Manpower Supply Service or Security Service under Service Tax

Definition:- Manpower supply means supply of manpower , temporarily or otherwise, to another person to work under his superintendence or control. (Rule 2(g) of service tax rules)

Service Tax:-  

1.     As per the Notification No. 30/2012-Service Tax dated 20th June 2012, reverse charge mechanism of service tax has become applicable on manpower service (S. No. 8) w.e.f. 1^st July 2012. Under this scheme, the service tax was payable under partial reverse charge mechanism i.e 75% by service receiver and 25% by service provider but after budget, 2015 w.e.f. 01^st April, 2015 the 100% service tax is payable by service receiver under full reverse mechanism (Notification no. 7/2015-ST dated 1^st March, 2015)

The reverse charge is applicable if service receiver and service provider satisfy the following conditions:-

a)    Service Provider - Individual (proprietor), or partnership firm (registered or unregistered) or an HUF.

b)    Service Receiver - Any company formed or registered under the Companies Act, 1956 or a business entity registered as body corporate located in the taxable territory.

2.      As per Notification no. 33/2012-St dt. 20-06-2012 no threshold exemption of Rs. 10 lacs is available to Service Receiver as this exemption is  available to Service Providers only.

3.     The service receiver has to register himself under service tax if he is already register then is has to add all the specific services in the registration certificate (ST-2)   

Reverse Charge not apply in the following cases:- 

1.     Supply of labour without superintendence and control of receiver shall be not categorized under “Supply of Manpower” and consequently it cannot fall within the ambit of reverse charge envisaged in the notification 30/2012-ST and the service provider would be liable to pay service tax.

2.      If service receiver is located in non taxable territory or charity or non profit organization, government in the case reverse charge mechanism will not apply.

3.       If service receiver is Individual, HUF, Partnership Firm, Proprietary Firm or AOP

4.       If Service Provider is a Company

Activities Consider as manpower Service:-

1.       Cleaning service, piece basis/job basis contract is not manpower service

2.       Employees sent for deputation from one company to another covered under manpower supply service

3.       Supply of manpower on man-hour basis

4.       Labour supply for execution of job and under control of principal employer

5.    Work carried out on lump sum basis as a contractor, does not eligible to Service Tax under the Supply of Manpower Services - M/s. Shri Bileshwar Khand Udyog Sahakari Mandali Limited Vs. CCE [(2013) (Ahmedabad – CESTAT)

TDS:- Vide Circular no 1/2014 dated 13^th January, 2014, TDS should be deducted on amount of service and not on service tax collected if service tax amount has been shown separately in invoice, otherwise TDS should be deducted on whole amount including service tax.

Cenvat Credit:- 

1.    This service tax liability has to be paid in cash. No Cenvat Credit can be utilized to meet out this liability as Cenvat Credit facility is available for output services only

2.     In case of Input Service where service tax is paid under reverse charge by service recipient, the CENVAT credit in respect of such input service shall be allowed after payment through GAR-7 challan

3.    If service provider has paid some portion of service tax then service receiver can claim Cenvat on input services

4.    The service tax shall be paid by service tax receiver only after making payment of services to the service provider within 6 months.

5.      If full service tax is paid by the service provider then service receiver is not required to pay the service tax to avoid double taxation as per judgement in case of Liason Breweries vs CCE and CCE vs Om tea Company

6.     In case of Service Providers rendering the services all of which falls within the ambit of complete reverse charge mechanism then he cannot avail Cenvat credit of input or input services.

Refund of Cenvat Credit:-

If service provider is not able to utilise cenvat credit against its output service then he cannot claim refund of Cenvat. There are two exception to this rule;

(a) Export of service (Rule 5A of CCR, 2004)

(b) A service provider also discharging ST liability under section 68(2), is unable to utilise such Cenvat credit against his ST liability on output services, refund is admissible as per Rule 5B of CCR, 2004 as amended by NN 28/2012-CE (NT) dt 20-06-2012 but CBEC has not notified its claiming procedure so far so practically it can’t be claimed till date. It is pertinent to mention here that Rule 5B does not cover refund of Cenvat credit availed on capital goods.

Avalibility of Cenvat Credit on Outward Freight

Manufacturers can take Cenvat credit of Service Tax paid on outward freight upto the place of removal

Cenvat Credit can be taken on Input Services used in relation to the manufacturer of final products. The definition of Input Services as per CCR, 2004 are as follws:-  

Rule 2(l) of Cenvat Credit Rules 2004, “Input service” means any service, -

(i) used by a provider of taxable service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

The CBEC in Circular No. 97/8/07 dated August 23, 2007, clarified that for a manufacturer/consignor, the eligibility to get credit of the service tax paid on transportation during removal of excisable goods would depend on the place of removal as per the definition.

However, there may be situations where the manufacturer/consignor may claim that the sale has taken place at the destination point because in terms of the sale contract /agreement:

i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step;

ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and

iii) the freight charges were an integral part of the price of goods.

In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under Section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place

In conclusion, a manufacturer/consignor can take credit on the service tax paid on outward transport of goods up to the place of removal.

---------- CA Rahul Singhal

Companies (Auditors Report) Order, 2015 (CARO, 2015)

Companies (Auditors Report) Order, 2015

_____Limited

Annexure to the Auditors’ Report

The Annexure referred to in our report to the members of ______________ (the Company’) for the year Ended on 31^st March, _________. We report that:

(i)      (a) whether the company is maintaining proper records showing full  particulars, including quantitative details and situation of fixed assets;

(b) whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account;

(ii)    (a) whether physical verification of inventory has been conducted at reasonable intervals by the management;

(b)  are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business. If not, the inadequacies in such procedures should be reported; 

(c)  whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account;

(iii)  whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act. If so,

(a)  whether receipt of the principal amount and interest arc also regular; and

(b)  if overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest;

(iv)   is there an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. Whether there is a continuing failure to correct major weaknesses in internal control system.

(v)    in case the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules framed there under, where applicable, have been complied with? I I not, the nature of contraventions should be stated; If an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same has been complied with or not?

(vi)  where maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act, whether such accounts and records have been made and maintained; 

(vii) (a) is the company regular in depositing undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor.

(b)  in case dues of income tax or sales tax or wealth tax or service tax or duty of customs or duty of excise or value added tax or cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not constitute a dispute).

(c)   whether the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time. 

(viii) whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year;

(ix) whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? If yes, the period and amount of default to be reported;

(x) whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company;

(xi) whether term loans were applied for the purpose for which the loans were obtained;

(xii) whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.

Place- __________ Date- __________________

for  _______________ Chartered Accountants Firm’s registration number: ___________ ___________________ Partner Membership number: _________

* Reasons to be stated for unfavourable or qualified answers.-

(1) The auditor's report shall also state the reasons for such unfavourable or qualified answer, as the case may be.

(2) Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.