C.No.

III/10/

Dated:

-09-2016

Draft SHOW CAUSE NOTICE NO.

/2016(ST)

Sub: Service tax Shortpayment of Service tax on Manpower Supply

Servicein the case of M/s. ST amount involved Rs.50,49,688/for the period April 2011 to March 2012 - Reg.
M/s. are engaged in providing the service under the categoryManpower Recruitment
or Supply Agency Services. They areregistered withService Tax Cell, Maraimalai Nagar
Division,

Chennai

III

Commissionerate

holding

Service

Tax

Registration

No.

AECPT7605JST001. SML is not availing cenvat credit of any inputs or input services.
BRIEF FACTS OF THE CASE
02.

During the course of audit conducted in the month of March 2016 and on verification

of records and Income & Expenditure account, it was noticed that SML collected labour
charges of Rs.9,52,33,358/- during the year 2011-12. On reconciliation of charges collected
as appearing in their Balance Sheets / Profit & Loss Account vis--vis taxable value declared
in their Half-Yearly ST-3 returns filed during the period 2011-12 it appears that SML had
short paid service tax payable on the charges collected.
The details of short payment of service tax aredetailed below:

Period/Year

Income head labour charges

received 201112
03.

Taxable
Value as
per Books
of A/c

Apr-Sep
(201112)
ST3

Oct Mar
(201112) ST3

95233358

210388
82

251683
79

Total
Taxable
Value as
per ST-3
Returns

Differenc
e of
taxable
value(Inc.
S.T)

46207261

49026097

Servic
e Tax
short
paid

50496
88

When specifically asked to explain the difference between Balance sheet figures and

ST3 return figures, the assessee vide his letter dated 30.6.2016 stated that,

They are a proprietorship company providing skilled and unskilled manpower to manufacturing
units and also to contractors. They are providing Manpower Supply (skilled and unskilled
labourers) to various factories and Contractors in and around Maraimalainagar and Oragadam
area. They are also providing logistics support to our customers by way of transporting of
employees to and from the factory and also supply materials to house-keeping workers.
During the course of rendering of these services as per the specific requirement of their
customers, they had also supplied consumables like soaps, detergents, phenyl, waste cloth etc.,
and also janitor items like broom sticks, mops and other cleaning materials and such cost is also
reimbursed to them on cost to cost basis.
At times, they also under-take hiring of tools and equipments like Industrial vacuum cleaners,
make shift pandals and other tools on behalf of their customers for specific works involved.
From 01.07.2012, they are not liable for payment of Service tax in respect of Rent-a-cab Service,
as the same is covered under RCM. Again from 01.04.2015, they are not liable for payment of
Service Tax in respect of Manpower Supply Service as the same is now covered under RCM.
While supplying skilled labour, they are not charging any service tax as the superintendence of
the manpower supplied, rests with the Company to whom they have supplied the manpower on
job-work basis. The natures of such works are on piece basis / job-work basis or man-hour basis.
They are also responsible for pick-up and drop of the labourers and workers supplied by them to
their customers for which they are separately reimbursed. For this purpose SML have another
unit under the same proprietorship called S.M. Travels. They have not charged any Service
tax on transport of the labourers and workers to the site. The payments for providing Pick up
Drop are accounted invariably under SM Travels bank account. The certified accounts relating to

04.

