for the purpose of calculation of service tax short paid by the assessee. Further

Sh. Laljibhai Patel has in his statement confirmed that the asseessee was providing similar

services to M/s. Cadila prior to the contract for transportation with M/s. Cadila. However, they

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had for the period 2007-08 not paid any service tax on the services provided by them.

However, once the contract of transportation service was made (i.e. on 01.03.2008) they

calculated their service tax liability by classifying their services under the category of Rent-a-cab

services and paid the same with interest. The subject show cause notice covers the period

2007-08 and proposes to classify the services provided by the assessee with regard to

transportation of staff members of M/s. Cadila under the category of Manpower recruitment and

supply agency.

10. It appears that the assessee have willfully misclassified their services under the category

of “Rent-a-cab operator service” to avail the benefit of abatement of Notification No. 01/2006,

dated 01.03.2006. The details of bus operating income and short payment of service tax for the

period 2007-08 to 2011-12, has been worked out on the basis of audit report and the assessee

letter dated 29.09.2012, which come to Rs. 9,80,46,418/- and Rs. 66,21,729/- respectively, as

per Annexure-A to the show cause notice.

11. Thus, it appears from the foregoing discussion that the assessee have contravened the

provisions of:

(i) Section 67 of the Finance Act, 1994 in as much as they have failed to determine the

correct taxable value of service provided by them;

(ii) Section 68 of the Finance Act,1994 read with Rule 6 of Service Tax Rules,1994 as

amended in as much as they failed to assess and pay the required service tax to credit

of Central Government by due date at the rate prescribed under Section 66 of the

Finance Act,1994;

(iii) Section 70 of the Finance Act, 1994 in as much as they failed to self assess and

declare the correct taxable value of service to the department in the prescribed return in

form ST-3 and also failed to correctly assess the tax due on the service provided by

them and furnish correct return.

12. As discussed above, the assessee has evaded/short paid service tax on account of

discharging only a part of service tax declared by them in their ST.3 returns; by willful

misstatement by classifying their service in wrong head for availing undue advantage of

abatement of Notification No.01/2006-ST dtd.01.03.2006 and by not disclosing full and correct

information about classification of the service provided by them. Thus, it appears that there is

willful misstatement to the department on the part of the assessee with intention to evade full

payment of service tax on the service provided by them. It appears that the assessee

deliberately withholding correct information from the department about service provided by

them. It appears that all these material information have been concealed from the department

deliberately, consciously and purposefully to evade payment of service tax. Therefore, in this

case all essential ingredients exist to invoke the extended period in terms of section 73(1) of

Finance Act, 1994 to demand the service Tax being short paid.

13. Further, as per Section 75 ibid , every person liable to pay the tax in accordance with the

provisions of Section 68, or Rules made there under, who fails to credit the tax or any part

thereof to the account of Central Government within the period prescribed, shall pay simple

interest (at such rate not below ten percent and not exceeding thirty six percent per annum, as

is for the time being fixed by the Central Government, by notification in the official gazette) for

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the period by which such crediting of the tax or any part thereof is delayed. The assessee have

not discharged service tax liability and hence liable to pay interest under Section 75 of the act.

14. All these acts of contravention of the provisions of Section 67, 68 and 70 of the Finance

Act, 1994 read with Rule 6 and 7 of Service Tax Rules, 1994 appears to be punishable under

the provisions of section 76, 77 and 78 of the Finance Act, 1994 as amended from time to

time.

15. The government from the very beginning placed full trust on the service providers, so far

as service tax concerned and accordingly measures like self assessment etc., based on mutual

trust and confidence are in place. Further, a taxable service provider is required to maintain any

statutory or separate records under the provisions of Service Tax Rules as considerable amount

of trust is placed on the service provider and private records maintained by him for normal

business purpose are accepted, practically for all the purpose of service tax. All these operates

on the basis of honesty of the service provider; therefore, the governing statutory provisions

create an absolute liability when any provision is contravened as there is a breach of trust

placed on the service provider; no matter how innocently. The deliberate efforts by not paying

the correct amount of service tax is utter dis-regard to the requirement of law and breach of trust

deposed on them, such outright act in defiance of law appears to have rendered them liable for

stringent penal action as per the provisions of Section 78 of Finance Act, 1994 for suppression

on concealment and willful misstatement with intent to evade payment of service tax.

