Labour contractor

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sandeepguptaca (Querist)
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23 October 2012 Sir

In Food grain agencies like Food corporation of India, contract to labour contractor for loading/unoading of wheat/paddy/wooden carets from trucks/mandies/ railway wagaon. it is purely labour work no material used. Food grain agencies also deducted and deposited EPF from payment made to labour contractor.

Is Labour contractor covered under Service Tax?

CA Sandeep Gupta

@VaibhavJ

@VaibhavJ (Expert)
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23 October 2012 Hi

Since food agencies are payiing PF of labour then it seems that labour are on roll of Food corporation hence no Services Provided but there is Employer Employee relation.

Please clarify arrangement giving example.

Rgds//Vaibhav
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sandeepguptaca

sandeepguptaca (Querist)
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23 October 2012 sir

in my query there is no employer employee relationship, only payment made to labour contractor. For example

Food grain give the labour contract to Mr X. Mr X employ 30 labour to do the labour job. Food grain agency pays Rs.100000/- to Mr X, not to direct labourer. Food Grain Agency deducted TDS@ 2% & EPF on payment to Mr X. MR X pays wages to 30 labour. That 30 labourer are not direct employees of food grain agency. Mr X is only responsible for any falut to FOOD grain agency.

EPF is paid only Rs.70000/- i.e. Rs.100000/- - 30% of profit of MR X.

In this case service tax is applicable or not.

CA Sandeep Gupta

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 Based on the scenario you’ve described, where a food grain agency engages a labour contractor to perform loading and unloading services, several aspects need to be considered to determine whether Service Tax (now GST) applies.

### Key Points to Consider:

1. **Nature of the Service**:
- The service being provided is purely a labour service, involving loading and unloading of goods. There is no material used or provided by the food grain agency to the labour contractor.

2. **Contractor vs. Employee Relationship**:
- In this arrangement, the food grain agency contracts Mr. X (the labour contractor) to provide labour. Mr. X then employs labourers and is responsible for paying their wages. The agency does not directly engage or pay the individual labourers.

3. **Statutory Deductions**:
- The food grain agency deducts TDS and EPF contributions from Mr. X's payments. Mr. X is responsible for ensuring that these statutory deductions are correctly deposited and that he handles the welfare and compliance for his workers.

### Applicability of Service Tax (GST):

1. **Service Tax** (now replaced by GST since July 1, 2017):
- **Pre-GST Scenario**: Under the Service Tax regime, the service provided by a labour contractor for loading/unloading could fall under the category of "Manpower Supply Services" or "Labour Supply Services," which were subject to Service Tax.
- **Post-GST Scenario**: Under GST, the relevant classification for such services would typically be "Supply of Manpower Service" or "Contractual Labour Service," which falls under the heading of "Supply of Manpower Services."

2. **Reverse Charge Mechanism (RCM)**:
- Under GST, for certain services, the reverse charge mechanism might apply. However, the reverse charge is generally applicable to the supply of manpower where the recipient of the service (the food grain agency) is liable to pay the GST instead of the supplier (Mr. X).

3. **Specific Exemptions**:
- Services related to loading and unloading, particularly if they are considered ancillary or directly related to agricultural produce, may sometimes fall under exemptions or reduced tax rates under GST. The exact applicability would depend on the specific GST provisions and notifications in force.

### Summary:

In your case, since the food grain agency is contracting Mr. X for labour services and not directly engaging the labourers, Mr. X (the contractor) is responsible for the payment of wages and statutory contributions, and is also liable for Service Tax/GST on the services provided.

- **Pre-GST**: Service Tax was applicable on manpower supply or labour services.
- **Post-GST**: GST is applicable. The contractor (Mr. X) must charge GST on the services provided, unless exempt under specific provisions.

**To ensure compliance**:
- Confirm the current GST rates and exemptions applicable to such services by referring to GST notifications and circulars.
- Verify if the reverse charge mechanism applies in this specific scenario.
- Consult a tax advisor or GST consultant to get precise guidance based on the latest regulations and your specific contract details.

This will ensure that both the food grain agency and Mr. X are in compliance with the applicable tax laws.