Reverse charge mechanism

625 views 2 replies

$ achin @grawal

ahmedabad

39 Points Joined May 2011

sir, in all textile factories, services of a labour contractor is availed for operating machines and for production purposes. In such cases, a group of person are employed on that machinery along with the principal labour contractor who works with them. Company also deducts esic, pf, of all the persons so employed and also deposits their part of employer contribution in regards to the same. Now my question is whether it shall be considered manpower supply service and reverse charge shall be applicable? here the contractor is also working with his labour. if reverse charge is applicable then it would amount to huge liabilities for any textile company as their major part of production expense consists of such labour bills. pls have a healthy discussion on the issue.

Replies (2)

Ankit Agarwalla

281 Points Joined December 2007

The concept of manpower supply service in parlance of reverse charge mechanism clearly specifies that for a particular service to be covered under this head, CONTROL is of prime essence.

Only if the subject co has direct control over the manpower, then it will be covered under this category.

In the given case, as i understand the co instructs whatever work has to be done to the principal contractor and he in turn controls the manpower. Therefore, it does not fall under manpower supply services.

In our organisation also a similar issue arose at the time of introduction of RCM and we have resorted to the above policy.

$ achin @grawal

ahmedabad

39 Points Joined May 2011

Sir, thanks for your reply. If rcm becomes applicable to such sort of works then companies will have to face big troublesome situations. So adopting a beneficial strategy is good.