Service Tax Applicability on Contractual Jobs within Factory Premises, Service Tax

[Sunil Agarwal]

We are manufacturer of biscuits in West Bengal and appointed an individual person in our factory premises for packing of biscuit packets in cartoons. We sale the biscuits so packed in cartoon. The person sends his men in our factory premises for such packing. The person raise monthly bill for his contracted charges. Say, Rs. 0.50 per cartoon or so on.

My question is -

1. Whether this work will be treated as job work and/or be treated as manufacturing activity?

2. Whether Service tax is payable on the above work?

3. Who will pay the Servivce Tax?

4. Which section or notification dels in this issue.

Posts / Replies

[Pradeep Khatri]

Replies to your questions:-

1. This service may fall under Supply of Manpower for any purpose/reason.
2. Partial Reverse charge mechanism will be applicable.
3. Service Tax will be charged and paid by service provider to the extent of 12.36% on25% of the total value of the bill and Service recipient will pay the service tax through GAR-7/Cash/e-payment on remaining part of the Invoice ( 12.36% on 75% of the total invoice.)
4. Please check the Notification No. 30/2012-ST/20-06-2012 W.E.F. 01-07-2012.

 

[narendra soni]

It wil be manpower supply only if the receipient have "suprentending & control over the labour"  which can only be in case of payment terms having HR/Day/man basis and in such a cases reverse charge will be applicable.

as per your sitiuation, It is not a manpower supply service as payment terms is per cartoon, hence it is normal service . service tax @ 12.36% will be charged by service provider in bill and you have to pay in his biil.

Regarsds

Nk soni

[MARIAPPAN GOVINDARAJAN]

I think the views expressed by Shri Nk Soni are correct.

[phani raju konidena]

1. The definition of manpower recruitment or supply agency as contemplated under Section 65(105)(k) of the Finance Act does not envisage a situation where there is a contract for completing a job. The ‘Work Order’ issued to the job worker is specific and the scope of work to be executed is packing of biscuit packet in cartoons, which is an activity for manufacture of finished goods (excisable) under Section 2(f) of Central Excise Act, 1944 and the duty of Central Excise finally is paid at the time removal of the said goods by the manufacturer.

1. The job worker is required to arrange to do the said job work as and when required as per the production schedule given by the manufacturer in the factory as regards the execution of work and was responsible for the complete execution of the work, for which the Job worker is paid compensation as per the quantity of the work executed as per the rate specified in the work order.

1. The staff/labourers are employees of the job worker and the employer and employee relation exists between the Job Worker and labourers and not between the labourers and the manufacturer as a recipient of services, and also that in the present issue the relation between us and the job worker is ‘Principal to Principal’ basis, hence the contention of the department that the service is of manpower, is erroneous on the ground that the work order do not contain any reference whatsoever, for supply of manpower service. The pith and substance of the Works Order was “execution of work”. The job worker is executed the work in terms of said ‘Work Order’ on ‘lump sum’ basis.

1. It is imperative here to reproduce the definition of the manpower recruitment or supply agency under Section 65(105) reads as under:-

“any commercial concern engaged in providing any service directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to a client.”

The taxable service liable for Service tax is also defined under Section 65(105) (k) which is as under :

“any service provided to a client, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner.”

From the plain reading of the above reproduced definitions in the Finance Act, 1994, it is submit that the activity should be providing of any service directly or indirectly in any manner for recruitment or supply of man-power temporarily or otherwise to a client in or to get covered under the said definition. There should be either a recruitment or supply of manpower temporarily or otherwise.

1. As per the work order and the invoices issued by the job worker for providing service that the entire essence of the contract was an execution of work as understood by the job worker and the manufacturer.

The Hon’ble Supreme Court in the case of Super Poly Fabriks Ltd. v. CCE, Punjab  (2008 (4) TMI 31 - Supreme court) in paragraph 8 has specifically laid down the ratio which is as under:

“There cannot be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive.”