16. Thus a show cause notice was issued to M/s. IRM Ltd.. 5/6, Sun Complex, Nr. Stadium

Circle, Navrangpura, Ahmedabad-15 by the Commissioner of Service Tax, Ahmedabad, as to

why:-

(i) the services categorized by the assessee under the category of Rent-a-cab

operator services for providing bus service to M/s. Cadila Pharmaceuticals

Limited should not be considered as taxable service under the category of

“Manpower Recruitment and Supply Agency” service, defined under Section 65

(105)(k) of Finance Act, 1994 and amount of Rs. 9,80,46,418/- charged and

received towards providing the above service during the period 2007-08 to 2011-12 should not be considered as taxable value and;

(ii) service tax amounting to Rs. 66,21,729/- (as per Annexure-A) short paid by

the assessee should not be demanded and recovered from them under proviso

to Section 73 (1) of the Finance Act, 1994 by invoking extended period of five

years;

(iii) Interest at appropriate rate should not be demanded and recovered from them on

short payment of service tax as mentioned at (ii) above, under the provisions of

Section 75 of the Finance Act, 1994;

(iv) penalty should not be imposed upon them under the provisions of Section 76 of

the Finance Act, 1994 for contravention of Section 68 of the Finance Act, 1994

read with Rule 6 of the Service Tax Rules,1994;

(v) penalty should not be imposed upon them under the provisions of Section 77 of

the Finance Act, 1994 for contravention of Section 70 of the Finance Act,1995;

(vi) Penalty should not be imposed upon them under the provisions of Section 78 of

the Finance Act, 1994 for willfully suppressing the correct taxable value of the

service from the department with intent to evade payment of service tax

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17. Defense Reply:

In reply to show cause notice M/s IRM submitted their defense reply on 31.05.2013. At

the outset they have denied all the allegations made in the SCN. Regarding whether the service

was classifiable under the category of manpower recruitment & supply agency service or renting

a cab service they have stated that they are independent registered limited company,

which is basically doing the business of Air Ticket booking, Forex, Passport & Visa

Services, Maintenance of various Guest Houses of M/s. Cadila Pharmaceuticals

(FMS), and management and maintenance of staff buses of M/s. Cadila

Pharmaceuticals Ltd., Ahmedabad through M/s. Green channel Travel services (A Div. Of

IRM Ltd.).

17.1 That they are providing to and fro bus service to carry out the staff members of

M/s. Cadila Pharmaceuticals Ltd. from various points. The buses are owned by M/s.

Cadila Pharmaceuticals and our company is providing service operating, running and

maintaining the buses, including cost of fuels.

17.2 That the consideration charges of Bus services from M/s. Cadila

Pharmaceuticals Ltd has been fixed on the basis of sitting capacity and distance.

17.3 That they are holding full responsibility for the running & maintenance of buses

That their company was not paying service tax on such Bus services previously,

however, . after amendment in definition of the "Rent-a- cab operator" services w.e.f.

01.06.2007, and star ted paying serv ice tax on "Bus operat ing income",

received f rom M/s. Cadi la Pharmaceuticals Ltd. under cab operator services from

01.06.2007.

17.4 Regarding the classification issue they relied upon the following decisions:

a. 2010 (19) S.T.R. 438 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH,

BANGALORE

S.S. ASSOCIATES Versus COMMISSIONER OF C. EX., BANGALORE

Final Order No. 1447/2009 and Stay Order No. 1699/2009, dated 3-12-2009 in

Application No. ST/Stay/378/2009 in Appeal No. ST/627/2009

Manpower Recruitment or Supply Agency service - Lump-sum work - Contract for

execution of work of loading, unloading, bagging, stacking and destacking - Records not

indicating supply of manpower - Essence of contract was execution of work as per

contract and invoices - Tenor of agreement indicating execution of lump-sum work or job

- No agreement for utilization of services of an individual - Lump-sum work not covered

under Manpower Recruitment or Supply Agency service - Impugned order set aside -

Section 65(68) of Finance Act, 1994. [paras 9, 11, 12]

Appeal allowed

b. 2010 (19) S.T.R. 370 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH,

BANGALORE

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DIVYA ENTERPRISES Versus COMMISSIONER OF CENTRAL EXCISE,

