Dear Sirs,
Query 1.
We have noted the following explanations in discussion forums regarding Service Tax related to outsourcing of work or manpower
"Service will be considered as manpower supply only if the labour work is under superintendence or control of Principal Employer.
If work is being done under control of contractor and he is having high responsibility to complete work, it will not come under "manpower supply of services"; it is pure labour contract and service tax will not be applicable"
We would like to understand more about the implications of the above two cases::
a) What are the differences between Manpower Supply and Pure Labour Contract with respect to protection of Principal Employer against possible litigations or claims from the contract-workers for permanent job with the Principal Employer ? Which type of contract – Manpower Supply or Pure Labour Contract – is preferable from the point of view of the Principal Employer, for his protection against litigations in this regard ?
b) Is Service Tax NOT AT ALL applicable in the case of Pure Labour Contract ? If so, is there any other Tax applicable in such cases ? Or, is the difference, only regarding Reverse Charge mechanism ?
c) In which category will Outsourcing of Accounting Work, Data Entry and Office Assistance etc. fall ? For example, we are planning to outsource such work in the following style and manner :
"XYZ Limited invites sealed tenders from interested and eligible Service Providers for undertaking outsourced services related to Accounting, Book-keeping, and other routine office work in Finance Department & Computer Centre such as data entry, office support services relating to movement of files/papers among various sections and offices, handling computer print-outs, and assisting the Accounts staff in various tasks.
Once the service is outsourced, the Company will be concerned only with the timely delivery of quality output and it will be the responsibility of the agency (Service Provider) to ensure the same through the manpower, which is provided by them."
Under which category will this type of contract fall ? Will it be Manpower Supply or Pure Labour Contract ?
Query 2.
Under Reverse Charge Mechanism (25 % / 75 %), suppose a Service Provider’s total annual turnover is only Rs. 8 Lakhs (less than the threshold limit of Rs 10 L to fall within the Service Tax Net). Accordingly, he does not have to pay any Service Tax. In this case, is the Service Recipient still required to pay 75 % of Service Tax applicable for the value of Services provided by the above Service Provider ? If so, can this Service Recipient avail CENVAT credit on the same ? Is it necessary that the Service Provider should have a Service Tax Registration Number so that the Service Recipient can avail CENVAT credit ?
Further, we understand that from today (1st April 2015) onwards, for Manpower Supply, 100 % of service tax will have to be paid by the Service Recipient under 100 % Reverse Charge Mechanism, irrespective of whether the Service Provider is individual, HUF, proprietary or partnership firm or AOP or Limited Company. Hope this view is correct. (Under this new scheme, what is the difference, if the Service Receiver is Body Corporate or NOT ?)
Under the new scheme, is it necessary that the service provider should have Service Tax Registration ? If so, what is the relevance ?
Further, if the annual turnover of the Service Provider is less than Rs. 10 L, does he have to get Service Tax Registration ? In this case, should the Service Recipient still have to pay 100 % Service Tax irrespective of whether the Service Provider’s Annual Turn Over is less than Rs.10 L or Not ? In that case, if the Service Provider does not have a Service Tax Registration Number, can the Service Recipient still avail CENVAT Credit under the new rules ?
We are planning to invite Tender for outsourcing of Security Services also. Under the new scheme, will it be proper to insist that the Service Providers should have Service Tax Registration, (ie. even though they need not pay Service Tax, and 100 % Service Tax has to be paid instead by us as Service Recipients) ?
Query 3
1. For manpower supply services provided during March 2015, BUT invoice submitted in April 2015, (and payment also being released in April 2015), will the old rule of partial reverse charge be applicable, OR the new rule of 100 % reverse charge be applicable ?
2. Earlier, in the case of manpower supply by a LIMITED COMPANY, 100 % Service Tax was to be paid by service provider. (Partial reverse charge was applicable only if the service PROVIDER was an individual, HUF, proprietary or partnership firm or AOP). Now, under the new rules of Budget 2015, is 100 % Service Tax to be paid by the Service Recipient under 100 % Reverse Charge mechanism, even if the Service Provider is a Limited Company ?
Thanks & regards::
Philip John
CAclubindia
