Levy of service tax on purely labour contract

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 October 2012 if any contractor provide the labour to contractee for any work, instead of contractee pay the contract amount to contractor,service tax levy on contract amt or not , if yes then which amount

Sanjiv Dandona

Sanjiv Dandona (Expert)
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24 October 2012
It appears from your query that the contract is for supply of labour and not for carrying out an activity. If it is only for supply of labour and the contractor is charging the Contractee on the basis of manpower supplied ie manhours or man days Service will be classified as Manpower Supply Service. In case it is a contract for execution of work with his labour the service will be claasified as Job Work.

Assuming this service falls under the categeory of Manpower Supply the position will be as follows:

a) Manpower Supply Service is subject to Service Tax.

b) Reverse Mechanism is applicable in certain cases of Manpower Supply Service.

c) In case the Service Provider is an Individual, HUF, Proprietory Firm or a Partnership firm and the Service Reciever is a Business Entity registered as Body Corporate ie a company, llp, Cooperative Society etc Service Tax to the extent of 75% is payable by the Service Reciever ( ie the Contractee) and the Balance 25% is payable by the Service Provider (ie the Contractor) . This is w.e.f 1/7/2012.

d) In the Service Provider is an Individual, HUF, Proprietory Firm or Partnership Firm and the Service Receiver is a person other than an entity registered as body corporate, the entire service tax will be payable by the Service Provider ie the Contractor

e) In case is a Body Corporate then irrespective of the status of the Service Receiver the entire Service Tax is payable by the Service Provider.

Service Tax will be leviable on the Gross Amount of the Contract. In case rates are inclusive of Service Tax, both portions will have to be determined within the overall value. In that case the Contractor will be entitles to the value of contract less Service Tax