Prior to the introduction of negative list under Service tax, which came to effect from 1st July, 2012, service tax was levied on “Manpower Recruitment or Supply Agency services”, under section 65(105)(k) of the Finance Act, 1994. Section 65(105) (k) defined “manpower recruitment or supply agency services” as below:
“taxable service means any service provided or to be provided
(k) to any person, by a manpower recruitment or supply agency in relation to supply or recruitment of manpower, temporarily or otherwise, in any manner”
Post introduction of negative list, which became effective from 01st July, 2012, scope of Reverse Charge Mechanism (RCM) was widened vide Notification no. 30/2012-ST dated 20th June, 2012. Under said Notification, entry no. 8 deals with the applicability of reverse charge to supply of manpower, the partial reverse charge mechanism is applicable, inter alia, to services provided or agreed to be provided by way of supply of manpower for any purpose, by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as a body corporate located in the taxable territory.
DEFINITION OF ‘SUPPLY OF MANPOWER’:
The new definition of supply of manpower was inserted under Rule 2(1)(g) of the Service Tax Rules, 1994, which is reproduced herein below:
“Supply of Manpower means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.”
If a person undertakes to produce a given result for the establishment through contract labour/labour works under his own control and supervision, and the principal employer has no control over labour, such service would not be ‘supply of manpower’.
EXTENT OF SERVICE TAX PAYABLE BY RECEIVER OF SERVICE:
The reverse charge in case of service tax on Manpower Supply and Security services is amended w.e.f April 1, 2015. The provisions of reverse charge in case of service tax on Manpower Supply and Security Services u/s.68(2) of the Finance Act, 1994 is amended by Notification No.7/2015-Service Tax dated March 1, 2015 to be effective from April 1, 2015 to give effect of the Budget, 2015 proposal of the Hon’ble Finance Minister.
The notification seeks to amend the erstwhile notification No. 30/2012-Service Tax, dated the 20th June, 2012 read with section 68(2) of the Act. The relevant text of the notification is reproduced herein under;
“I.(ii)(B)
(iii) against Sl. No. 8, in column (3) and column (4), for the existing entries, the entries“Nil” and “100%” shall respectively be substituted;”
Consequent to the aforesaid amendment, w.e.f. 1st April, 2015, 100% of service tax liability on supply of manpower shall be paid by receiver of service under full reverse charge mechanism.
CONCLUSION:
Service tax on supply of manpower service is payable by recipient of service under Reverse Charge Mechanism if the following conditions are satisfied:
1. Service provider is any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory;
2. Service receiver is a business entity registered as a body corporate located in the taxable territory;
3. Supply of manpower to work under superintendence or control of principal employer.
Courtesy: CA Ishwar & Gopal
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