Impact of Change of Service tax liability structure from partial reverse charge to full reverse charge on manpower SUPPLY AND SECURITY services in transition period

As discussed Supra, Notification No. 30/2012-ST dated 20-06-2012 has been amended vide Notification No. 7/2015-ST dated 01-03-2015, there by shifting the Supply of Manpower and Security services from Partial Reverse Charge to Full Reverse Charge. The stated change will be effective from 01-04-2015.

At present, Service tax liability in respect of Manpower supply and Security services are distributed as follows:

S. No. Description of Service Percentage of Service tax payable by the person providing service Percentage of Service tax payable by the person receiving the service
8 In respect of  services  provided or agreed to be provided  by way of supply of manpower for any purpose or security services 25% 75%

 However, effective from 01-04-2015, 25% of the Service tax which was earlier liable to paid by service provider will be shifted in the hands of service recipient, thereby increasing the effective Service tax liability to be paid by service recipient from 75% to 100%.

Transactions for Manpower supply and Security services entered on or after01-04-2015 would not pose any problem and manifestly the service receiver would be liable to discharge 100% Service tax under Reverse Charge. But on scrutinizing the stated change in the light of provisions of the Point of Taxation Rules, 2011 (“the POT Rules”), there are chances of turmoil being faced by the service receiver in respect of transactions made in the transitional period. It is likely that the Department may dispute the tax rate at which the service recipient is required to discharge Service tax i.e. at 75%/ 100% for the services provided before 01-04-2015 and invoices/ payments made on or after 01-04-2015.

Before taking deeper dive into the area of turmoil which may crop up pursuant to stated amendment, it is apposite here to have an overview of the Point of taxation as governed under POT Rules. As we all are aware that earlier Service tax was payable on receipt of payment in respect of taxable services provided. But with the introduction of the POT Rules, now Service tax payment is made on accrual basis in terms of the provisions contained under the POT Rules. The general Rule 3 of the POT Rules stipulates that Point of taxation shall be the earlier one among raising of invoice or date of making the payment. Further, if the invoice is not raised within 30 days (45 days) from the date of completion of provision of service, Point of taxation shall be the date of completion of provision of service.

However, Point of taxation for Reverse Charge situation (full/ partial) is governed by Rule 7 of the POT Rules which stipulates the date of making payment as the Point of taxation. Further, in case the payment of the aforesaid invoice has not been made within a period of 3 months from date of invoice, then the provisions of Rule 3 of the POT Rules will supersede Rule 7 thereof.

Key Concerns:

In cases where the provisions of services are completed on or before to 31-03-2015 but the payment for the same is made on or after 01-04-2015, disputes can arise as to who is required to discharge 25% Service tax liability:

Invoice is issued on or before 31-03-2015 but payment is made on or after 01-04-2015

In such case, service provider is liable to pay 25% in terms of Rule 3 of the POT Rules. However, since payment is made on or after 01-04-2015, the Department may invoke Rule 7 of the POT Rules and allege that the service receiver is liable to pay 100% in view of the amended provisions as the date of payment is the Point of taxation.

Invoice is issued on or after 01-04-2015 and payment is also made on or after 01-04-2015

Here following two situations may arise:

a) Invoice is raised within 30 days of date of completion of service – Clearly, service receiver will have to pay 100% Service tax;

b) Invoice is not raised within 30 days of date of completion of service – Here again, service provider is liable to pay 25% in terms of Rule 3 of the POT Rules. However, since payment is made on or after 01-04-2015, the Department may invoke Rule 7 of the POT Rules and allege that the service receiver is liable to pay 100% in view of the amended provisions as the date of payment is Point of taxation.

Invoice is issued on or after 01-04-2015 but payment is made on or before 31-03-2015

Since, payment is madeon or before 31-03-2015, liability of service receiver would be to deposit Service tax at 75% in terms of Rule 7 of the POT Rules. However, the Department might raise an issue that since the invoice is raised on or after 01-04-2015, discharge of Service tax should be governed under the new provisions i.e. 100% by the service recipient only.

Conclusion:Therefore this issue needs to be handled appropriately and it is expected that the CBEC should clarify this issue at the earliest to avoid any unnecessary litigation.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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58 responses to “Impact of Service tax changes on Manpower Supply & Security Services”

  1. RAKESH KUMAR says:

    Whether security service provided by CISF to PSUs is taxable under Service Tax? If yes, then who will be liable to pay service tax.

  2. SANJAY TALE says:

    service tax of manpowr supply services. pl tell me about GST RATE OF MANPOWER SUPPLY AND PL PROVID CURCULOR GST RATE FOR MANPOWER SUPPLY

  3. Mohit says:

    security supply in service tax how much charges

  4. KUBENDIRAN K says:

    Sir,
    We are manufacturing Government Company. we are engaging security guard board mubai . Now the service receiver is paying 100% on RCM. Please give the details in GST, whether Service Receiver or Service provider will make taxes on Security Guard.

  5. arjun says:

    Dear Sir,

    I am providing man power services to a person outside India.

    Am I liable to pay Service Tax?

    If I can claim Exemption on Export of Services, how shall I file my Service Tax Return?

    • shrikant khamborkar says:

      is manpower supply service is notified under gst ,for reverse charge mechanism. if yes, what are provisions,

  6. gopal mishra says:

    we are manpower supplier pvt ltd & partnership firm both please make arrangement to inform the GST rate w.e.f 01.07.2017 whether paid by service recipient or service provider

  7. Ankur says:

    I want to know Whether service tax is applicable on PF/ESIC amount charged by the labour contract?

  8. C.Chandra Sekhara Rao says:

    Is there any right for private limited security services to collect Service tax on Security supply to a manufacturing industry.

  9. SEBIN MATHEW says:

    Is there any exemption of Service Tax on Security and personnel services provided to Central University of Kerala??

  10. Prramodh Mokaashi says:

    one of our client is providing service of Manpower supply to Gref Centre, (A. Govt Body.) and the client had charged full service tax in the bill every month, whereas it should be 25% of 100%. Now the isue is Gref centre has already made the entire payment to client including service tax @ 12.36% and further it has been confirmed by the Gref Centre that they do not have the Service Tax regn no to deposit the service tax under RCM @ 75% of 100%. The client is ready to pay the entire amount with the late payment of interest . he will make the payment within a day or two. Now, while submitting the ST Return for the fy 2014-15 how to show the entire scenario.. please guide -my email addres is isbmmedia.ptu@gmail.com

  11. mahesh vm says:

    under manpower supply service tax and TDS also calculated on the bill amount issued by the party.but sir if the party issued bill amount and attach some reimbursement expenses bill.sir pls tell me if this bills have TDS and service tax applicability.here tds and service tax calculated by only the actual bill amount.if it is possible or not.tell me a answer

  12. CA MAYANK says:

    DEAR SIR
    IF A COMPANY RECEIVED MANPOWER SERVICE.BT SUPPLIER IS NOT PROVIDE INVOICE STATED SERVICE TAX.UNDER RCM STILL COMPANY LIABLE TO PAY ST.

  13. Group 1 says:

    kindly advice service tax has to be calculated on gross bill value or any service charges

  14. Rahul Sharma says:

    Kindly confirm the applicability of RCM on Recruitment Services where the Service provider is LLP. Revised notification (2015) states 100% RCM for Supply of Manpower services, that too if Service provider is a proprietorship firm, Partnership firm, AOP, HUF. Does not mention anything for LLP/Company(Body Corporate).
    Please help clarifying

  15. upender says:

    Is is mandatory to file the service tax returns by the man power service provider.Whereas service tax is being deducted from bills by the services receiver.

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