Service Tax on PVC Flooring Installation Job

[Guest]

Dear Senior Members,

Request you to guide in the following scenario -

Is PVC flooring installation job (during construction of a new Govt Hospital given by main contractor to a sub contractor) can be termed as a Work Contract Service or not?

Background: -

1) Parties involved

Party A = Government, a local authority or a governmental authority

Party B = Main Contractor (Limited Company / Body Corporate)

Party C = Sub Contractor (Proprietorship / Partnership)

2) PVC Sheets / Rolls are supplied by Service Receiver to Service Provider.

3) Service Provider (Sub Contractor) buys Adhesive, which is used as Consumable for fixing of PVC Sheets on floor. This adhesive is consumed during the execution of labour work of PVC Installation.

Questions :-

1) If PVC flooring installation job is not considered as a Work Contract service (due to only incidental use of adhesive material as Consumable) than is it true that Entry No. 29 (h) of Mega Exemption Notification No. 25/2012 dated 20.06.2012 won't be applicable and exemption won't be available in Service Tax to the Sub Contractor and ST 14% + SBC .5% + KVC .5%

2) Can we consider the above case of PVC flooring installation job as Manpower job?

3) If this can be considered as a Manpower Job than whether Service Provider (Sub Contractor - Proprietorship / Partnership) would be required to charge service tax in his invoice or the service receiver (Main Contractor - Limited Company / Body Corporate) has to discharge his 100% Service Tax liability @ 15% under Reverse charge mechanism slab applicable since 01.06.2016.

Would be highly obliged if you can guide in this matters and answer my queries.

Regards

[KASTURI SETHI]

Dear Sir,

If you display your profile in this forum, it would be convenient for me to file reply to your query in brevity. I hope you would not mind it.

[Ganeshan Kalyani]

Pure labour cannot be termed as works contract service. If the material is given by the service recipient and you have rendered only service then it is not works contract service.

Also if the service provided by the main contractor is exempt then the service provided by the sub-contractor is also be exempt.

[Guest]

Respected Kasturi Sir,

Just now I have updated my profile. Look forward to your valuable advice on my queries.

Regards,

Pankaj

[Guest]

Respectrd Ganeshan Sir,

Agreed that Pure labour cannot be termed as works contract service.

But, the Main Contractor is claiming that use of Adhesive in Installation job makes it a 'Work Contract' hence Service Tax exempt as per Entry 29H is available. However, as per my understanding it's should not be the case as Adhesive usage is negligible and it's merely incidental to the Installation Job.

Moreover,

- there is no Transfer of material as Adhesive used to paste it on floor does not get transferred to Main Contractor, but instead it gets consumed while providing installation services.

- Also, the intention of the Main Contractor (purchaser) is not to buy that Adhesive material, but just to receive installation services.

- Apart from that to classify this service under Works Contract Services, the material (Adhesive) should be subject to sales tax or VAT, this is the fact which is absent in PVC Installation Services.

We have been trying to explain all this to Main Contractor but they ain't understanding just to claim exemption of 15% Service Tax, SBC & KKC.

If we can sucessfully define that this is an Pure Service job than will the Main Contractor (Body Corporate) have the liability of 100% Service Tax payment under RCM??; as the Service Provider i.e. Sub Contractor is a Proprietorship / Partnership.

Regards

[KASTURI SETHI]

Sir,

When labour is under supervision and control of Contractor or Sub-contractor, whatever the case may be, how can it be considered as the "Manpower Supply or Recruitment Agency Services" ? No, it is not a case of manpower supply. Manpower has not been supplied. The term, "SUPPLIED" will be applicable only when and if labour is under the control and supervision of service receiver from contractor/sub-contractor(SP)

[Guest]

Dear Kasturi Sir,

Thanks for your revert and clarification that Installation Service can't be termed as 'Manpower'.

Request you to clear that million dollar question that in PVC Installation Job; adhesive is just incidental material / Consumable. So, this job can't be termed as WCT Service.

Hence, service tax exemption will not be available to Sub Contractor.