MANGALORE

Final Order No. 1450/2009 and Stay Order No. 1711/2009, dated 3-12-2009 in

Application No. ST/St/379/2009 in Appeal No. ST/628/2009

Manpower Recruitment or Supply Agency service - Lump-sum work - Contract for

execution of work of loading, unloading, bagging, stacking and destacking - Records

silent on supply of manpower - Essence of contract was execution of work as per

contract and invoices - Tenor of agreement and purchase orders indicating execution of

lump-sum work as understood by appellant and service recipient - No agreement for

utilization of services of an individual - Lump-sum work or job not covered under

Manpower Recruitment or Supply Agency service - Impugned order set aside - Section

65(68) of Finance Act, 1994. [paras 9, 11, 12]

Appeal allowed

c. 2010 (18) S.T.R. 17 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH,

BANGALORE

RITESH ENTERPRISES Versus COMMISSIONER OF C. EX., BANGALORE

Manpower Recruitment or Supply Agency service - Lump sum work - Demand on the

ground that labour supply undertaken - Contracts for execution of work of loading,

unloading, bagging, stacking and destacking - Records silent about manpower supply -

Contracts and invoices indicating that execution of work forming essence of contract -

Tenor of agreement and purchase orders indicating execution of lump sum work -

Agreement not for utilisation of services of individual - Lump sum work not covered

under Manpower Recruitment or Supply Agency service - Impugned orders demanding

Service tax set aside - Section 65(68) of Finance Act, 1994. [paras 9, 11, 12]

Appeals allowed

Relying upon the above decisions they stated that have rightly classified service under

the category of rent a cab service & discharge service tax accordingly.

17.5 They further argued that the entire demand is time barred. That the show cause notice

covers the period of 01.04.2007 to 31.03.2012. The show cause notice has been issued on

16.10.2012. Thus, the show cause notice has invoked the extended period of limitation. The

show cause has baldly alleged that they have suppressed the information from the department.

17.6 Once department has issued SCN for the extended period i.e. the department has

issued the SCN dtd.31.12.2010 and 19.04.12 and alleged the longer period and confirmed the

demand vide OIO No STC/12 TO 13/COMMR.AHD/2013 dtd. 19.04.2013, So act of department

to issue another SCN of the extended period as 16.10.2012 was highly objectionable

17.7 Further noticee want to rely the supreme court judgment: . Nizam Sugar Industry Vs UOI

–reported in 2006(197) ELT 465 (SC) in which it is held by the Apex Court that” Allegation of

Suppression of facts   against the appellant cannot be sustained, when the first SCN was issued

all the relevant facts were in knowledge of the Department. Later on, while issuing the second

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OR third notice, the same facts could not be taken as suppression of facts, as these facts were

already in the knowledge of the authorities. Therefore, demand and penalty is not sustainable”.

17.8 They countered that the extended period of limitation cannot be invoked in the present

case since there is no suppression, willful misstatement on their part. They also stated that they

clearly indicated in ST-3 returns furnished by them clearly that they are availing the benefit of

Notification/circular No.1/2006-ST. Due shown in the ST-3 return. Therefore question of

suppression does not arise

18. Records of Hearing : Hearing in the case was held on 14.06.2013. The assessee reiterated the earlier submissions

made in their reply to SCN and requested to drop the case.

19. Discussion & Findings:

I have carefully gone through the show cause notice, defense reply as well as oral

submissions made by them during the course of hearing. The SCN alleges that M/s IRM Ltd.

were providing manpower i.e. drivers, conductors, cleaners etc. for transportation of employees

of M/s Cadila in the buses owned by M/s Cadila, and accordingly classifiedd the services

provided by them under Manpower Recruitment & Supply Agency Service demanding service

tax short paid by them.

19.1 The issue to be decided in this case is (a) Whether the service provided for transportation

of employees of Cadila is classifiable under the category of manpower recruitment & supply

agency service or under the rent-a- cab service. (b) Whether invocation of extended period in

the case is justified.

