Applicability of RCM to Labour Sub-Contractor

[Arunachalam M]

Dear Members,

Our query is One of the Construction Company is doing construction of building in govt projects using service of Labour Sub contractor (Unregistered Dealer).

We need to be clear whether we can go ahead using by paying GST under RCM for URD LabouSub Contractor.

Any Notifications or Circulars in favour or against using RCM for Labour Sub contract under URD.

Requesting Experts guidance and advise on this issue.

Thanks and regards,

Arunachalam M

[NARENDER YARRAGORLA]

No need to pay RCM u/s 9(3) as the service not covered Notification 13/2017 and even RCM u/s 9(4) is not application as the section suspended wef 13-10-2017

[Shilpi Jain]

Agree. No liability under rcm

[KASTURI SETHI]

I agree with both experts. My further observations are as under :-

(i) Sub-contractor is supplying manpower supply service (pure labour service) to Govt. projects for and on behalf of the main contractor (construction company) for construction service.

(ii) Hence main contractor is, de facto, supplier of pure labour service to Govt.

(iii) Manpower supply is not under RCM as per relevant notification as amended from time to time.

(iv) Pure labour service is exempted vide Notification no.12/17-CT(R) dated 28.6.17 as amended from time to time up to 18.11.21. (serial nos.3 & 10 refer).

(v) Govt. Authority and Govt. entity both have been excluded from the definition of Govt. for the purpose of exemption from GST w.e.f. 1.1.22 vide Notification no.16/21-CT(R) dated 18.11.21 effective from 1.1.22.

(vi) In this scenario, the construction company (main contractor) is not a promoter as per definition of 'promoter' under Section 2(zk) of RERA, 2016 adapted vide Notification No.11/17-CT(R) dated 28.6.17 as amended (clause (xvii) of paragraph 4 .refers) inasmuch as pure labour service is involved. Hence no question of RCM on this ground also.

[Ganeshan Kalyani]

I agree with the view of the experts.

AI Summary

Reverse charge mechanism: not applicable to unregistered labour sub contractors supplying pure labour for construction, no RCM liability. Where a main contractor engages an unregistered labour sub contractor to supply pure labour/manpower for construction, the Reverse Charge Mechanism does not apply: such manpower supply is excluded from RCM coverage under the relevant notifications, pure labour services have been subject to exemption provisions removing GST incidence during their operative period, and the characterization of the main contractor as the de facto supplier of labour does not create RCM liability.