Piece-Rate Job Work Not ‘Manpower Supply’: CESTAT Quashes Service Tax Demand on L&T

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside multiple service tax demands raised against Larsen & Toubro Ltd., holding that contractors engaged for executing specific works on a piece-rate or output basis cannot be treated as providers of “manpower supply services.” The bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) ruled that such arrangements constitute job work contracts rather than manpower recruitment or supply services, thereby eliminating service tax liability under the reverse charge mechanism (RCM). The case arose from departmental audits conducted for the periods July 2012 to March 2014 and April 2014 to March 2015 at Larsen & Toubro’s ECC Workshop and TLTRS division in Chennai. During the audit, the tax department observed that the company had engaged various contractors to carry out operations within its factory premises. The department alleged that these contractors merely supplied labour, while L&T provided the materials, machinery, and power, and supervised the work. On this basis, the department classified the activity as “Manpower Recruitment and Supply Service”, making L&T liable to pay 75% of the service tax under the partial reverse charge mechanism in terms of Notification No. 30/2012-ST dated June 20, 2012. Accordingly, several show cause notices and statements of demand were issued covering multiple appeals, resulting in confirmed tax demands totaling several crores along with interest and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. Aggrieved by the orders of the adjudicating authorities and the Commissioner (Appeals), Larsen & Toubro approached the tribunal. The company argued that the contractors were independent job workers engaged to perform specific intermediate manufacturing activities, and not suppliers of manpower. According to the appellant contractors were paid based on output or tonnage of work completed, not on the number of workers deployed. The workforce remained on the rolls and supervision of the contractors, who were responsible for safety and execution. The contracts did not restrict the number of workers that contractors could employ. The work orders were for completion of defined tasks, not for providing labour to the company. The appellant also relied on CBIC Circular No. 190/9/2015-ST, which distinguishes job work services from manpower supply services. Further, the company pointed out that for identical contracts, the Commissioner (Appeals) had earlier set aside the service tax demand against one contractor, and the department had not challenged that order, allowing it to attain finality. The appellant also cited several tribunal decisions that held piece-rate contracts for execution of work cannot be classified as manpower supply services. The department contended that the contractors merely brought workers to L&T’s factory, while the company supplied the materials, power, and machinery and exercised supervision over the work. Therefore, according to the department, the arrangement amounted to supply of manpower working under the control of the service recipient, attracting service tax liability under reverse charge. The tribunal examined the definition of “supply of manpower” under Rule 2(g) of the Service Tax Rules, 1994, which refers to supply of manpower to work under the superintendence and control of the recipient. To determine whether an employer–employee relationship existed, the bench referred to the Supreme Court’s decision in General Manager, U.P. Cooperative Bank Ltd. v. Achchey Lal (2025), which laid down tests such as control test, integration or organisation test, multiple factor test. These tests examine factors like who supervises the work, who pays wages, who controls the method of work, and whether workers are integrated into the employer’s organisation. The tribunal noted that the contractors undertook specific work orders rather than supplying labour; were paid based on work output; had full control over the workforce, including safety compliance; and employed workers on their own rolls. The bench also observed that the department failed to produce the actual contracts or work orders in the show cause notices, which were the primary evidence required to determine the nature of the service. After examining the contractual terms and legal principles, the tribunal concluded the arrangement did not create a master–servant relationship between L&T and the workers. The contractors retained control and supervision over their employees. Payment linked to quantum of work completed indicated a job work contract rather than manpower supply. The characteristics matched the definition of job work service as clarified in the CBIC circular. The tribunal further held that the earlier appellate order in favour of one contractor had attained finality, and the department could not take a contrary stand for identical contracts. Setting aside the impugned orders, the tribunal held that the contractors were independent job workers and not manpower suppliers, making the service tax demand unsustainable. Case Details Case Title: Larsen & Toubro Ltd. Versus Commissioner of GST & Central Excise Citation: JURISHOUR-267-CES-2026(CHEN) Case No.: Service Tax Appeal No. 41233 of 2015 Date: 09.03.2026 Counsel For Appellant: Raghavan Ramabhadran, Advocate Counsel For Respondent: O.M. Reena, Authorised Representative Click Here To Read Order Read More: Discounts to Dealers Not Deductible from Assessable Value: CESTAT Dismisses Appeals on Demo Vehicle Valuation

Piece-Rate Job Work Not ‘Manpower Supply’: CESTAT Quashes Service Tax Demand on L&T

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