Service tax under reverse charge mechanism

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 December 2013 Dear Sir

I would be grateful to you if you can answer this query

Background:
X ltd.is doing manufacturing activity where some Chinese engineers are deployed. X ltd. contracted with M/s. Y (Proprietor) for supply of 3 interpreters to translate Chinese language to English.

Query:
#1: Prima facie it looks like professional service rendered by M/s Y. But can it be constructed by Serv. tax dept. as "Supply of SKILLED manpower" & demand X ltd to pay ST @12.36% on 75% of value under Reverse charge mechanism?

#2: If the answer to the above query is negative;
M/s. Y is charging ST @ 12.3% instead of 12.36%. Company is paying the same to him & availing Cenvat credit. Is it the duty of company to ask M/s Y for fresh invoice, correcting the rate of tax to 12.36% instead of 12.3%

Kindly advise.

CA. RAVIKUMAR

CA. RAVIKUMAR (Expert)
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13 December 2013 Dear Sir,
1) If M/s.Y is not having the control on the work done by Interpreters and X Ltd having control then it constitute Supply of man power and X ltd is liable to pay St at 12.36% on 75% of the value
Department can demand accordingly.

2)If the service provider is charging higher amount of ST then pay only to the extent of applicable and if he is charging Lesser amount pay only what he charged because it is his obligation to charge correct amount.

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Querist : Anonymous

Querist : Anonymous (Querist)

13 December 2013 Sir

Thankyou!!
It looks like "Supply of manpower" as M/s. Y do not have any control over these Interpreters.

1 more clarification:
Since July' 12, company had already paid ST @ 12.36% to the vendor every month. Now do co. has to pay ST on 75% of value retrospectively ?

OR
Co. notifies the vendor to charge only ST on 25% and balance'll be paid to the dept. henceforth. Is it accepted by dept ?

Thanks in advance!!

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AJITHKUMAR M

AJITHKUMAR M (Expert)
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13 December 2013 Dear friend,

If you were liable to pay service tax on 75%, then the department can very well demand for the service tax not paid by you. The fact that the service provider has already paid the service tax on 100%, will not be an impediment for the department in raising the demand. The right remedy will be to pay the service tax liability with interest on your part and then ask your service provider to seek refund of the excess amount paid by them. No doubt, it will not be an easy task to get the refund from the department. This is my personal view. You may act according to your wisdom.

Querist : Anonymous

Querist : Anonymous (Querist)

13 December 2013 @Ajithkumar - Thanks.

CA. RAVIKUMAR

CA. RAVIKUMAR (Expert)
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13 December 2013 AJITHKUMAR Rightly suggested

Querist : Anonymous

Querist : Anonymous (Querist)

13 December 2013 @Ravikumar: Thank u.
Since Statutory liability cannot be shifted/passed on, will act accordingly.

Querist : Anonymous

Querist : Anonymous (Querist)

14 December 2013 With ref. to above query; I want to add some more info. which I feel will leads to difference in ST.

#1: Definition of 'Supply of Manpower':
As per rule 2(g) of service tax rule,1994 , supply of manpower means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.

Since in the above case, co. do not possesses any control over these interpreters & also their actions in the course of operations is not supervised/questioned by the company, how is can it be coined under the 'supply of manpower'?

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CA. RAVIKUMAR

CA. RAVIKUMAR (Expert)
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14 December 2013 Dear sir,
Under Rule 2(g) "his" superintendence or control is the important word as per my understanding his represent the person to whom the manpower is supplied.

If we consider that his represent as the person who supplies the man power then all the services like professional services also covers under Manpower supply
Hence as per my understanding it is man power supply.

Let me learn your Interpretation if i am wrong.
Thank you

Querist : Anonymous

Querist : Anonymous (Querist)

14 December 2013 Thankyou.
Even i share common view that of your's.
"His" supervision means the "Supervision of the co. where these persons are deployed for work" (X ltd. in the above case).

Having said that, the 'Interpreters' in the above case is not supervised by the co. They actually translate Chinese language to English & vice versa. Also, the interpretation/translation done by these people is accepted by the co. without cross questioning.

On the other hand, in case of 'Supply of manpower', co. directs the labourers to do the work. The labourers do not posses any control on the job that is being done by them. For ex. supply of manpower to a cement factory where the supplied labourers work as directed by the Manager/supervisor/xxxxxx of the company.

So, therez a thin line btwn these two & expecting your view on the same.

CA. RAVIKUMAR

CA. RAVIKUMAR (Expert)
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14 December 2013 Hi,
Supervision is not only the criteria for determining whether it is supply of man power.
Control need not be verifying main requirement is if the company asks interpreters to the any of the translation which they know amounts to supply of man power, because some one should have control may be the person who sends them or the person who receives the service i.e co.

Querist : Anonymous

Querist : Anonymous (Querist)

15 December 2013 Thankyou Sir.
Agree with your point "Some one should have control, may be the person who sends them or the person who receives them".

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