04 May 2013
We are going to establish a new iron & Steel Plant for manufacturing of M S billet Covered under Chapter 72 of Central Excise & under Service tax under reverse Charge mechanism. Initial Stage we are doing construction of that plant in various modes like office, Labour Rooms, Machinery foundation, Water over head tank, Water underground tank, Labs Boundary Walls, Furnace platform, Rolling mill platform etc, Sir we are facing problems regarding imposing the service tax liability or not on Construction in various options like as 1) Only labour supply on Contract basic for construction.(Can RCM Attract) 2) Labour with material supply contract basic. (under works contract ) 3) Labour on payroll basic for construction.(No liability of ST but May be Exp Disallowed By Income Tax officer) 4) Labour on daily payment basic /Piece rate basic for construction. What are the most favorable options for us? If Service tax liability imposed on us then amount paid by us can be availed as cenvat credit after starting production Partly/fully amount.
Your query is not clear about your industries of operation.
Because when you are in construction industies exp. L&T doing plant constuction for other company and engaging sub-contractor the reply will differ.
Consiering your company as manufacturing company and putting a new plant, my reply are as follows:
1) when only labour supply on construction, where suppervison will be done by the contractor, it will not be traeted as Manpower supply. Then RCM will not apply. So, first validate whether the labour supply will fall under Manpower supply or not. If not RCM wil not apply.If, the ans is yes. validate the status of business. if status is company, then also RCM will not apply.
2) When material & labour supplies by non-company under works contract RCM will apply 50% for you. Then you have to look into for Abatement also. i.e. 40% of the total value will be taxable as new constuction.
3) ST will not apply. IT provision will differ to ST applicability.
4) Labour on daily payment basis if fall under Manpower supply. RCM will apply.
Most favourable is to break the contract into supplu and service contract to avoid ST and Sales tax WCT applicability.
You cannot avail CENVAT for these payments as per Rule 2(l) of CENVAT Credit Rule, 2004.
06 May 2013
First of all Thanks For Your Reply and giving me your Valuable Time and Support.
And yes we are as manufacturing company (status “limited company”) and putting a new plant. We have already a steel plant (TMT Bar Manufacturing).
These are totally practical Situation. On which material is purchase by us or in the name of company and give them as they required in construction.
But Sir we have asked this Point from The range Superintendent,
He replies us that you have to be done total expenses of Rs 15cr on construction on which Rs3cr is related to labour.
And There is no Clear provision until came across in our knowledge.
And we know that in this type of work done by local labour/contractors’, there are 20-25 contractors which are come within the exemption limit of Rs 10 lakhs so they are safe from the service tax liability. But Company is not safe.
And main objective of RCM is that to Avoid these type of evasion of Service tax liability.
And we are aware that normally department internal Audit /Audit of General is regular done in manufacturing concern, so be safer side, when only labour supply, department can raise demand at any time under RCM.
So you have put these labour shows as a payroll labour to avoid this type of liability in near future.
And department gives opinion like that, then how can we proof that this is not come in “supply of man power service” and we know it is not an easy task to win from department. Because in my little experience department give decision in the favor of revenue in most of cases.
Further in my opinion prima facie the service in instant case is not treated as manpower supply service as consideration is represented on the basis of work and not on the basis of labour supplied and it shows that control & supervision of manpower is not with service receiver, therefore it is a Pure Labour Contract
But After receiving department contention, it will give confusion to me.
So, now what is your opinion in all the above matter?
First of all works contract means sale with service. Where service is separate (No supply made by Service provider) then things cannot be called as so called Works contract tax (WCT)
2nd, When service is hired specifically with work basis not on head count basis and not for operational line i.e. here establishing plant. This cannot be qualify as manpower service as you specifically mention supervision and control is not lies with your company. It is with the contractor.
3rd, when you took a person under your payroll and have employment letter with you, then it is specifically exempted under new service tax regime and not be taxable.
Apply the law accordingly.
Never, department will give a clear understanding. They are here to litigate only. I know they may dispute if the person do audit donot have good knowledge in law.
Mean while, your indirect taxation team can very well handle this issue
Don’t worry, go head without paying service tax under RCM. If engage contractor, better get declaration if they are not charging ST in bill under service contract.
For safe guard you can also write in agreement very clearly that “ this agreement doesnot include any supply of material and is a agreement only for labour and on contract basis.
And Also can write that “ supervision and control lies with service provider only”
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