Query regarding applicability of Reverse Charge on certain expenses incurred by Company

[manisha motwani]

We are stuck in a problem while deciding whether the following service received by a company falls within the scope of Reverse Charge Mechanism.

Dear Sir, A Manufacturing Company and is engaged in the manufacturing of Iodised Salt. The company employs various contractors for payment of certain expenses. The payment is made on per piece basis.

For the following Expenses payment is made to contractors on per piece basis-

Packing Expenses, Stacking Expenses and Loading Expenses.

The contractor employees his own employees which work under his supervision. No material is used by contractor for performing such work. It is purely a labour contract.

Kindly clarify whether the contracts falls under “Works Contract” or “Supply of Manpower” . However, if not, does any liability arise on company for payment of service tax under reverse charge and under what basis and upto what extent.

Please provide your valuable guidance.

AI Summary

Company's Packing and Loading Expenses Not Subject to Reverse Charge Mechanism for Service Tax, Clarifies Expert A company engaged in manufacturing iodised salt seeks clarification on whether expenses paid to contractors for packing, stacking, and loading, on a per-piece basis, fall under the Reverse Charge Mechanism (RCM) for service tax. The contractors use their employees without supplying materials, suggesting a labor contract. A tax expert clarifies that since the company does not control the contractor's employees, the arrangement is neither a works contract nor a manpower supply contract, thus not subject to RCM. The responsibility for service tax, if applicable, lies with the contractor. Other contributors agree, emphasizing proper billing and accounting practices.