20. First I discuss the main issue. Audit of M/s IRM for the period 2007-08 to 2009-10

revealed that the assessee was showing the income under the head ‘Bus Operating Income’ for

the buses operated by them for transportation of staff belonging to M/s Cadila Pharmaceuticals

Ltd.(herein after referred as “M/s.Cadila”) and were paying service tax on such income by

classifying the same under “Rent-a-Cab Operator Service” after claiming abatement under

Notification No.1/2006 dated 01.03.2006.

21. Further the assessee was providing the Bus Operating Service under an agreement

dated 01.03.2008 entered into between M/s Green Channel Travel Services (division of M/s

IRM Ltd.) and M/s. Cadila Pharmaceuticals Ltd. ( referred to as M/s Cadila) for the contract of

transportation service. The said agreement explicitly contained the following terms & conditions.

(a) the assessee has to provide requisite number of manpower like drivers,

conductors, cleaners, loaders, helpers etc. (hereinafter referred to as

“manpower”) to conduct the transportation services as assigned by M/s.

Cadila;

(b) the assessee have to maintain all records of manpower, provided to M/s.

Cadila and such record shall comprise personal details, attendance, leave,

etc.;

(c) the assesse shall be exclusively and fully responsible for complying with all

legal requirements as per the Contract Labour (Regulations & Abolition) Act,

1970;

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(d) the assessee have to pay remuneration / compensation /other payments as

the case may be, including expenses, if any;

(e) the assessee have to deduct and deposit statutory dues such as PF, ESI,

Pension, Labour Welfare Fund, Workmen Compensation Insurance Premium

and other contribution to the relevant government authorities;

(f) the assessee have to comply with all the applicable laws including Factories

Act, 1948, Employees’ Provident Funds & Misc. Provisions Act, 1952,

Payment of Bonus Act, 1965, Payment of Wages Act, 1936, Minimum Wages

Act, 1948, Workmen Compensations Act, 1923, The Contract Labour

(Regulation & Abolition) Act, 1970, Industrial Dispute Act, 1947, Industrial

Employment (Standing Orders) Act, 1946, Labour and Welfare Legislations

and timely filling / submission of periodic forms / returns and obtaining license

or permission in context with this agreement.;

(g) completing all the formalities as and when manpower are not required;

(h) keeping strict watch and ensure that the manpower provided by the assessee

shall not indulge in any other activity or works in any other firm.

21.1 It is evident from the above that entire agreement pertained to supply of manpower in

the form of drivers, conductors, cleaners, loaders, helpers etc. so that the employees of Cadila

could be transported in the buses owned by Cadila. In fact there is no mention in the agreement

which has any relation to the Renting of Cab Service. Further as per agreement M/s IRM was

responsible for the supply of manpower, maintenance of their remuneration, deduction of

statutory dues such as PF, ESI, Pension, Labour Welfare Fund, Workmen Compensation

Insurance Premium and other contribution to the relevant government authorities.

22. During the course of recording of statement of Shri Laljibhai Popatlal Patel, DY. Manager

(Accounts) M/s IRM Ltd. it was admitted by Shri Laljibhai that their Company is providing to

and fro bus service to transport the staff members of M/s. Cadila from various points; that the

buses are owned by M/s. Cadila and their company is providing man power and maintaining

the buses, including cost of fuels and managing to provide manpower like Drivers, conductors

etc.

23. M/s IRM have in their defense stressed on the fact that they were incurring the costs of

fuel, maintenance etc. However, they have not provided any documentary evidence to their

contention.

24. Further as per Annexure-I of the agreement the assessee charged M/s Cadila the

following amounts on monthly basis depending on the size of bus and route.

Sr. No.

Bus and Route Amount Charged

1 Big Bus 54 seater for Dholka Rs.79,500/- per bus per month

2 Mini Bus 34 seater for Dholka Rs.35,000/- per bus per month

3 Big Bus 54 seater for Kadi Rs.1,16,000/- per bus per month

4 Big Bus 54 seater for Bhat Rs.51,750/- per bus per month

5 Mni Bus 40 seater for Bhat Rs.48,187/- per bus per month

25. It is evident from the above that there is no mention of the amount inclusive of fuel,

maintenance of buses .Thus it can be seen here that the services provided by the assessee are

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in the shape of providing drivers, conductors, cleaners, loaders etc. for efficient transportation of

employees of M/s Cadila which can not fall under “Rent a Cab Operator services” as per

definition discussed below.