Pick-up and drop are enclosed in the Annx. I. If there is any service tax liability in this regard,
they are ready to comply with the same.
They were also entrusted with the role of supply of water cans, providing tea / coffee,
refreshments and basic food (breakfast / Lunch / Dinner) to the workers and labourers working
on shift basis through arrangement with caterers. The cost of the same has been reimbursed to
them on no-profit / cost-to-cost basis.
They are also supplying Unskilled labourers on lump sum basis for carrying out general
cleaning, small repair works, civil works such as painting, welding, cutting of trees, sanitary
work etc., Such payments are made in lump sum as per the work executed. Again it is on cost-tocost basis and they do not charge any service charges for carrying out such works
During the Course of rendering the services as above, they are hiring tools and equipments and
the cost of the same is reimbursed to them.
As per the requirement of their Clients, they also undertake sale of consumables such as crockery,
door mats, flower arrangements, Office furniture etc., on cost-reimbursement basis without any
service involved.
They have not raised separate bills for supply of bought out items and not charged any service
tax. However the purchase details as certified by their Chartered Accountant for the relevant
period is available. Payments are made on cost-to-cost basis against delivery challans and Cash
memos.
They have no intention to evade payment of statutory dues.
All their ledgers, bills / receipts and working papers which were submitted to their Statutory
Auditors were destroyed in the Chennai Mega floods during Dec 2015. They are however
providing break-up of their income certified by their Chartered Accountant. They requested to
consider the same and assess the service tax liability.
They have discharged the service tax liability on Manpower Supply service correctly and only in
respect of Rent-a-cab service they are liable to pay service tax.
The assessee was asked to provide the relevant invoices and service bills for the

period from April 2011 to March 2012, to substantiate their claim as stated in the above
letter. However, as stated in their letter, they claim that all the documents pertaining to their
Company were completely destroyed in the Floods during December 2015 and they are
unable to provide break-up of income received and documentary evidence for their claims.
From the available data in their computer, the Noticee stated that a Sum of Rs. 82,98,643
was received as income on account of hiring of vehicles / cars for the period from October
2011 to March 2012. However till the time of preparation of this Show Cause Notice, they
could not provide any further evidence in support of their claim or break-up of income
figures certified by their Chartered Accountant as stated in their letter.
STATUTORY PROVISIONS
05.

As per Section 67(1) (i) of the Finance Act, 1994 (as amended from time to time),

subject to the provisions of this Chapter, where service tax is chargeable on any taxable
service with reference to its value, then such value shall, 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.

06.
As per the Provisions of Section 68 of Finance Act, 1994 read with Rule 6 of Service
Tax Rule 1994 as amended,
every person providing taxable service to any person liable to pay service tax at
the rate prescribed in Section 66 to Central Government by the 5th of the month /
quarter immediately following the calendar month/quarter in which the service is
deemed to be provided as per the rules framed in this regard. (except for the month
of March which is required to be paid on 31st March).
07.

According to Section 70 of the Finance Act, 1994,

every person liable to pay the service tax shall himself assess the tax due on the
services provided by him and shall furnish to the Superintendent of Central Excise, a
return in such form and in such manner and at such frequency as may be prescribed.

08.

As per Notification No. 12/2003-ST, dated 20.06.2003, exemption has been granted

to so much of the value of all the taxable services, as is equal to the value of goods and
materials sold by the service provider to the recipient of service, subject to condition that
there is documentary proof specifically indicating the value of the said goods and
materials..
09.

SML claimed to have engaged in the business of providing the taxable services i.e.

Manpower Supply and rent-a-cab services, are liable to pay the Service Tax on the total
taxable amount of consideration charged and received by them. They are also said to have
supplied goods to their customers as trading activity and collected value of goods. During
the course of audit, since supply of any consumables was not found indicated in any of the
sales invoices raised towards taxable services, on being asked as to whether such
consumables have been sold or supplied under any invoice or otherwise, the said service
provider stated that they have not raised any separate invoice for the supply of these
consumables. However it has neither any relation nor as a part of taxable service provided
by them and no service tax either been charged or service tax liability has been discharged
by them on such value collected. As SML could not produce any documentary evidences
specifically indicating the value of the goods and materials sold during the course of
providing the taxable service, it appears that they are not eligible for exemption under the
Notification 12/2003-ST dated 20-06-2003. Further, SML claim that they have supplied
some of the manpower to their customers on job-work basis and collected job charges and
paid it to the workers and have not paid any service tax on them. However it appears that
SML is only a service provider i.e. manpower supplier to their customers and they are not
manufacturers or job workers. Hence they are also liable to pay service tax on such charges
collected under manpower supply service. SML also claim that they have provided Rent-aCab services to their customers in addition to manpower supply and collected charges for
the same under SM Travels. But when asked to provide documentary evidence such as bills
for provision of Rent-a-Cab service, the assessee stated that all the documents of SM
Travels for the period 2011-12 were lost and requested that all the amount received under
the SM Travels account may be considered as charges collected for the said period under
Rent-a-Cab services. Without documentary evidence this argument cannot be accepted.
Further it appears that Manpower supply is their main activity and to facilitate this they are
also providing transport of their man power to the customer end which also will fall under
Manpower Supply Services only. SML have also accounted the entire charges collected under
the head Labour Charges received in the Income and Expenditure Account for the period
2011-12.

