The system of employing contract labour is prevalent in most industries in different occupations including skilled and semi skilled jobs. A workman is deemed to be employed as Contract Labour when he is hired in connection with the work of an establishment by or through a contractor. Contract workmen are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn, is compensated by the establishment.
As per section 65(94) of the Finance Act, 1994 as amended thereafter, “Security agency” means any person engaged in the business of rendering services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity, whether of a personal nature or otherwise, including the services of providing security personnel.
Section 67 was introduced vide Finance Act 1994, where it was provided that, the service tax shall be levied on the gross amount charged by the service provider for providing taxable service. Therefore, any amount charged including expenses incurred by the service provider under the invoice, whether such charges are being stated separately or not, shall be deemed to be part of value of service provided and hence chargeable to service tax.
Hence, applying the same ratio, in case of security agency supplying the security personnel or other manpower, service tax department is demanding service tax on the entire amount, instead of limiting the service tax demand to the extent of service charges. Therefore, in this process, service tax is also being levied and demanded in respect of the amount charged by the security agency in respect of ESI, PF, and various other statutory and non statutory levy such as, professional tax, or amount payable to them in respect of bonus, leave encashment, uniform and other incidental charges.
Skylark Securities Pvt. Ltd. approached to the Hon’Ble Delhi High court by way of Writ petition (C) No. 6226/2012 challenging the levy of service tax on security agency other than the amount of service charges. The learned advocated counsel for the petitioner urged that in case of manpower supply and security services, service tax is leviable only on the service charges and no service tax is leviable on the amount received from the client on account of salary payable to security guard/staff supplied and their contribution towards various statutory dues such as ESI, PF etc.
The department has taken a stand that service provider like security agency are required to pay service tax gross receipt inclusive of salary and statutory contribution like PF and ESI, however, while hearing the above mentioned matter, the Delhi High Court has passed an interim order on 4th September 2013, directing the department while adjudicating the matter, service tax demanded in respect of components of salary, ESI, PF, Uniform charges, Bonus etc. has to be computed separately but restraint the department for recovery of said service tax from the petitioner providing security services. While passing the order, the High court has further directed that recovery only can be made in respect of the service tax on service charges(other than the above components) of supply of security personnel/manpower supply and other demands shall be subject to the further order of the High court.
Note: its just the Interim Order, the Hon’ble High court has fixed up date 12th November 2013 for further hearing the matter.
Service Tax Team
vishaljain.tax@gmail.com
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