26. M/s IRM has categorized such services provided by them to Cadila under the category

of Rent-a-Cab Service. I discuss the definition of Rent-a-Cab service and the taxable service as

under: As per Section 65(91) of the Finance Act, 1994, Rent-a-cab scheme operator” means

any person engaged in the business of renting of cabs. As per the above definition, Rent-a-cab

Scheme Operator means (i) any person (ii) engaged in renting the cabs and (iii) as a business

activity.

27 Further Section 65(105)(o) of the Act defines taxable service as under: Taxable service

means any service provided or to be provided to any person by a rent-a-cab scheme operator in

relation to the renting of a cab. According to the above definition, a service becomes taxable as

service of renting of cab, when:

1. The service is provided in relation to renting of a cab

2. The service is provided ( or to be provided) by a rent-a-cab scheme operator

3. The service is provided to any person

27.1 Further the meaning of Cab is defined under Section 65(105)(o) of the Finance Act,

1994 “Cab means a motorcab or a maxicab or any motor vehicle constructed or adapted to

carry more than twelve passengers, excluding the driver for hire or reward, provided that the

maxicab or motor vehicle referred to above when rented for use by an educational body

imparting skill or knowledge or lessons on any subject or field, other than a commercial training

or coaching centre shall not be included within the meaning of cab”.

28. In view of the above a service provider may provide rent-a-cab service in two ways.

Either the service provider has his own cabs or it provides by way of hiring it from other person.

In the instant case the assessee is neither owning his own buses nor has he hired from other

person. All the buses were given to them by M/s Cadila free of any charge and they were

providing only manpower supply like driver, conductors, cleaners etc for which they were

charging some fixed amount to M/s Cadila as is evidenced from annexure 1 of the agreement.

Further, when ownership of buses lies with M/s Cadila, they cannot be renting their own buses.

Thus the services categorized by M/s IRM certainly do not fall under the category of Rent-a-cab

service.

29. I find that as per the agreement M/s IRM was supposed to provide manpower for the

purpose of transportation of employees. The manpower to be provided by them were drivers,

conductors, cleaners, loaders, helpers etc. In this regard, I refer to Manpower Recruitment or

Supply Agency” and discuss the same as below:

The term “Manpower Recruitment or Supply Agency” is defined under Section 65(68) of

the Finance Act, 1994 w.e.f. 16.06.2005 as follows: “manpower recruitment or supply agency”

means any commercial concern engaged in providing any service, directly or indirectly, in any

manner for recruitment or supply of manpower, temporarily or otherwise, to a client”

The statutory definition has been amended with effect from 16.05.2008 so as to read 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]”.

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29.1 Further as per Section 65(105)(k) of the Act 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.

30. Co-relating the above definition with the activity of M/s IRM Ltd. it is seen that the activity

performed by IRM clearly falls under Manpower Recruitment & Supply Agency Service.

31. It is further noticed that M/s IRM have admitted during the course of statement that

apart from the agreement dated 01.03.2008 there was no other agreement between IRM and

Cadila. In other words there was no agreement between their company and M/s. Cadila

before 01.03.2008, however, the said bus services were in existence from the beginning. They

also admitted that that their company is providing requisite number of manpower like drivers,

conductors, cleaners, loaders, helpers, etc. (hereinafter refer to as” Manpower”) in r/o buses,

owned by M/s. Cadila and besides this their company is also incurring the expenditure towards

fuel and the cost towards maintainance of the buses. Thus it is crystal clear that the said

agreement dated 01.03.2008 is only related to Manpower supply.

32. Thus, from the above discussion an important question arises as to the amount charged

by the assessee to M/s Cadila per bus per month as per Annexure 1 of the agreement, viz for

what service the remunerations were paid by M/s Cadila to the assessee. Had it been in

relation to rent a cab service the assessee should have either rendered such service on the

strength of their own buses or hired from some other person, which is not the case here. The

Amount charged by the assessee was mainly on account of supplying manpower like drivers,

conductors, cleaners etc. as per the terms & conditions of the agreement and not for providing

the buses.

