2026 Supreme(Online)(CESTAT) 768

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
M. Ajit Kumar, Member (Technical), Ajayan T.V., Member (Judicial)
Larsen & Toubro Ltd. – Appellant
Versus
Commissioner of GST & Central Excise – Respondent
Service Tax Appeal No. 41233 of 2015|Service Tax Appeal No. 40660 of 2017|Service Tax Appeal No. 41395 of 2018|Service Tax Appeal No. 41823 of 2018

Contracts for executing specific jobs where payment is made on a piece-rate or output basis and workers are not integrated into the hiring organization do not constitute 'manpower supply services' but are classified as 'job work,' making them ineligible for service tax under RCM.

Headnote:(A) Finance Act, 1994 - Sections 76 and 78 - Service Tax Rules, 1994 - Rule 2(g) - Manpower supply services vs Job work - Whether contracts for execution of specific works on an output or piece-rate basis, where materials and equipment are supplied by the recipient, constitute "manpower supply services" under the partial reverse charge mechanism (RCM). (Paras 2, 4, 5)

(B) Legal Principles - Determination of Employer-Employee Relationship - The "control test" postulates that an employer-employee relationship exists when the hirer has control over the work assigned and the manner of its execution. The "organisation/integration test" examines the degree of integration of the worker into the hirer's primary business. A "multifactor test" considers various elements including ownership of tools, chance of profit, risk of loss, and payment of wages. (Paras 6)

(C) Manpower Supply vs Job Work - Manpower supply involves providing personnel who are at the disposal and under the effective control of the service recipient, with payment typically based on manpower deployed. Conversely, job work involves assigning a specific job (e.g., fabrication) where the provider is accountable for the outcome, decides how to deploy manpower, and is paid based on the quantum of work completed. (Para 7)

Facts of the case:
The appellant, a manufacturer of steel structures, engaged contractors for specific operations within its factory premises. The contractors were paid on a per-piece or per-MT basis, while the appellant supplied materials, power, and machinery. The respondent department classified these activities as "Manpower Recruitment and Supply Service," demanding service tax under the partial reverse charge mechanism. The appellant contended that the contractors were independent job workers and that the arrangement was identical to another contract already held non-taxable by the Commissioner (Appeals).

Findings of Court:
The court found that the workmen were on the contractor's rolls and under the contractor's supervision, failing the "control test." The consideration was based on the quantum of work completed, and there was no restriction on the number of workers employed, which aligns with the characteristics of job work service as per CBIC Circular No. 190/9/2015-ST. No master-servant relationship existed between the appellant and the workers.

Issues: Whether the contracts for execution of specific jobs on a piece-rate basis constitute "manpower supply services" liable to service tax under RCM or constitute independent job work.

Ratio Decidendi: The court ruled that where consideration is linked to output or piece-rate basis and workmen are not integrated into the hiring organization, the activity cannot be classified as manpower supply services. Following the Supreme Court's tests for employer-employee relationships and the CBIC circular, the contractors were deemed job workers.

Result: Impugned orders set aside; appeals allowed.