Reverse charge under manpower supply

[Kaustubh Karandikar]

XYZ (Manufacturer) is procuring material and giving it to a outside contractor for carrying out various fabrication, repair and maintenance jobs within the factory premises. The contractor is charging labour charges bill for the same on lumpsum basis depending upon the nature of work and not on man hour basis but not charging service tax being within the threshold exemption. EA-2000 audit team is demanding service tax from XYZ under reverse charge under ‘Manpower supply’ for the period 14-15, 15-16 and 16-17. Is the demand sustainable under the service tax provisions?

AI Summary

Manufacturer XYZ Liable for Service Tax Under Reverse Charge for 2014-2017 Despite Contractor's Exemption Claim XYZ, a manufacturer, contracted an external party for fabrication, repair, and maintenance within its factory, paying lump-sum labor charges. The contractor did not charge service tax, claiming a threshold exemption. However, an audit team demanded service tax from XYZ under the reverse charge mechanism (RCM) for manpower supply for the years 2014-2017. Two respondents agreed with the department's demand, asserting that the contractor's activities qualify as manpower supply under RCM, regardless of the payment basis, and that the manufacturer must pay service tax. They also questioned the applicability of the threshold exemption in this context.