reverse charge -shifting and dismantling of fixed assets, Service Tax

[pawan pant]

Sir,

I would like to know that whether service in respect of shifting and dismantling of fixed assets provided by contractor at factory is covered manpower service under reverse charge mechanism ?.

for further clarification, invoice charged by contractor on the basis of per machine shift rate.

Posts / Replies

[KASTURI SETHI]

Sh.Pawan Pant Ji,

As per Rule 2(1) (g) of Service Tax Rules,1994, "Supply of Manpower means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control."(This definition is effective from 1.7.2012.)
As per the definition, where supplied man-powers are working under supervision or control of service recipient, then it will fall under the ambit of “Supply of manpower” and thus exigible to service tax under this category. In case supplied man-powers work under the superintendence or control of service provider (Contractor in your case), then such service will not be classified under the category of 'Supply of Man power' and hence no reverse charge mechanism will be applicable.

From your query (i.e. basis of per machine shift rate), it appears that man-power is working under the superintendence or control of Contractor, in this case service does not conform to the definition of 'Supply of Man-power'. Man-power has not been supplied to you.

Hence entire liability of Service Tax is to be discharged by the Contractor inasmuch as this service is classified under the ambit of 'Erection, Commissioning or Installation Services' specified under erstwhile Section 65(105)(zzd) (Now valid for statistical purpose) Old Accounting Code No. 00440233 still valid.

One more point is to be noted that the nature of service mentioned by you is not covered under the ambit of Works Contract Service because in this case pure labour is involved and pure labour cannot be classified under Works Contract Service. Hence no abatement is admissible to the Contractor and Reverse Charge Mechanism is not applicable.

It is further clarified that if a person undertakes to produce a given result for the establishment through contract labour and labour works under control of contractor and principal employer has no control over labour. In such case such service would not be ‘supply of manpower’. However, if person supplies contract labour for any work of establishment and labour works under control and supervision of principal employer. In such case such service would be ‘supply of manpower’.

Now you are to arrive at the decision keeping in view of nature of the contract/agreement executed (or verbal) with the Contractor. In case no agreement, invoice will be documentary proof.

I have given my views without perusal of any agreement. You may ask further question. I also welcome the views of other experts on this issue.

[MARIAPPAN GOVINDARAJAN]

The views of Shri Kasthuri Sethi is correct. While giving a query you have to give complete details; then only it could be analyzed and correct advice could be rendered otherwise more complications will be there.

[pawan pant]

thank you so much sir for your positive reply.it certainly helpful for resolve my query as mentioned above.

[Ganeshan Kalyani]

Nothing is left to mention. Kasturi Sir has covered all aspect in his reply. Thanks.

[KASTURI SETHI]

Thanks to both Sh.MARIAPPAN GOVINDARAJAN, Sir and Sh.Ganeshan Kalyani, Sir for liking and supporting my views on merits.

[vikram singh]

Kasturi Sir,

please reply what RCM will be applicable on it,

Regard

Vikram

[KASTURI SETHI]

Sh.Vikram Singh Ji,

RCM is not applicable in view of the facts stated by you in your query.

[vikram singh]

Kasturi Sir, thanks,

but, I have some confusion regarding it. explain through below example:-

1st case:-

There is a proprier who work for dismentaling & erection (billing amount ₹ 3 lac aprox without service tax). he is not charge any tax (sale tax and service tax). I think, it should be cover under RCM, because there is loss of service tax for Govt.

2nd case:-

Same as above, but He charge service tax in bill.

Please reply.

Regard

Vikram

[KASTURI SETHI]

RCM is not applicable on the following grounds:-

1. Service is not covered under 'Manpower Supply'

2. Service is not covered under Works Contract Service.

Without going through terms and conditions of the agreement/contract, fool-proof reply is not possible. Whether RCM is applicable or not, only terms and conditions/nature of the agreement would decide.

Service Provider is also entitled for threshold exemption limit of Rs.Ten Lakhs in terms of Small Scale Exemption Notification No.33/12-ST.