Work assigned to contractor on piece rate

[Narendra Soni]

Dear Experts

Kindly suggest - work done by contract workers in factory of manufacturer on piece rate is taxable under service tax or not.

Regards.

[Ganeshan Kalyani]

Whether the contract worker are engaged by a manpower contractor ?. if yes, service tax is payable by manufacturer under reverse charge mechanism. In my view piece rate work is not criteria for service tax, but the arrangement is the basis for taxability.

[Narendra Soni]

The contractor employed his labours to perform piece rate work - now if the labour doing work under supervision and control of manufacturer then it is man power service under reverse charge.But if labour work under supervision and control of contractor then whether it is taxable service or not.please clarify.

[Ganeshan Kalyani]

If the worker does work under supervision and control of contractor then it forms an arrangement of labour job. But since the work is performed at manufacturer factory then it would be presumed that the contractor has supplied manpower and in such cases service tax is liable under reverse charge.

[Narendra Soni]

Thanks Mr.Kalyani,

Please suggest whether service tax will be applicable If the worker does work under supervision and control of contractor with in the factory of manufacturer -then it forms an arrangement of labour job.If yes, in which service it will fall.

[DR.MARIAPPAN GOVINDARAJAN]

It would amount to supply of manpower and service tax is payable on reverse charge mechanism.

[SUDARSHAN SAMPATH]

Service tax not leviable on process amounting to manufacture. If contractor engages piece worker in a factory, and the process is manufacturing one on which excise duty is payable, then Service tax is exempt . Any other views?

[Ganeshan Kalyani]

It is true if the process amounts to manufacture then service is not leviable. It is also true that processing or manufacturing activity is different and supply of manpower for the purpose of manufacturing is different. The process may be exempt from service tax as it amounts to manufacture but supply of manpower remains taxable. Your interpretation and correlation is not right. This is my view.

[Narendra Soni]

Dear Kalyani,

If contractor carried out job by using machines of manufacturer in manufacturer's premises, it would be manufacture/processing for Manufacturer but for contractor, he is providing service.

Now question is when labour of contractor is carried out job/work under supervision & control of contractor, Is it taxable service, if yes, catagory of service please.

[Ganeshan Kalyani]

I have in my initial reply made clear that if worker works under control and supervision of contractor then it is job work type. it is more evident now from your recent post that the arrangement is a job work arrangement and the contractor carries out manufacturing activity as per manufacturer's instructions in his own manufacturing facility. thus in my view if the activity of processing amounts to manufacture then service tax will not apply on the processing charges paid by manufacturer to the job worker but instead Excise duty will be applicable and vice versa.

[Tarun Agarwalla]

Dear SirI would be visiting the taxability and liability to pay in following Manner.1. The activity seems to be a service hence taxable.subject to - be list2. The service performed by the contractor at the premise of the manufacturer is a service but classification service is a question.3. Now effective control and supervision along with the nature of contract , role and responsibility while performing the contract are need to be seen to evaluate whether it is a man power supply as vice or a contract for work. I hope material may not be involved as apart of contract, else it can be dragged to works contract.4. Yes if it is not coming under man power supply service than RCM is outof the question and the fact remain is service being subject to -he list5 now if the process is manufacture then it is coming under -be list.Thank you

[Ganeshan Kalyani]

Hope the query is resolve.

[Narendra Soni]

Thanks TMI Experts

Different views received,query remained unsolved,

Matter was:- A contractor placed his workers for processing the goods in the factory of manufacturer, contractor raised bill for piece/qty processed, manufacturer paid him on piece/qty rate basis, Manufactured goods remain of manufacturer's and sold by manufacturer in market o payment of duty.

Now Query was:- Whether the work done by contractor before 01.07.2015 is a service,if yes catogory of service please.

[Narendra Soni]

Sorry, Please read the date 01.07.2012 in place of 01.07.2015

[Ganeshan Kalyani]

To my mind the arrangement seems to be a supply of manpower service and the payment based on piece work basis is a method of billing/invoicing.

AI Summary

Manpower supply: classification and reverse charge liability arise where contractor workers operate under manufacturer's supervision in premises. Taxability depends on the arrangement and control: if workers operate under the manufacturer's supervision and control it constitutes manpower supply subject to reverse charge; if the contractor retains control it is a job work/contract for work. Processing that amounts to manufacture is outside service tax, though supply of manpower remains separately taxable; piece rate billing does not determine classification.