Service tax on work carried out in factory by contract labour

[Narendra Soni]

Dear Experts.

We are manufacture of Bag ,Yarn & Fabric Manufacturer. In our factory different types of works like Packing,Inspection,Folding,Sorting,Loading,Unloading of Bags,yarn & Fabric are carried out by labours of contractors.We pay them per KG/Meter/Bag.

Kindly suggest is service tax is applicable on these activities.

[Mr Rao]

Dear sir,

Depending on the agreement entered by u with ur contractors, you have to raise a bill on your contractors showing the Service tax element and accordingly you have to deposit the same to Government.

[Narendra Soni]

Dear Sir,

If we show service tax amount in bill and pay to govt., then it means it is taxable.

Our query is whether these activities are taxable under service tax or not.

Clauses of agreement and invoicing depends upon taxablity or not.

Agreement may be made on piece rate/per labour/per day/under supervision, these aspects are come if activities are taxable either reverse charge as manpower supply or under forward charge.

Kindly suggest.

[DR.MARIAPPAN GOVINDARAJAN]

In my view it comes under manpower supply and it is liable to be paid under Reverse Charge mechanism.

[SHIVKUMAR SHARMA]

Dear Sir

If you have make the payment to your contractor on perkg/mtr/bag then it is fall under Business auxiliary service or you make the payment per day per labour then it is fall under Manpower Recruitment & supply (under reverse Charge)

It is my opinion.

SK Sharma

[Mr Rao]

Dear sir,

In my view, if the contractor is providing man power to you for undertaking the works mentioned by you, then it comes under supply of man power services and service tax is payable under reverse charge mechanism and service receiver is liable to pay 100% service tax as per the Notification No.30/2012 ST dated 20.6.2012 read with amended Notification 7/2015-ST Dt.1.3.2015 which is effective from 1.4.2015. If your contractors are proprietory ship concern/partnership firm, then being a body corporate, you are liable to pay service tax 100%. If your contractors also happened to be body corporates, then no reverse charge mechanism applies and service provider has to pay 100% service tax.

[Narendra Soni]

Dear experts

Thanks for valuable suggestions.

Please note that the work is carried out on piece rate/limp sum/per kg/per Bag under supervision & control of contratcor hence it will not fall under Manpower supply.

But kindly suggest if it can be fall in other taxable service or it is not taxable.

[Ganeshan Kalyani]

Service tax is applicable under manpower supply service . If the condition of reverse charge mechanism is fulfilled then service tax is payable by the service recipient. Otherwise service provider will be liable to pay the tax.

[PGK NAIR]

It is simply " Contract Manufacture " by Sub Contractors. The payment for work done is on a Piece Rate system.

The commodity seems to be Excisable . Hence it is manufacture & outside the purview of Service Tax. It is neither "Business Auxiliary Service" but part of the manufacturing process of the mentioned commodity.

PGK Nair

AI Summary

Manpower supply services: reverse charge can render the service recipient liable for tax when contractors supply labour. Taxability of contractor performed packing, inspection and related work turns on classification: if characterised as manpower supply the reverse charge mechanism can make the recipient liable for service tax; if the contractor undertakes piece rate contract manufacture yielding an excisable product and functioning as part of the manufacturing process, the activity may fall outside service tax as contract manufacture.