Manpower supplier or works contract service

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

10 August 2013 A Ltd. is manufacturing unit. Now A Ltd. gets for factory building repair work. for that A ltd. gets service of labour contractor. then what will be the liability of A Ltd. & if there is any service tax then can A Ltd. can avail credit of such tax?

Ganeshbabu K

Ganeshbabu K (Expert)
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10 August 2013 Reverse charge applicable if it is manpower supply

1)service provider is Individual, HUF, proprietary or partnership firm, AOP located in taxable territory.

2)In such a case you need to pay only 25% of service tax to service provider and the remaining 75% to be deposited to DEPARTMENT Directly through GAR7

3)Service tax payable on salary plus PF, ESI plus commission of labour contractor.

Thanks & regards
Ganesh babu k

Ganeshbabu K

Ganeshbabu K (Expert)
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10 August 2013 1)Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash only i.e. GAR-7 challan.

2)Once paid, Cenvat credit can be taken if otherwise it is his eligible ‘input service’.

3)Tax should be paid under service tax registration number of service receiver and included in his return as he is liable to pay service tax.

4)Service tax is payable by service receiver when actual payment is made to service provider and not on receipt of Invoice from service provider.

5)However, if payment is not made to service provider within 6 months, service tax is anyway payable. Interest is also payable.

Thanks & regards
Ganesh babu k

Querist : Anonymous

Querist : Anonymous (Querist)

12 August 2013 But how can it be manpower supply service as labour would work under control of contractor as i want to build/repair factory building.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2024 In the scenario you described, where a manufacturing unit (A Ltd.) engages a labour contractor for factory building repair work, it is important to distinguish between **manpower supply services** and **works contract services** to understand the service tax implications and credit availability.

### **Distinction Between Manpower Supply Services and Works Contract Services**

#### **1. **Manpower Supply Services**

- **Definition:** This involves providing manpower to a client, who works under the client’s supervision and control. For instance, if you provide workers who work directly under the client’s instructions but the workers are technically employed by you, it’s typically classified as a manpower supply service.

- **Service Tax Under RCM:** For manpower supply services, the recipient (A Ltd. in your case) would be liable to pay service tax under the Reverse Charge Mechanism (RCM). You do not collect service tax from the client; instead, the client pays the tax directly to the government.

#### **2. **Works Contract Services**

- **Definition:** Works contract services involve a contract for construction, repair, or maintenance where the contractor provides both labor and materials for the completion of the project. In this case, the labour contractor is performing work that involves a combination of goods and services, and the control over the labor is maintained by the contractor, not the client.

- **Service Tax Applicability:** For works contracts, service tax was traditionally applied to the service portion of the contract. However, since July 1, 2012, the concept of works contract has been covered under the broader GST regime, and service tax is no longer applicable.

### **Implications for A Ltd. (Manufacturing Unit)**

#### **Liability for Service Tax:**

1. **Manpower Supply Services:**
- If the service provided is classified as manpower supply (where the workers are under the client’s control), A Ltd. would be liable to pay service tax under RCM on the value of the manpower services provided.
- **RCM:** A Ltd. needs to account for and pay service tax on the manpower services under RCM.

2. **Works Contract Services:**
- For repair work and construction, if it is classified as a works contract, service tax is not applicable as it falls under GST, which has replaced service tax for works contracts.
- **GST Implication:** For works contracts, GST (Goods and Services Tax) will apply instead of service tax. The applicable GST rate and provisions need to be followed.

#### **Availing Credit:**

- **Manpower Supply Services:**
- Since the service tax under RCM is paid by A Ltd., it can typically claim credit for the service tax paid under RCM as an input tax credit (ITC), provided it is used for business purposes and the tax credit is in line with GST provisions.

- **Works Contract Services:**
- Under the GST regime, input tax credit can be availed for GST paid on works contract services, subject to conditions. This credit can be used to offset output GST liability.

### **Summary**

1. **For Manpower Supply Services:**
- If the services are classified as manpower supply, A Ltd. is liable to pay service tax under RCM.
- A Ltd. can avail input tax credit (ITC) for the service tax paid under RCM.

2. **For Works Contract Services:**
- If the services are works contract services, service tax is not applicable, and GST would be the applicable tax.
- GST paid on works contract services can generally be claimed as input tax credit.

**Action Steps:**

- **Verify Classification:** Ensure that the services provided are correctly classified. Consult with a tax advisor to confirm whether the services fall under manpower supply or works contract.
- **Compliance with GST:** Since GST has replaced service tax for works contracts, ensure compliance with GST regulations and avail input tax credit accordingly.

For accurate advice and compliance, consulting a tax professional or GST consultant is recommended.

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