LABOUR CHARGES

[Mehul Pandya]

In a company there is a contractors who is providing Labour to the company.The worker works under the direction and control of the Company and Company pay the Labour charges to the contractor.

The contractors are only charging labour supply charges from the company without raising any Bill. The Company also deduct PF from the charges and deposit it in its own code.

My question is -

1.Weather the company falls under reverse charge mechanism under Manpower supply services?

Your views are much awaited.

Thank You

[CA ombir Singh Panwar]

There is a Change of Service tax liability structure from partial reverse charge to full reverse charge on manpower SUPPLY AND SECURITY services. The Notification No. 30/2012-ST dated 20-06-2012 has been amended vide Notification No. 7/2015-ST dated 01-03-2015, there by shifting the Supply of Manpower and Security services from Partial Reverse Charge to Full Reverse Charge. The stated change will be effective from 01-04-2015.however in the present facts of the case labours are on payroll of the companyand hence no question of reverse charge mechanism is arise.

[Mehul Pandya]

THANK YOU FOR YOUR REPLY

If reverse charge is not applicable than please provide me some supporting circular, notice or any article.

And if suppose company don't deduct PF then?

[Mahir S]

As Labour is supplied to the company by the contractor and as the company pays the Labour charges to the contractor, therefore RCM shall be applicable and the Contractors are liable to get registered with the company and charge and hence pay the service tax on the gross amount including Labour charges, PF, ESIC etc.

[adithya dronadula]

Thanks

[MUKUND THAKKAR]

Sir,

The Company also deduct PF from the charges and deposit it in its own code,

which has mandatory as per PF ESI rules, it don't means that labours are on payroll of company.therefore RCM shall be applicable pay the service tax to avoid litigation.

[Tarun Agarwalla]

The issue is here is to prove the relationships between the labourers and the company. If the same can be regarded as employer and employee then the same can never be a service .deducting PF and depositing in own code is under obligetuin of respective act.if it is the case then their is no service tax. However the charges being paid to contractor for arranging the labour will be under business support or auxlary service and taxable too. However no bill being made is beyond the discussion . thank you

[Akash Deep]

Dear Mehul

whosoever is doing this is in great trouble. Collecting consideration for service without raising invoice is an act which constitute fraud.

For invocation of reverse charge mechanism, service provider must be individual, HUF of partnership firm and service receiver should be a body corporate. if it is not so reverse charge mechanism can not be invoked.

Supervision and control of the service recipient is the sine qua none to treat the transaction as manpower supply as defined under Rule (2)(1)(d) of ST Rules, 1994.

in this case contractor is an individual and receiver is a company. reverse charge is applicable. and service receiver i.e.company is liable to pay service tax to the extent of 100%.

as labour charges ( i assume salary of the labourers) and labout supply charges (consideration retained by contractor for providing labour) is paid to the contractor only. Being so, question of emploer employee relationship between company and labourers does not arise at all..

As company is liable to pay tax to the extent of 100% contractor can easily charge a consolidated amount invlisive of salalry payable to labour and consideration for supply of labour.

cionsideration the new explanation to section 67 definnfing term consideation, ampout of of ESIF and of and any other amount which contractors collect and paid tp government shall be included in the value of service.

AI Summary

Reverse charge on manpower supply applies where contractor provides labour, making the recipient liable to pay service tax.
Full reverse charge applies to manpower supply and security services, making the recipient potentially liable to pay service tax; if workers are truly on the company's payroll and form an employer-employee relationship there is no service. Deduction and deposit of provident fund by the company does not alone prove payroll status. Supervision and control by the recipient is a key factual test to characterise manpower supply. Amounts such as wages, PF and ESIC collected or paid are included in the value of the service for tax purposes.