Service tax on Furniture making

[mukesh pareek]

Dear Expert's

Please give your valuable comment''s on below issue

1.We taken service from M/s.xyz for making furniture in our factory to use our own material.

2.Service provider charged bill mentioning ''LABOUR CHARGE ONLY''

3.We have paid full (14.50) service tax under 'Man power supply service'and service tax return also filled in last month.

Now we came to know that we have paid wrongly under 'Man power supply service' instead of 'Works contract service'

Now please advise what is correct category and if we have paid wrong then what is the solution ?

Thanks in advance.

[Rajagopalan Ranganathan]

Sir,

In my opinion making furniture out of material supplied by the contractor amounts to 'manufacture' under Section 2 (f) of Central Excise Act, 1944. Therefore your contractor has to pay only excise duty and not service tax under man power supply service. However if the tunover of your contractor in manufacturing excisable goods during previous financial year does not exceed the limit of ₹ 1.5 Crores then your contractor need not pay any excise duty on the furniture manufactured by them. You may claim refund of wrongly paid service tax from the department within one year from date of payment of the tax.

 

[mukesh pareek]

Dear Sir,

I don't think that excise duty involved in this as M/s xyz only making furniture for our office use.

We have purchased all material and M/s. xyz supplied his labour to make furniture.

so this is a service not amount to mfg.

please revert

[KASTURI SETHI]

Dear Sh.Mukesh Pareek Ji,

In this case, manpower has not been supplied. Labourers/work force worked under the supervision and control of the contractor and not under you or your company. Hence this service is out of "Manpower Supply or Recruitment Agency Services"

Nature of this service is job-work and falls under the erstwhile category of BAS and now under the category of "Other Than Negative List". Since service has been provided without material (Material supplied by you), it is a case of pure labour and 'pure labour' cannot be classified under the category of "Works Contract Service". No abatement is available and no facility of RCM is admissible.

Hence you have rightly paid ST but under wrong category. You are not entitled to refund in this scenario.

My reply is without going through the nature of contract, if any. I also welcome the views of other experts, if I am in the wrong.

[KASTURI SETHI]

Sh.Mukesh Pareek Ji,

In continuation my reply dated 13.5.16, I further clarify as under:-

1. Under 'Manpower Supply or Recruitment Agency Services' 100 % ST liability is on Service Receiver. But this is not manpower supply service as already discussed. See Serial No.8 of Notification No.30/12-ST dated 20.6.12 as amended vide Notification No.7/15-ST dated 1.3.15 effective from 1.4.15.

2. If making furniture does not amount to manufacture, ST is to be paid by the Contractor (and not by you) as job-work under category of erstwhile BAS (now other than negative list), if his turnover ( taxable value ) of preceding year exceeds Rs.Ten lakhs. If his turnover (taxable value) is less than ten lakhs during the preceding year, he is also not liable to pay ST.In this situation neither CE duty is leviable nor ST is payabl.

3. If making furniture amounts to manufacture, then CE duty has to be paid by the manufacturer (Contractor), if his turnover of excisable good (dutiable), exceeds ₹ 1.50 crores during the preceding financial year. Otherwise Contractor is not liable to pay duty. (Chapter 94 of Central Excise Tariff Act, 1985 has to be studied as furniture falls under Chapter 94.) In that situation of turnover being below ₹ 1.50 crores for Central Excise purpose, ST is also not to be paid.

4. If you have deposited ST under the category of Manpower Supply and filed ST-3 return by you, you can claim refund, as ST being not leviable on you on the ground that ST was to be paid by the Contractor. If you have paid ST to the Contractor by raising invoice and the Contractor has deposited the same with Govt., then refund will be claimed by him (Contractor) and not by you, if ST is not payable by the Contractor also. In this situation, refund will be sanctioned by the department, if the Contractor refunds to you otherwise it will be hit by the principles of unjust enrichment.

 

If any doubt, post query in this forum.

 

 

[mukesh pareek]

Dear Sir,

Thanks for your valuable advise.

Instead of refund can we adjust this wrongly paid amount against next month liabilities of Service tax ?

also note that furniture maker is registered as under "Works contract category" since two years. please explain effect of this ?

Thanks in advance

[KASTURI SETHI]

Sh.Mukesh Pareek Ji,

In terms of Rule 6(4B) of Service Tax Rules, 1994, in case excess payment of ST is on account of interpretation of law, taxability, valuation or applicability of any exemption notification, self-adjustment is not allowed. You will have to apply for refund claim with your jurisdictional D.C./A.C.

Under which category your Service Provider is registered, it will have no effect on your refund claim. In order to get refund of excess amount paid, you will have to prove that you did not receive service under the category of 'Manpower Supply or Recruitment Agency's Services'. It was job-work under the category of BAS/Other Than Negative List" and entire liability for discharging ST was on the Contractor. The following docs are required:-

1. Agreement with contractor, if any.

2. Invoice raised.

3. Proof of deposit of ST by you

4. You have not recovered ST from contractor.

You must be aware that as per Section 68(1) of the Finance Act it is a statutory duty Service Provider to deposit ST and perform all legal formalities.

[mukesh pareek]

Dear Sir,

Thanks for your valuable advise.

I have read many judgement where CESTAT/ HIGH COURT said that payment of service tax under a different category does not mean that no service tax has been paid.

in view of these type judgement can we stand on what we have done ?

Thanks in advance.

[KASTURI SETHI]

Dear Sir,

YES. You can stand on what you have done. The issue litigation-prone. Ultimately you will get natural justice at appellate stage. At first stage chance are bleak.

[mukesh pareek]

Dear Sir,

Thanks for your valuable advise.

[Ganeshan Kalyani]

Sir I agree with both the experts Sri Rajagopalan Sir and Sri Kasturi sir.

Sri Kasturi Sir, yesterday itself I was thinking of writing a detailed reply in the manner in which you have replied pointwise in your reply dated 14.05.2016. your reply enriched my knowledge. Thanks.

AI Summary

User advised to claim refund for service tax wrongly paid under 'Manpower Supply' instead of 'Works Contract Service.' A user sought advice on the correct service tax category for furniture-making services they availed, using their own materials. They initially paid service tax under 'Manpower Supply Service' but later realized it should have been under 'Works Contract Service.' Experts advised that since the service involved only labor, it falls under 'job-work' and not 'Manpower Supply.' They suggested that the user could claim a refund for the wrongly paid tax but not adjust it against future liabilities. The discussion also highlighted that the service provider's registration category does not affect the refund claim. The user was advised to apply for a refund with necessary documentation.