QUANTIFICATION
10.

From the above it appears that, SML are liable to pay service tax on the entire labour

charges collected of Rs.9,52,33,358/- under Manpower Supply Service only. Hence in the
absence of any documentary proof, differential service tax is being demanded on the service
charges collected after deducting the service value of Rs.4,62,07,261/- declared under ST3
returns for the period April 2011 to March 2012 as detailed below:
Labour
charges
collected

Period
April 2011 to
March 2012

Value of labour charges

declared under ST3
returns for 2011-12

95233358

46207261

Balance value
of labour
charges
49026097

ST
payable at
10.3%
5049688

Therefore, in view of the above, the short paid service tax amounting to
Rs.50,49,688/- which was not paid by the noticee is required to be recovered from them
under proviso to Section 73 (1) of Finance Act, 1994 and along with applicable interest
under Section 75 of Finance Act, 1994.
CONTRAVENTION
11.

The SML, it appears, have not assessed the value of services truly and paid the

service tax, also did not intimate the actual amount of service charges collected in the ST3
returns filed or otherwise to the department, thereby contravening the provisions of
Sections 67, 68 and 70 respectively of the Finance Act, 1994 read with Rules 6 and 7 of the
Service Tax Rules, 1994. Only after the visit of the Departmental officers and verification of
their accounts the fact of collection of higher value labour charges for providing Manpower
Supply Services by the SML came to the knowledge of the department. It appears that the
assessee has suppressed the fact of true value of charges collected with intent to evade
payment of Service Tax. Hence extended time limit is invokable under the proviso to Section
73(1) of the Finance Act, 1994, as amended. It appears that the SML is liable to pay the
service tax of Rs.50,49,688/- as detailed above along with appropriate interest under
section 75 of the Finance Act, 1994. The assessee is also liable to penal action under
Section 78 of the Finance Act, 1994 for the above said contravention.
12.

Therefore, M/s. SML Manpower Suppliers, Maraimalai nagar are hereby required to

show cause to the Commissioner of Central Excise, Chennai III Commissionerate,26/1,

Mahatma Gandhi Road, Nungambakkam, Chennai-600034 within 30 (thirty) days from the
date of receipt of this notice, as to why:I.

The differential Service tax amount of Rs. 50,49,688/-(Rupees Fifty lakhs Forty
Nine thousand six hundred and eighty eight only) as detailed above being the
service tax short paid on the charges collected for Manpower Supply services
provided during the period from April 2011 to March 2012 should not be demanded
under proviso to Section 73(1) of the Finance Act, 1994 as amended

II.

Appropriate interest on the service tax demanded as in Sl. No. (a) above should not
be demanded from them under Section 75 of the Finance Act, 1994, and

III.

13.

Penalty should not be imposed on them under Section 78 of the Finance Act, 1994

M/s SML Manpower Suppliers are further required to produce at the time of

showing cause, the documents and evidences which they intend to rely in support of their

defence. They are also required to indicate in their written reply whether they wish to be
heard in person before the case is adjudicated.
14.

If no cause is shown against the action proposed to be taken within thirty

days of receipt of this notice, or having shown cause, if they fail to appear before the
adjudicating authority when the case is posted for hearing, then it would be construed that
they do not have anything to state in their defense and the case will be decided EX-PARTE
based on the material available on records, without any further notice / intimation to them.
15.

This notice is issued without prejudice to any other action that may be or has

already been initiated against the Noticee either under Chapter V of the Finance Act, 1994
and the Service Tax Rules, 1994 or under Central Excise Act, 1944 and Rules made there
under or any other law for the time being in force and enforceable in India.

COMMISSIONER
CENTRAL EXCISE
COMMISSIONERATE
To

AUDIT