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.

[S G]

Hi Manisha,

From your query it is clear that there is no flow of material/goods from contractor to the company during performing the job. Hence, the question of Works Contract shall not arise.

Further, as you mentioned that the contractor employees his own employees which work under his supervision. The question of supply of manpower shall not arise. In notification 36/2012 Supply of Manpower Services has defined as “supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.”

I am inferring from your query that the company don't have any control over the employees of contractor and they are working under the supervision of contractor only.

From the above discussion it is clear that said contract is neither a works contract nor a supply of manpower contract. Hence, there would not be any liability on company under RCM.

If there shall be any liability to pay service tax then it will be on contractor as service provider.

Thanks!!

[Ganeshan Kalyani]

Yes I agree with Mr. Sumit. It is also suggested to see under what heading he has done the billing to you. Also see that under which heading you are accounting in your books of account. it will ease during service tax audit. RegardsGaneshan

[KASTURI SETHI]

Pure labour contract does not fall under Works Contract Service. It will fall under 'Manpower Supply or Recruitment Agency. Since no supply of goods or material is involved, hence no question of abatement to arrive at service portion..

AI Summary

Reverse charge liability on contractors' packing, stacking and loading services absent when workers are supervised by contractor, provider liable. Payments to contractors for packing, stacking and loading that involve the contractor's own employees working under the contractor's supervision with no materials supplied do not constitute a works contract and, absent recipient control over the workers, do not amount to supply of manpower triggering reverse charge; service tax liability remains on the contractor as service provider.