33. Their argument that they were maintaining buses and incurring the cost of fuels and so

they were providing rent a cab service only is unacceptable as in this regard no evidence

regarding the cost of fuels incurred by them has been provided. Thus the argument of the

assessee has no force and is without any evidence which does not absolve them from the

allegation of short payment of service tax by way of availment of abatement provided in the

Rent-a-cab service.

34. In fact the agreement dated 01.03.2008 revels that they were providing only manpower

supply for smooth operation of transport service and all the charges received by them from M/s

Cadila were only related to manpower supply.

35. I am therefore convinced that the assessee has wrongly classified the above service

under “Rent-a-cab operator scheme service” and has discharged their service tax liability by

availing abatement of 60 % under Notification No. 01/2006-ST dtd.01.03.2006 on the gross

amount charged / received from M/s. Cadila. As per Section 67 of the Finance Act, 1994,

taxable value as regards the “Manpower Recruitment and Supply Agency Service” shall be the

gross amount charged by the assessee and no abatement is notified for this service. Hence,

the abatement, taken by the assessee under Notification No.1/2006 dated 01.03.2006, by mis-

classifying their service under “Rent-a-cab operator service” is in-admissible and the same is

required to be disallowed.

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36. In view of the above discussions I find that various decisions relied upon by the

assessee are irrelevant and are not applicable to this case as the nature of the same is very

different. The cases mentioned by them involve lump sum agreements, which did not involve

utilization of services of individuals. This is not the case here as can be seen from the terms of

their agreement with M/s Cadila.

37. Now we come to the second issue that whether extended period is invoked in this case

on ground of suppression is justified. In this regard the assessee was in full knowledge of the

nature of agreement that they were only providing manpower supply and to evade payment of

service tax liability on the gross income they classified the service under Rent-a-cab service

according to their own convenience for the sole sake of availing abatement benefit, by willful

misstatement with intent to evade payment of service tax. For availing any abatement

notification they must have approached the Department to seek clarification regarding its

applicability or inapplicability with reference to the services rendered by them. The assessee did

not bother to seek any clarification and availed the abatement on thier own by misclassifying the

very nature of service. Thus when the Department finds error in the availment of abatement

benefit by them and observes that there has been willful intention behind misclassification and

charges the assessee with suppression of facts, the assessee has no scope to deny the

allegation since the assessee has been vested with power of self-assessment and therefore it is

the obligation of the assessee that every facts related to assessment of tax should be declared

to the Department. In the instant case the assessee did not bother to inform the department

about the agreement entered into with M/s Cadila. Had the audit of the assessee’s company not

been conducted, such mistake in the availment of abatement by mis-classification would have

gone unnoticed.

38. In this regard I place my reliance to the judgment in the case involving Aircel Digilink

India Ltd. v/s Commissioner of Central Excise, Jaipur, as reported in 2006 (3) STR 386 (Tri.-

Del) and the case involving Bharti Cellular Ltd. v/s Commissioner of Central Excise, Delhi, as

reported in 2006 (3) S.T.R. 423 (Tri.-Del). In both the cases, the Hon. Tribunal upheld

invocation of extended period after taking note of the fact that appellants had not disclosed

certain details and mode of computation in their ST-3 details and that there was nothing on

record to suggest that appellants ever approached the office of the service tax authorities to

ascertain the details of their liability to pay the service tax. Similarly, in case of Insurance &

Provident Fund Department v/s. Commissioner of Central Excise, Jaipur-I, 2006 (2) S.T.R. 369

(Tri.-Del.), Hon. Tribunal held that non-disclosure of full amount of premium collected would

attract invocation of extended period. The ratio of the above judgments can be applied to the

present case also as M/s IRM had kept the Department in dark about the agreement entered

into between M/s IRM and M/s Cadila and availed abatement on their own by mis-classifying the

service under the category of Renting of Cab Service and never bothered to approach the

Department to seek any clarification in respect of its applicability or inapplicability and therefore,

they not only suppressed the material facts from the department but also failed to comply with

law and procedures, including payment of service tax.

39. In view of the above, I hold that in the facts and circumstances of the present case,

proviso to section 73 (1) of Finance Act, 1994, is rightly invoked for raising the demand for

service tax against M/s IRM. As already discussed in above paras, M/s IRM had purposefully

short paid service tax by resorting to availment of abatement benefit by way of mis-

classification of their service under the category of Renting of Cab service.

