Service tax on Stiend for Appentices / Trainee

[RAJENDRA KHOMNE]

Sir,

We are manufacturing of Automobiles components. We are receiving Manpower Supply service from various agencies including from Two service provider are raising bills for reimbursement of Apprentice/Trainee Stipend and we are paying consultancy charges to them including amount. We are paying stipend amount to Two service provider. According to Apprentices Act,1961, Section 17 & 18, every apprentice undergoing apprenticeship training in a designated trade in an establishment shall be trainee and not a worker and the provisions of any law with respect to labor shall not apply to or in relation to such apprentice. Hence this apprentice supply service is not MRA (Manpower recruitment agency service). These apprentices are not our regular worker. They are doing work as trainee and as per government rules we have to pay stipend to them as Reimbursement of apprentice stipend & the service providers distribute the same amount to these apprentice candidate without receiving any profit or margin.

Pl guide, Is service tax applicable for Apprentice/Trainee Stipend? (Pl explain with rule)

Thanks,

R. M. Khomne

[Rajagopalan Ranganathan]

Sir,

In my opinion Finance Act, 1994 does not distinguish between normal labourer/worker and apprentice/trainee. Both are covered by manpower supply service. Therefore you have to pay service under reverse charge mechanism. Finance Act, 1994 is not concerned whether the apprentice/trainee are considered as labourer/worker under any other law other than Apprentices Act, 1961.

[Ganeshan Kalyani]

I agree with Sri. Rajagoplan Sir's reply. Finance Act has not defined in such manner as explained by the querist. It will simply be categorised as Manpower Supply Service and service tax is liable to be paid.

[KASTURI SETHI]

Agreed with both experts, Sh.Rajagopalan Ranganathan, Sir and Sh.Ganeshan Kalyani, Sir. Further I would also like to add that stipend amount is covered under the definition of "Consideration" in Explanation (a) to Section 67 of the Finance Act, 1994 as amended. The scope of "Consideration" has been enlarged w.e.f. 14.5.2015 but the stipend amount is also covered in the definition for the period even prior to 14.5.2015.

AI Summary

Manpower supply service includes apprentice stipend, attracting service tax as consideration and payable under reverse charge. Reimbursement of apprentice and trainee stipends paid through service providers falls within Manpower Supply Service and constitutes consideration, making such stipend payments taxable; the recipient is liable to discharge service tax under the reverse charge mechanism, and classification of apprentices as trainees under apprenticeship law does not exempt these payments.