Question

XYZ (Manufacturer) is procuring material and giving it to a outside contractor for carrying out various fabrication, repair and maintenance jobs within the factory premises. The contractor is charging labour charges bill for the same on lump sum basis depending upon the nature of work and not on man hour basis but not charging service tax being within the threshold exemption. EA-2000 audit team is demanding service tax from XYZ under reverse charge under ‘Manpower supply’ for the period 14-15, 15-16 and 16-17. Is the demand sustainable under the service tax provisions?

Answer

The contractor is providing job work services because he is charging lump-sum price for the work done. It is not covered under man power supply because in case of man power supply the supplier gets payment on providing man power. The management control and supervision of the man power remains with the service receiver and payment is made on the basis of man days whether the work is done or not. You should ask the audit team to issue show cause notice. Give reply of that. It is a good case for you. (Reply dt. 17/10/2018)