Valuation of Service on manpower Recruiting Agency, Service Tax

[Srivatsan Krishnamachari]

Dear Learned Friends ,

Please give your valued clarification to the two follwing queries

1) A labour Contractor deploys workers; say 100 persons to a Company(the Principal Employer) and raises  two Bills  for theservice rendered in the following fashion:

 Bill No:1) Submits for  Service Charges/Commission  say @ 25% on Wages (as per  Statutory Minmum wages or agreed  mutually agreed wages) @ Rs.4000/ p.m per worker for 100 persons -Rs.4,00,000x25/100 = Rs,1,00,000/-

BillNo:2)  Submits a seperate bill  towards the wages paid  to the  workers  for Rs.4,00,000/- and for the Statutory PF & ESI (Employers' Contribution)@12% and 4.75%  respectively  for Rs.67,000(PF@12% & ESI @4.75% on Rs.4,00,00  i.e  -Rs.48,000+Rs.19,000) towards the above said Statutory Contributions paid for the workers employed by him, which the company as the Principal Employer reimburses to theContractor.

My query is, if the Contractor collects service tax@12.36% on Rs.1,00,000 i.e  his Bill towards Service Charges or Commsision; by whatever name they are called (1,00,000x12.36%) and remits the same i.e. Rs.12,360 to the Department , will it amount to compliance on the part of the contractor(Service Provider) as per Service Tax Rules?

Only the Service charges/commission goes to his,Pocket ; the wages go to the workers employed and the PF & ESI  contributions go to the Authorities Concerned.

 

2) if the company deducts  tax at Source(TDS) on Rs.12,360 at the applicable rate and remit to IT, can it be construed that the Company as the Deductor  has complied with the rules concerning TDS

Note: The Contractor by undertaking similar service  with other companies  thus earns more than the  Small Scale  Service  Provider Exemption  Limit of Rs.10,00,000/- and has duly taken Registration under Service Tax and holding PAN Card.

Kindly  clarify.

Thanks & With Regards,

K.Srivatsan

 

Posts / Replies

[sv bhasker]

Sir,

Service tax is payable on the sum total of all components like commission, wages,PF and ESI.

[Pradeep Khatri]

Service tax will be calculated on the Gross Value of the Bills duly submitted.

[Dilip Darji]

Dear Sir.

When Service Provider incurrs certain expenses on behalf of Service Receiver and getting reimburshement from Service Receiver, such expenses does not form part of taxable services and not liable to Service Tax. Only thing is that it needs to be mentioned in the invoice that it is a reimburshement of expenses incurred on behalf of Service receiver.

Service Tax is payable only on amount received in relation to taxable service. The charges is on any taxable service provided or to be provided. Thus if any amount is charged which is not towards taxable services, it is not liable to service tax. Wages, PF and ESI of the employees paid by you is a pure reimbushement of expenses incurrred by you on behalf of Service Receiver and therefore not liable to Service Tax. 

[Srivatsan Krishnamachari]

Dear Gentlemen,

 

Thanks for your response to my Query (Issue ID: 4316). The view expressed by Shri DiliP Darji is in tandem with that of mine. My view is ,when the Contractor(Manpoer Agency) produces bills/challans to vouchsafe the payment  made by him towards wages & Statutory  levies like PF&ESI for getting them reimbursed by the Principal Employer, it does stand outside the perview of Taxable Service( for Valuation of Service)

Thanks & With Regards,

K.Srivatsan

[Jagdish Mehta]

You can exclude reimbursement of expenses only if these are incurred in your name. If they are incurred in your name, then it will follow that contractor is your agent and contractual employees are your employees. Obviously, this can defeat the purpose.

Regards,

J A Mehta

 

[Rajesh Sharma]

I don't agree with the Darji's views, as you have to pay ST as per the Rules and the Rules says whatever ST has to be paid on Gross value and the Gross value is what you get and which is defined in Section 67 of the Act. Therefore, ST has to be paid on Gross value which includes EPF, and all other charges you are getting from the service receiver.

[sv bhasker]

Sir,

I am in agreement  with the frank and correct legal position explained by Mr.Rajesh Shrama.  It appears that learned Mr.Srivatsan Sir  wants to endorse the views that are similar to his views irrespective of the contents in the provisions of Section 67 of FA. 

[SANJAY GUPTA]

Dear Gentlemen

pl refer to MF(DR) circular no B1/6/2005 -TRU dt 27.7.2005 ,sevice tax to be charged on full amount of consideration for supply of manpower ,whether full time or part time.The value includes staff costs from the receipient eg salary and other contribution.Even if the salary is paid directly by service receiver to the individusl workman , it will still form part of value of taxable services.

Regarding TDS also refer to circular no 715C dt 8th august 1995 - Sec 194C refers to any sum paid .Reiumbursement can not be deducted out of the bill amount for the purpose of TDS.

 

 

[Dilip Darji]

Dear Sir.

CESTAT in case of Commissioner vs Malabar Management  (2007 (10) TMI 135 - CESTAT, CHENNAI) = [2009 (9) STR.483-CESTAT-Chennai] has observed that actual reimbursement of expenses to service provider cannot be terms as an amount charged by Service Provider.

Dept. had filed an appeal against such an order before Supreme Court [2010(19)STR-J.16 (SC)] which has been admittted in Supreme Court and still pending decision. Pending decision of SC, CESTAT order is in force.

[SANJAY GUPTA]

Dear Sir

There are other citation on the contrary viz Shri Bhagvathy Traders Vs CIT, (2011 (8) TMI 430 - CESTAT, BANGALORE)= Cochin(2011) CESTAT Banglore

I would advise if prinicpal employer is in a position to claim cenvat credit , it is better to pay service tax on Gross amount insted of going into costly litigations

thanks

 

[Dilip Darji]

Thank you so much Sir.

[Srivatsan Krishnamachari]

 

Thank you all Learned Friends

 

K.Srivatsan

[SAURABH SHUKLA]

Now, wef 1/7/2012  Manpower supply services is covered in reverse charge.

[SANJAY GUPTA]

 

But now question arise if services provided in June (Prior to July) , bills raised and payment released in July ,whether service tax to be discharged  by service provider or service receiver partly.Under reverse charges mechanism , the Point of taxation shall be date of payment.ref deptt circular dt 31st March 2011 .

 

 

[Srivatsan Krishnamachari]

Dear Sir,

Since the new rule is with effect form July 2012 as per the notification no 30/2012, issued in the last Month inthis regard , the 75% liability on the part of te Service Reveiver  under reverse charge mechanism is only from July 2012 for which the payment of tax to be made on or before 6th of August, 2012. This is my underestsnding.

Regards,

K.Srivatsan

[Jagdish Mehta]

Service-tax is not attracted if atleast two activities are performed before 1st July 2012

 

• Provision of service
• Raising of invoice
• Receipt of payment

Hence, you need to have invoice dated prior to 1st July 2012 to avoid service-tax.

Regards,

J A Mehta

 

[SANJAY GUPTA]

Dear sir

 

SP has 30 days to raise invoice .moreover if they raise invoice on 30th June , they will be liable to pay full tax.The issue is reverse charge mechanism

 

regards