Service Tax Liability under RCM on Bonus Payments to Manpower Contractor

[Rakesh K Paliwal]

Dear All,

Please let me know the provision of service tax applicability on bonus payments by employer to manpower contractor for distribution to casual labor of bonus against contractor bill.

scenario also under Reverse Charge mechanism, and relevant referance/proviosn , of rules.

Regards

Rakesh Palwial

[YAGAY andSUN]

Law is clear on this aspect. It says the Gross Amount would liable to Service Tax.

[Ganeshan Kalyani]

Yes service tax is applicable on such payment under reverse charge mechanism.

[KASTURI SETHI]

I agree with the views of both experts. Bonus is also a kind of incentive and there has been a lengthy and healthy discussion on the applicability of Service Tax on the amount of "incentive" in this forum. It is covered under Section 67 (3) of the Finance Act and hence clearly falls in the definition of 'Consideration' defined in Explanation (a) to Section 67.

However, there are some conflicting judgements of CESTAT on this issue but law is self-explanatory.

[Ganeshan Kalyani]

Judgements are favourable and unfavourable as well. Both appellant and respondent fetches the judgement suited best to his/her contention and argues in the court of law. Ultimately it is the presentation and th ability of argument the case is decided upon. Therefore it is always advisable to embrace the law first then if needed the other option to be sought for. As always I have seen Kasturi Sir first replies based on section and provision and show a way to follow written rules first I am most convinced with his view point that I first try to understand the law first and if the contention is at peak then I resort to case law. Thanks.

[Mahir S]

It is settled law that service tax is required to be paid for such Bonus payments.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

If any assessee understands the law properly and follows the law, ultimately he wins the case though he has to cross through the rigours of litigation. Understanding the correct interpretation of law is very crucial. Whenever any client comes to me, I take too much time to understand the SCN and tell him what would be the fate of that SCN whether he would succeed or fail. If succeeds, at which stage.

[Ganeshan Kalyani]

Yes I agree with you Sir.

AI Summary

Reverse charge on service tax applies to employer bonus paid through manpower contractors for casual labour distribution. Bonus payments made by an employer to a manpower contractor for distribution to casual labour constitute consideration and attract service tax on the gross amount, with liability falling under the reverse charge mechanism applicable to manpower supply arrangements; tribunal decisions vary, but the statutory characterization of incentives as taxable consideration governs primary compliance.