In-house supervision charges and reverse charge mechanism

[Ashok Chopra]

Respected Forum,

I am manufacturer exporter of ready made garments (not selling in DTA, selling only cloth scrap), have some issues on service tax. I shall be thankful, if you will kindly guide me on following :-

I am giving payment to Supervisor on piece rate basis, he raise bill with following description:-

"In house supervision charges of your workmen towards cutting of ready made garments manufactured during the month as per detailed attached"

During service tax audit, the officer is of opine that this service will be come under reverse charge mechanism as Manpower Supply and i have to pay service tax on this amount.

Please guide me accordingly. If possible, please provide me notification or case law to satisfy my management.

Thanks and regard

[Himansu Sekhar]

Please refer to the definition of job works. When the entire process will not manufacturing activities under section 2(f) of CE Act, Stax will be leviable. There is no reverse charge. I presdume you are a company. But what is the problem? The stax will be paid by you directly through challans if auditors are correct , otherwise routedv though the supervisor. Ultimately the benefit of refund is with you.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Himanshu

[Nash Industries I Pvt Ltd]

Employer employee relation. No service tax applicable.

Regards

S.Ramaswamy

[KASTURI SETHI]

Dear Querist,

Let us delve into step by step.

(i) Supervision charges on piece rate basis means workmen were under control of contractor and no manpower supply. Hence no RCM.

(ii) It is job work.Job work would fall either under the category of erstwhile, "BAS" or "Other Than Negative List".

(iii) If job work does not amount to manufacture, Service Tax is leviable. Liability is on contractor.

(iv) If job work amounts to manufacture, excise duty would be paid on final product. CE duty and ST both cannot be charged.

Pl. ready this reply in conjunction with above two queries.

[YAGAY and SUN]

In our view the nature of work done would get after reading the contract/agreement between the parties.

AI Summary

Reverse charge on manpower supply applies only if supervision qualifies as manpower supply; classification depends on control and job work.
Whether supervision charges paid on a piece rate basis attract service tax under the reverse charge mechanism depends on classification: if supervision is a manpower supply, reverse charge may apply; if it is an employer employee relationship, no service tax may apply; if characterised as job work, then if job work does not amount to manufacture service tax is leviable (liability on contractor), whereas if it amounts to manufacture excise duty applies to the final product. Contractual control is determinative.