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Adiraj Manpower Services Pvt. Ltd. vs Commissioner of Central Excise Pune II

Civil Appeal · 2022 INSC 201Decided 18 Feb 2022
Civil Appeal No. 313 of 2021
Dr. Dhananjaya Y. Chandrachud · Surya Kant · Chandrachud

Background

A manpower-supply company had agreements to provide workers to a manufacturer (Sigma) for tasks like material handling, assembly and pouring. From August 2012, the company stopped paying service tax on these services, reclassifying them as tax-exempt "job work" rather than taxable manpower supply. The tax department issued a show-cause notice alleging suppression of facts and unpaid service tax of over Rs. 10.5 crore, and both the Commissioner and the tax tribunal (CESTAT) ruled against the company, holding the arrangement was really a contract-labour (manpower supply) agreement, not job work.

Decision Breakdown

The Supreme Court agreed with the tribunal and dismissed the company's appeal. It examined the actual contract terms and found the agreement lacked the essential features of a genuine job-work contract (such as specifications of the work process, quality standards, delivery schedules, or consequences for breach) while it did contain all the hallmarks of a labour-supply contract, including the contractor's obligation to recruit, pay wages to, and discipline its own workers, and to obtain a licence under the Contract Labour (Regulation and Abolition) Act. The Court held that merely billing on a per-kilogram "piece rate" basis did not convert a labour-supply arrangement into job work when the substance of the contract, read as a whole, was about supplying manpower rather than producing a defined output. It concluded the company had disguised a manpower-supply contract as job work purely to claim a tax exemption it was not entitled to.

Lesson Learnt

For tax purposes, courts look at the real substance of a contract, not the label parties give it: a service dressed up as tax-exempt "job work" will still be taxed as manpower supply if the underlying terms show the contractor is really just furnishing workers under someone else's premises and process.

Official source (sci.gov.in)View Judgment (PDF)

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