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Service tax on labour contractor ????

ankit (student) (127 Points)

22 September 2015

Hello everyone,

one of my client is an individual labour contractor doing work in construction sector who is registered under service tax since jan 2014. He is a labour contractor doing contract of pvt ltd companies only. However he has not collected nor paid any service tax.

His turnover details are as under

Jan 14 to March 14 - 180000

Apr 14 to Sep 14 -650000

Oct 14 to Mar 15 -600000

Apr 15 To June 15-1100000

My question :

1. whether reverse charge is applicable under manpower supply service ?

2. Service tax to be paid by my client.

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10 Replies

MV Bhuvana (M.Com) (59 Points)
Replied 22 September 2015

Hi Ankit,

Service Provider is required to apply for Registration for Service Tax within 30 days of his turnover exceeding Rs.9 Lacs. Still he can claim service tax exemption if the aggregate value of services does not exceed Rs.10 Lacs in a financial year.

If service provider is Individual 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.

Somebody pl. clarify whether i am right.

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Niraj Kumar Sinha (Sr. Officer, SPSIL) (648 Points)
Replied 22 September 2015

Dear Ankit,

Supply of Man power comes under Reverse Charge machanism if service receiver is a corporate and provider is an individual.

So in your case 100% Service Tax will be paid by your client not by you.

You have to just mention on your bill that service tax is payable by the Service Receiver.

Miss Rinkal (Student) (1309 Points)
Replied 22 September 2015

@ ANKIT

1. Reverse Charge Mechanism is applicable on supply of manpower service

2. Service Tax to be paid by your client will be

For the period of Jan to Mar 14, he was liable to pay @ 12.36% on 25% of 180000 = 5562/=

For the period of Apr to Sept 14, he was liable to pay @ 12.36% on 25% of 650000 = 20085/=

For the period of Jan to Mar 15, he was liable to pay @ 12.36% on 25% of 600000 = 18540/=

For the period of Apr to June 15, he was not liable to pay service tax as he is covered under full reverse charge.

Your client cannot avail SSP exemption as the service is covered under reverse charge mechanism. And hence liable to pay service tax for the period Jan 14 to Mar 15 as it is covered under partial reverse charge mechanism. However wef April 15 service is covered under full reverse charge mechanism and hence your client is not liable to pay service tax.

Since your client has not paid or charged any service tax until now, he will be liable for all the interest, penalty provisions also.

@ M V BHUVANA

Whatever you said regarding service provider registration is correct. But since the service is covered by RCM, hence registration is required from when the services are provided as it cannot avail SSP exemption.

Also that you mentioned about place of provision of service, it is for whether service tax is leviable or not. It is not whether RCM will apply or not.

And that regarding 2015-16 full RCM is correct.

Miss Rinkal (Student) (1309 Points)
Replied 22 September 2015

@ Niraj Kumar Sinha

The provision of full RCM is only from this FY and not for previous years and service provider can be individual/ huf/ firm /aop. Not just individual. Also both should be located in a taxable territory. And service tax will be paid by client's receiver not by the client as service is covered under RCM, as client is service provider and not servicer receiver

SAHIL (MBA) (107 Points)
Replied 23 September 2015

Can anyone has applied for labour licence .... plz tell me steps...

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Vikas (CA) (1135 Points)
Replied 25 September 2015

One should refer to the definition of manpower supply, first.

Dear Ankit, your service can only be falling under reverse charge mechanism, if your services are qualifying as ‘supply of manpower’

As per Rule 2(g) of the Service Tax Rules, 1994, “supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.

Thus, if your labour is working under the superintendence / control of your client, then your services may qualify as ‘supply of manpower’. On the other hand, if the labour is working under your control / supervision i.e., you instruct them how and what to work, then your services would not qualify as ‘supply of manpower’.

If your services qualify as ‘supply of manpower’ then the Service tax would entirely be payable by your corporate clients, otherwise, by you (however, you may avail the benefits of SSP exemption explained above.)

1 Like

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 27 September 2015

The client of yours is NOT LIABLE under servic etax for all the past years as prior to 15-16 his value of services were below Rs. 10 Lakhs. Exempted as service provider.

The reciver of the service however the PVT Ltd Cos would be liable for earlier years upto 75% and this year to extentof 100% under RCM.

deepak adhikari (accountant) (32 Points)
Replied 30 March 2017

LABOUR CHARGE KE BILL M HOW MUCH SERVICE TAX

MANOJ KUMAR ROUL (Partner in RMMG & ASSOCIATES) (28 Points)
Replied 20 July 2017

is there any limit of bill amount to pay service tax under reverse charge ?

TUHIN SUBHRA MAITI (Tax consultant) (52 Points)
Replied 08 March 2019

my client is an individual labour contractor doing work in construction sector who is registered under service tax since NOV 2016. He is a labour contractor doing contract of L & T company. However he has not collected nor paid any service tax before nov 2016. Now service tax audit, auditor see previous 26AS. Please clarify me that prior registration period service tax payable by client or not?
2014-15 -1.18 crore

2015-16-1.55 crore

2016-17-1.13 crore