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

Reverse charge on manpower supply: recipient employer bears service tax liability even where supplier claims threshold exemption.
The manufacturer's receipt of manpower-based fabrication, repair and maintenance services from a contractor who invoices lump-sum and claims threshold exemption attracts liability under the Reverse Charge Mechanism. Supply of manpower for on-premises work is treated as a taxable service to the recipient regardless of billing method or temporary idleness of personnel; threshold exemption of the supplier does not absolve the recipient from reverse charge responsibility. The arrangement is viewed as outside the job-work definition and within the service tax net, placing compliance and tax payment duty on the employer/recipient.