18 March 2016
Dear sir kindly tell me service tax on labour charges who will pay service receiver or service provider and what is the rate and cenvat can be claim or not
18 March 2016
Normally labour charges are either paid to a contractor or directly to the labourer. If the labour is directly recruited, then no service is rendered and only wages are paid under the nomenclature 'labour charges'. However, if the labour charges are paid to a contractor, then depending on the terms of a contract (in case no contract per se exists, then the second scenario will be applicable) it may either be rendering of Business Support Service or alternatively it would be Supply of Manpower Services.
In case of Business Support Service, it is the responsibility of the service provider to collect and remit the service tax to the Department - if the service provider has not charged service tax no liability rests on the service recipient. In such cases proper agreement and documentation should be maintained to prove that the labour charges were paid as Business Support Services.
However in case of Manpower Supply Services, the service recipient is liable to pay the service tax under Reverse Charge Mechanism. Taxes under RCM have to be paid only in cash i.e. through e-payment. No payment can be made through CENVAT Credit. However, the taxes paid are eligible inputs for claiming CENVAT Credit, which can be utilized to pay off other output Service Tax liability or Excise Duty on goods manufactured.
The rate of Service Tax is 14%, Swatch Bharat Cess 0.5% and with effect from 1st June 2016 Krishi Kalyan Cess 0.5%. Of these Service Tax and Krishi Kalyan Cess are eligibe inputs for availing CENVAT Credit.
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