Worker-owned organisations directly undertaking assignments do not provide taxable manpower recruitment or supply services.

SEWA, a society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, organised and trained economically disadvantaged women and facilitated their employment with various clients.

The Department alleged that SEWA was providing “manpower recruitment or supply agency” services and had failed to register and pay service tax.

A show-cause notice dated 27 May 2008 covered the period from 16 June 2005 to 31 December 2007. The adjudicating authority dropped the demand for 16 June 2005 to 30 April 2006 but confirmed service-tax demand, with interest, for 1 May 2006 to 31 December 2007; no penalty was imposed.

The Commissioner (Appeals) rejected SEWA’s appeal by order dated 19 February 2015.

SEWA contended that its members themselves constituted the organisation and that it did not act as an intermediary supplying manpower to clients.

It further argued that amounts collected from clients were substantially reimbursed as wages to the members and could not be treated as consideration for taxable services.

1. Whether SEWA’s activities of organising, training and facilitating employment for its women members constituted “manpower recruitment or supply agency” services under the Finance Act, 1994.

2. Whether the gross amounts collected from clients, including amounts reimbursed as wages to SEWA’s members, could be included in the taxable value for service-tax purposes.

3. Whether the service-tax demand for the period from 1 May 2006 to 31 December 2007 was sustainable.

The Tribunal applied Sections 65(68) and 65(105)(k) of the Finance Act, 1994, concerning “manpower recruitment or supply agency” and the taxable service of recruitment or supply of manpower, respectively.

The relevant statutory concept involves a person providing, directly or indirectly and in any manner, recruitment or supply of manpower to a client; the Board’s Circular No. 96/7/2007-ST dated 23 August 2007 clarified that, in a typical manpower-supply arrangement, the individuals are contractually employed by the agency and are made available to another person for consideration, with the employer–employee relationship existing between the agency and the workers.

The Tribunal also considered the clarification in TRU Circular F. No. B1/6/2005-TRU dated 27 July 2005 that where artisans or workers are directly engaged by the organisation or business, and no intermediary supplies their services, service tax is not attracted as manpower supply.

Section 67(1) of the Finance Act, 1994 provides that the taxable value is generally the gross amount charged for the taxable service; however, the Tribunal held that amounts merely reimbursed as wages could not be adopted as consideration for the service in the circumstances of the case.

The Tribunal also referred to the doctrine of mutuality discussed in State of West Bengal v. Calcutta Club Ltd., 2019 (29) G.S.T.L. 545 (S.C.), and Joint Commercial Tax Officers v. Young Men’s Indian Association.

The Tribunal examined SEWA’s organisational structure and found that it was essentially a workers’ organisation whose members themselves formed and controlled the organisation; SEWA’s role was to train and organise women and assist them in obtaining employment, rather than to employ workers and supply them to clients as an intermediary.

On this factual basis, the statutory requirement of a manpower-supply arrangement, particularly the agency–worker employment relationship contemplated by Circular No. 96/7/2007-ST, was not established.

The Tribunal therefore held that SEWA was not rendering manpower recruitment or supply agency services.

In the alternative, even if the activity were treated as manpower supply, the evidence showed that a substantial portion of the amounts received from clients was reimbursed as wages to SEWA’s members, while the remaining registration-related amount was negligible and below the applicable monetary limit for taxable service.

Consequently, adopting the entire gross collection as the taxable value was held to be unsustainable.

It further held that the gross amounts collected could not be treated as taxable consideration where a substantial portion represented reimbursed wages and the balance was negligible.

The appeal was accordingly allowed, with consequential relief in accordance with law; the confirmed service-tax demand and related interest were set aside.