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.

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.