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40. As regards imposition of simultaneous penalty, I place my reliance on the judgment of

Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v. Krishna

Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I

find that the imposition of penalty under sections 76 and 78 of the Act is for non payment of

service tax and suppression of value of taxable service respectively which are two distinct and

separate offences attracting separate penalties. I find that the said assessee has committed

both the offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are

imposable on the said assessee for the period upto 9.5.2008.

41. As regard imposition of penalty under Section 77 of the Finance Act, 1994, I find that M/s

IRM have not correctly assessed the taxable value and thus not included the correct taxable

value in their ST-3 Returns. Therefore, penalty under Section 77 has rightly been proposed to

be imposed.

42. As regards their contention for invoking Section 80 of the Finance Act, 1994 for waiver of

penalty, I find that IRM have not produced any reasonable cause for the failure to pay service

tax. They purposely did not declare the exact nature of the agreement with explicit intent to

evade payment of service tax. Therefore, I consider it appropriate to hold M/s IRM liable to

penalty under Section 76 and 78 of the Finance Act, 1994.

43. My above findings are further strengthened by the judgement of Hon’ble Supreme Court

in the case of M/s Mc DOWELL AND COMPANY LTD Vs COMMERCIAL TAX OFFICER,

ANDHRA PRADESH as reported in 2002-TIOL-40-SC-CT . In the said case the Apex Court has

observed that “Tax planning may be legitimate provided it is within the framework of law. It is the

obligation of every citizen to pay the taxes honestly without resorting to subterfuges”.“Colorable

devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it

is honorable to avoid the payment of tax by resorting to dubious methods”.

44. Having regard to the facts and circumstances of the case as discussed hereinbefore, I

pass the order as follows:

ORDER(i) I consider the amount of Rs. 9,80,46,418/- received by M/s IRM from M/s Cadila

Pharmaceuticals Ltd. during the period 2007-08 to 2011-12 for providing Bus Service by

deploying manpower such as drivers, conductors, cleaners, loaders, helpers etc. as

taxable value by categorizing the service provided by them under the category of

“Manpower Recruitment and Supply Agency Service”, defined under Section 65(105)(k)

of the Finance Act, 1994.

(ii) I confirm the service tax amounting to Rs. 66,21,729/- ( Rs. Sixty Six Lakhs Twenty One

Thousand Seven Hundred Twenty Nine) short paid by the assessee under proviso to

Section 73(1) of the Finance Act, 1994 by invoking extended period of five years.

(iii) I direct the assessee to pay interest as applicable on the amount of service tax liability

for the delay in making the payment under Section 75 of the Finance Act, 1994, as

amended.

(iv) I impose a penalty upon them at the rate of Rs. 200/- (Rupees Two Hundred only) per

day or at the rate of 2% of the service tax amount per month, whichever is higher, under

the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay

Service Tax and Education Cess within the stipulated period. The penalty under the

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Section 76 should be calculated upto 9.05.2008. However, the penalty imposed under

this Section shall not exceed the confirmed service tax amount.

(v) I impose penalty of Rs 10,000/- upon them under Section 77 of the Finance Act, 1994 .

(vi) I also impose a penalty of Rs. 66,21,729/- upon them under Section 78 of the Finance

Act, 1994 for suppressing the value of taxable services provided by them before the

Department with intent to evade payment of service tax. However, if the service tax and

interest is paid within thirty days from the date of communication of order the amount of

penalty under Section 78 shall be reduced to 25% of the service tax amount, provided

that the benefit of reduced penalty shall be available only if the amount of penalty so

determined has also been paid within the period of thirty days.

(Tejasvini P. Kumar) Commissioner,

Service Tax, Ahmedabad

F.No.STC/4-45/O&A/12-13 Dated : 24/08/2013

BY RPAD / Hand Delivery

To,

M/s. IRM Limited,5/6, Sun Complex, Near Stadium Circle,C.G. Road, Navrangpura,Ahmedabad-9

Copy to:1. The Deputy Commissioner, Service Tax, Div-II, Ahmedabad

2. The Superintendent, AR-X, Div-II, Service Tax, Ahmedabad alongwith additional

copy of the order to be delivered to the assessee and to submit dated

acknowledgement.

3. Guard File.