Service tax on manpower service

2.1.     Definition:

Supply of manpower service: As per rule 2(g) of service tax rule,1994 , supply of manpower means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.

2.2.     Reverse charge mechanism on supply of manpower:

As per notification 30/2012-ST dated 20.6.2012, In respect of services provided or agreed to be provided of supply of manpower service, the liability pay service tax would be as follows:

Taxable Service	Provided by	Provided to	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
services provided by way of supply of manpower for any purpose	·   Individual ·   HUF ·   proprietary firm ·   partnership firm ·   AOP	·   Company ·   LLP	25%	75%

2.3.     Activities considered as supply of manpower service:

·         Services of providing employees of agency to business: As per CBEC circular no. 96/7/2007-ST dated 23-8-2007, In the case of supply of manpower, individuals are contractually employed by the manpower recruitment or supply agency. The agency agrees for use of the services of an individual, employed by him, to another person for a consideration. Employer-employee relationship in such case exists between the agency and the individual and not between the individual and the person who uses the services of the individual. Such cases are covered within scope of supply of manpower service.

·         Deputing officers from one company to other: As per CBEC circular no. 137/35/2011-ST dated 13-7-2011, activity of company of providing its staff on deputation to other company for remuneration in the form of reimbursement from other company, would be chargeable to service tax under ‘supply of manpower service’.

·         Supply of manpower on man-hours basis: Future focus infotech v. CST (2010) 25 STT 373 (CESTAT), appellant had supplied personnel to customers to work on their software projects and payment has been received on basis of man-hours. It was held that this is manpower supply service and is taxable.

·         Contract for execution of job: 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’.

·         Payment on fixed rate basis for different type of work: Divya enterprises v. CCE (2010) 25 STT 60 (CESTAT), in contract of loading and unloading, payment is on the basis of rates fixed for different type of work, then it would not be manpower supply service.

2.4.     Clarification by CBEC

As per CBEC circular no B-1/6/2005-TRU dated 27.7.2005 - Gem and Jewellery Export Promotion Council have represented seeking clarification that hiring of skilled artisans for making jewellery does not constitute supply of manpower taxable under “manpower recruitment services”. When the artisans are hired by any organisation or business, directly, without engaging the services of any other person in any manner, in such cases, the artisans are contractually employed by the company. There is no intermediary and hence no consideration is paid to or payable to any intermediary. The service tax would be leviable only when the services of a person are engaged for recruitment or supply of artisans.

2.5.     Cenvat credit

Sanghi Industries Ltd v. CCE, Rajkot (2009) 234 ELT 367 (Cestat, Ahmedabad) – service tax paid on manpower supply to power plant and operation and maintenance of power plant and where inputs and capital goods were used for power plant set up by various manufactures for generating electricity to provide excisable goods. Hence it was held that Cenvat credit would be admissible on supply of manpower service.

2.6.     Judgments

Harish Kumar contractor v. CCE, Panchkula (2010) 17 STR 67 (Cestat, Delhi) – Labour provided to municipality is covered under supply of manpower.

Martial Security and Detective services v. CCE, Meerut (2010) 17 STR 35 (Cestat, Delhi) – supply of bus conductors to state road transport corporation was covered under supply of manpower.

CCE, Ahmadabad v. Azur Cyber Pvt Ltd (2009) 20 STT 90 (Cestat, Ahmadabad) – assesse was engaged in providing manpower to various organization for doing temporary work and assessee offered its staff for deputation at clients place, it was held that service provided were actually manpower supply service and not recruitment service.

K Domodar Reddy v. CCE, Tirupathi (2010) 25 STT 69 (Cestat, Bangalore) – assesse was carrying out activities of loading of cement bags into closed wagens, drawing of bags to stenciling floor etc. and it was compensated for different items of works at separate rates prescribed in contract. Since it did not supply manpower or charged for labour on man day or man hour basis and he acted as a contractor employing his own labour. Hence such activity would not be supply of manpower services.

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