An identical view was taken up by Hon’ble Supreme Court in the case of State of AP v. Kone Elevators (India) Ltd. (supra) and UOI v. Mahindra and Mahindra (1995 (3) TMI 88 - SUPREME COURT OF INDIA) in a similar issues. The ratio of all the three judgments of the Hon’ble Supreme Court, is that the tenor of agreement between the parties has to be understood and interpreted on the basis that the said agreement reflected the role of parties.

1. If the agreement and the invoices (bills) issued by the job worker, are indicate the execution of a ‘lump-sum’ work, will not fall under the category of providing of service of supply of manpower temporarily or otherwise either directly or indirectly.

The Master Circular dated 23-8-2007 states that it is in respect of supply of manpower which is engaged for specified period or for completion of particular projects or tasks. The clarification is in case of supply of man power, it can be seen that the clarification specifically needs that the agency agrees for use of services of an individual to another person for a consideration as supply of manpower.

1. In your case, there is no agreement for utilization services of an individual but a job/lump-sum work given to the job worker for execution. The said clarification issued by the Board in the Master Circular dated 23-8-2007 would be appropriate in the case where services of manpower recruitment supply agency, had been temporarily taken by the Business or the industrial association for supplying of manpower and may not for execution of a specific work.

1. In addition to the above legal position, it is submit that as per the ‘Negative List’ introduced by the Finance Ministry of Govt. of India – Job work or processes covered under Central Excise not liable to Service Tax as explained hereunder;

Any process which amounts to processing/manufacture is outside the purview of Service Tax and is to be treated as covered by ‘Negative List’, even if there is an exemption from Excise Duty for such process. Job work for such processes is also not liable to Service Tax. Once Excise Duty is paid or payable on a process or on the final product in relation to which such a process is used, it shall be outside the purview of Service Tax and the Service Tax Authorities cannot go behind the correctness or wrongfulness of such payment because once Excise Authorities have not rejected/refunded such a payment of Excise Duty, it shall be treated as process in relation to manufacture thus, outside the purview of Service Tax. 

As elaborated above of the legal position, since your process is come into the definition of ‘manufacture’ under Section 2(f) of Central Excise Act, 1944 and  the Excise duty is ultimately paid/payable by the manufacturer on their final products, the liability of Service Tax is not covered as ‘Man Power Recruitment & Supply Agency’ service.

[narendra soni]

Manufacturing of biscuits is an exciseable product on which excise duty is liable. Packing of biscuit so manufactured in cartoons by contractor labor is not again manufacturing activity, it is a service,hence service tax will be applicable.

[phani raju konidena]

The job charges of 'Packing of Biscuits' are included in the assessable value of the finished goods and the duty of central excise is paid by the manufacturer, so one excise duty is suffered, there is no question of Service Tax is liable.

[narendra soni]

During manufacturing of a product a number of services received by a manufacturer. Assessable value of the product arrived by adding all costs + profit. More that 100 bills received from various service providers like GTA,Manpower,Security,BAS, etc. and service tax charged as per applicable rules on all services except negetive service or exempted services . The manufacturer has to discharge service tax liability on such bills as per applicable rules. He has also pay central excise duty on removal of such final product on assessable value arrived after including all cost (including service cost). Hence itis not correct to say that if a manufacturer paid excise duty on his final product, he will not be liable to pay service tax on taxable services used by him in or in relation to manufacturing of such product.

[phani raju konidena]

Even if that be so, the activity of the job  worker is exempted under Notification No.8/2005-ST dtd.01.03.2005

[phani raju konidena]

Dear Sir,

Please go through the case law and give your opinion.

FIRE CONTROLS Versus COMMISSIONER OF C. EX., MYSORE

 

 

[sanjeev bajaj]

I agree with the views of Mr. Phani raju, no service tax will be leviable as the packing of biscuits packet in a cartoons is nothing but a deemed manufacture as per sec 2(f)(iii) of central Excise Act,1944. This activity falls in Schedule III of the act and the job worker will be treated as the manufacturer as defined. Hence, this activity falls under the negative list.