Regards,

Pankaj

[Ganeshan Kalyani]

In my view though adhesive is incidental purchase it is material in fact and would to works contract service .

[Guest]

Dear Ganeshan Sir,

Thanks for your revert..

I had seen Revised edition 2015 of Technical Guide to Service Tax - Works Contract of ICAI's Indirect Taxes Commite. It has chapter 14 abt Pest Control Services. There also material supply (Chemical) is merely incidental to provide ‘Pest Control'.

This chapter of the Technical guide concludes that the Pest Control Services are not covered under works contract services.

What would be your view on comparison of Pest Control Services with PVC Flooring Installation services?

Regards,

Pankaj

[KASTURI SETHI]

Sh.Pakaj Ji,

I could not post reply in one go due to paucity. Yesterday a snag developed in the internet server.

My natural outburst is as under:-

I consider it a deliberate misuse, misinterpretation and exploitation of ST law with an intent to evade ST technically by way of claiming and availing the benefits of abatement and RCM which are not admissible to the SP.

Such 'adhesive material' cannot qualify the phrase, "transfer of property in goods" for the purpose of seeking eligibility to fall under 'Works Contract Service". For example ; any owner of plot purchases all the material to construct his building except 'putty' and Contractor/subcontractor purchases "PUTTY" and construct the house. Do you consider it as construction service has been provided with material for seeking eligibility to qualify "WCS" ? No, not at all. What is the percentage 'adhesive material' consumed ? It is negligible. 99.00 % material has not been purchased by the Contractor/sub-contractor for providing service with material. Now you would ask for where percentage has been prescribed in Service Tax law. Here common sense prevails. I have perused case laws where the judge decides the case on logic and common sense.Nobody can be-fool the department. There is no dearth of intelligent and knowledgeable officers in the Service Tax Department.

It is a case of 100% pure labour and SP should pay full ST. No abatement and NO RCM is admissible. Forget the intricacies of law. If any abatement and RCM is availed by treating the case as service provided with material, SCN will be issued demanding ST along interest and penalty. In addition to the demand, Tax Officers of the would be amused with type of thinking and strategy.

So pay ST treating as pure labour and classify it either under erstwhile BAS or under the category of "Other Than Negative List" and be tension-free.

I have rightly advised and now it is up to you which way you opt for.

[Guest]

Dear Kasturi Sir,

Thanks a billion.... Your pointed reply and explanation helped me immensely. Hopefully the issue would get resolved by tomorrow; with all credit to you. Will update the thread about the outcome...

Glad I found you and other senior members on TaxTMI.Com and my query was answered perfectly by you.

You are 

Best Regards,

Pankaj

[KASTURI SETHI]

Dear Pankaj Ji,

If your problem is solved, it gives me immense pleasure.

I have seen so many querists whose problems are solved but they do not bother to express thanks. It is just courtesy and verbal thanks cost nothing but I treat thanks as reward for my efforts.A few words of thanks motivate us.

Otherwise I am of the view that after posting the reply, we should forget and wait for next query.

[Ganeshan Kalyani]

I agree with Sri Kasturi Sir. All experts in this Forum are voluntarily and without pay sharing their knowledge by replying to the queries. I respect the spirit and hard work and valuable time of the experts. TMI discussion forum is trusted by the querist because instant, correct and satisfactory reply is posted by the experts. The only remuneration to the experts is 'Thanks' message received from the querist.

AI Summary

Works Contract Classification versus Pure Labour: incidental consumables do not convert installation services into works-contract exemption. The issue is whether PVC flooring installation by a subcontractor - with PVC supplied by the recipient and adhesive consumed by the subcontractor - is a Works Contract Service or pure labour. Forum contributors conclude the adhesive is an incidental consumable and does not amount to transfer of property in goods, so the activity should be treated as a taxable pure labour service, not works contract, and not as manpower supply; consequently Entry 29(h) exemption is not available to the subcontractor and reverse charge claims based on manpower supply or works-contract classification are unsupportable.