Rcm on labour contract
This query is : Resolved
31 October 2015
We receive bills of Rs. 17 lacs from vendor(individual) as labour charges for civil work(lumsum contract for RCC, Bricks and plaster work) done in our company. Does these charges comes under the per-view of supply of manpower or work contract?
Also state our liability in this case. we are Company.
Vendor does not charge and service tax on his bill and he has no service tax registration number.
Also state our liability in this case. we are Company.
Vendor does not charge and service tax on his bill and he has no service tax registration number.
31 October 2015
It is a works contract as material is involved. The company's liability under RCM is 14% on 50% value of the labour charges.
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03 November 2015
also we received bill from another vendor (individual) as labour charges for garden cleaning works he was not charge service tax on bill in this case we are liable to pay service tax or not?
04 November 2015
Yes you are liable to pay service tax.
05 November 2015
sir, why we are liable to pay service tax. please explain. our CA said in that case not comes in works contract bcz we are provide material to contractor and not comes in supply of manpower so contractor liable to pay 100% ser.tax.
20 July 2025
Context:
You received bills from individual vendors for labour charges related to civil work such as RCC, bricks, plaster work, or garden cleaning.
Vendor does not charge service tax and has no service tax registration.
You want to know whether these charges fall under:
Works Contract service or
Manpower supply service
And what is your liability under Reverse Charge Mechanism (RCM)?
1. Works Contract vs Manpower Supply:
Works Contract:
When labour is provided along with materials for construction or civil work (like RCC, plaster, bricks), the service is classified as a works contract service.
Even if you provide some materials, but the vendor is executing the civil work (which involves both labour and materials), it's a works contract.
Manpower Supply:
When the service is purely supply of manpower without any material involvement, such as cleaning services, security services, or labour-only contracts where no materials are involved, this falls under manpower supply.
2. Your specific case:
Labour contract for RCC, bricks, plaster:
Since material is involved, this is a works contract.
Garden cleaning labour charges:
Pure labour service (cleaning) → this is manpower supply.
3. Service Tax liability under RCM (Pre-GST scenario):
If the vendor (individual) is unregistered (no service tax registration), and not charging service tax, then the service receiver (your company) is liable to pay service tax under Reverse Charge Mechanism (RCM).
For works contract service:
RCM rate: 14% on 50% of the contract value (labour portion).
You pay service tax to government on this amount.
For manpower supply (garden cleaning):
RCM applies at full rate on the entire invoice amount.
4. Your CA’s comment:
Your CA says since you supply material to the contractor, it's not manpower supply but works contract, so contractor should pay service tax.
However, if the contractor is unregistered and not charging service tax, your company is still liable to pay service tax under RCM for the labour portion under works contract.
What should you do?
Pay service tax under RCM on labour portion of works contract at 14% on 50% value.
Pay service tax under RCM on manpower supply service fully.
Maintain proper documentation to show vendor is unregistered and not charging tax.
Ensure compliance to avoid penalties.
You received bills from individual vendors for labour charges related to civil work such as RCC, bricks, plaster work, or garden cleaning.
Vendor does not charge service tax and has no service tax registration.
You want to know whether these charges fall under:
Works Contract service or
Manpower supply service
And what is your liability under Reverse Charge Mechanism (RCM)?
1. Works Contract vs Manpower Supply:
Works Contract:
When labour is provided along with materials for construction or civil work (like RCC, plaster, bricks), the service is classified as a works contract service.
Even if you provide some materials, but the vendor is executing the civil work (which involves both labour and materials), it's a works contract.
Manpower Supply:
When the service is purely supply of manpower without any material involvement, such as cleaning services, security services, or labour-only contracts where no materials are involved, this falls under manpower supply.
2. Your specific case:
Labour contract for RCC, bricks, plaster:
Since material is involved, this is a works contract.
Garden cleaning labour charges:
Pure labour service (cleaning) → this is manpower supply.
3. Service Tax liability under RCM (Pre-GST scenario):
If the vendor (individual) is unregistered (no service tax registration), and not charging service tax, then the service receiver (your company) is liable to pay service tax under Reverse Charge Mechanism (RCM).
For works contract service:
RCM rate: 14% on 50% of the contract value (labour portion).
You pay service tax to government on this amount.
For manpower supply (garden cleaning):
RCM applies at full rate on the entire invoice amount.
4. Your CA’s comment:
Your CA says since you supply material to the contractor, it's not manpower supply but works contract, so contractor should pay service tax.
However, if the contractor is unregistered and not charging service tax, your company is still liable to pay service tax under RCM for the labour portion under works contract.
What should you do?
Pay service tax under RCM on labour portion of works contract at 14% on 50% value.
Pay service tax under RCM on manpower supply service fully.
Maintain proper documentation to show vendor is unregistered and not charging tax.
Ensure compliance to avoid penalties.
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