Valuation of Service on manpower Recruiting Agency

[Srivatsan Krishnamachari]

Dear Learned Friends ,

Please give your valued clarification to the two follwing queries

1) A labour Contractor deploys workers; say 100 persons to a Company(the Principal Employer) and raises  two Bills  for theservice rendered in the following fashion:

 Bill No:1) Submits for  Service Charges/Commission  say @ 25% on Wages (as per  Statutory Minmum wages or agreed  mutually agreed wages) @ Rs.4000/ p.m per worker for 100 persons -Rs.4,00,000x25/100 = Rs,1,00,000/-

BillNo:2)  Submits a seperate bill  towards the wages paid  to the  workers  for Rs.4,00,000/- and for the Statutory PF & ESI (Employers' Contribution)@12% and 4.75%  respectively  for Rs.67,000(PF@12% & ESI @4.75% on Rs.4,00,00  i.e  -Rs.48,000+Rs.19,000) towards the above said Statutory Contributions paid for the workers employed by him, which the company as the Principal Employer reimburses to theContractor.

My query is, if the Contractor collects service [email protected]% on Rs.1,00,000 i.e  his Bill towards Service Charges or Commsision; by whatever name they are called (1,00,000x12.36%) and remits the same i.e. Rs.12,360 to the Department , will it amount to compliance on the part of the contractor(Service Provider) as per Service Tax Rules?

Only the Service charges/commission goes to his,Pocket ; the wages go to the workers employed and the PF & ESI  contributions go to the Authorities Concerned.

 

2) if the company deducts  tax at Source(TDS) on Rs.12,360 at the applicable rate and remit to IT, can it be construed that the Company as the Deductor  has complied with the rules concerning TDS

Note: The Contractor by undertaking similar service  with other companies  thus earns more than the  Small Scale  Service  Provider Exemption  Limit of Rs.10,00,000/- and has duly taken Registration under Service Tax and holding PAN Card.

Kindly  clarify.

Thanks & With Regards,

K.Srivatsan

 

AI Summary

Valuation of manpower supply services: reimbursements often treated within gross taxable value, and reverse charge allocation now applies
Whether reimbursements of wages and statutory employer contributions paid by a manpower contractor are included in the taxable value is disputed. One position applies the gross value principle to include wages, EPF and ESI in the taxable amount; an opposing position, supported by a CESTAT decision, treats genuine reimbursements as excluded from taxable consideration if properly incurred and evidenced. The discussion also notes conflicting circulars and the introduction of the reverse charge mechanism for manpower supply services, raising transitional point-of-taxation and withholding issues.