Budget 2015 brings lots of changes in service tax. Service tax on manpower supply service and security services is covered under full reverse charge now. For better under standing, read detailed article.
Service tax on manpower supply service – Definition:
Manpower supply means supply of manpower , temporarily or otherwise, to another person to work under his ( service receiver-employer) superintendence or control.(Rule 2(g) of service tax rules)
Reference : cbec notification read here.
Service tax rate for manpower supply service:
Service tax rate for manpower supply service is 12.36% until 1st June, 2015.
New rate 14% will be applicable from 1st June, 2015.
Full reverse charge after budget 2015:
If service provider is Individual, HUF, proprietary firm, partnership firm or AOP located in taxable territory and service receiver is a business entity incorporate as body corporate located in taxable territory; Reverse charge mechanism will apply.
If service receiver is located in non taxable territory or charity or non profit organization, government;reverse charge mechanism will not apply.
Under reverse charge, service receiver is liable to pay service tax on 100% of the value and service provider is not liable to charge or pay service tax to government. ( Changes in budget 2015) . Service tax on manpower supply is covered under full reverse charge mechanism. Read the post- link
In other cases, service provider is liable to pay service tax on 100% value.
Full budget pdf is available at this link.
We can understand it from following table:
Service tax on manpower supply and security service
|Service provider||Service receiver||Service tax charged and payable by service provider||Service tax payable by service receiver under RCM|
|Partnership firm||Body corporate||0%||14.00%|
|Body corporate||Body Corporate||14.00%||0%|
Note : 14% rate is effective from 1st June, 2015.
When individuals are contractually employed by the manpower agency and the agency supply their services to other organization. Employer employee relationship is existed between manpower agency and the individual. Manpower agency is supplying manpower services to other organization. So here service tax liability will be arisen.
When one company transfer its employees to other company for some period. The salary is debited to other company. This is also example of manpower supply service.
Services provided in addition to employment for a consideration would be service. When employee provides services to an associate company on contract basis, it would be treated as provision of service.
Contractor means a person who undertakes to produce a given result for the establishment trough contract labour or who only supplies labour for any work of establishment.
Manpower supply service by contractor
When contractor supplies labours for work, it will be considered as manpower supply service. But if contractor hires labours for work of establishment and labours work under supervision of contractors and principal employer has no control on labours then it is not manpower supply service. So when contract is for some work and not for supply of manpower, there is no manpower supply service liability.
Mr. Prajapati supplies 3 employees to T & J Ltd. where employees are required to work under supervision of T & J Ltd. In this case, it is manpower supply service.
However, If there is no supervision and control on work of employees by T & J and employees are working under instruction of Mr. Prajapati, it is not manpower supply service and can be considered as other service.
So here control and supervision of service receiver or recruitment is necessary to establish service as manpower supply service.
When employees are hired directly by employer and employer does not avail service of manpower recruitment agency or contractor, there is no manpower supply service.
Value of taxable service:
In taxable value, Following are to be included:
salary, PF, ESI and commission of labour contractor
1. The appellant had supplied skilled persons to TCS and Infosys to work on software projects. Payments were made to assessee on basis of man hour basis. Number of personnel to be employed was prescribed in the agreement. It was held that it was manpower service and is taxable. Future Focus Infotech v CST.
2. When contractor gets payment for loading and unloading of cement bags and hires labours for it and also get payment according to fixed rate of different type of work, It is not manpower supply service. K Damodarareddy v CCE.
Charging on man-day or man-month basis does not make service man power service. Future Focus Infotech v CCEValuationAssessee should include total billed amount (salary of employee plus profit)under valuation for service tax.
I hope you will calculate right service tax on manpower supply and pay to government after budget 2015 changes.Still if you have questions, ask through comments. If this post becomes helpful to you, Share this post through buttons on left site