Tax
Consultant
Q.
No. 1.
We are
engaged in supplying totally unskilled labour to our clients for doing
exclusively labour work. Labour so provided is not for any fixed term, it totally
depends upon the completion of the work. The moment the work is completed the
labour is relieved. Against such arrangement we get/earn Rs.2 to Rs.3 per
worker.
Now kindly
let us know whether the above type of supply of labour would fall under the ambit
of "Manpower Recruitment Agency", for the purpose of service tax . If
yes, the incidence thereof?
As per
Section 65(68), "Manpower Recruitment Agency" means any commercial
concern engaged in providing any service, directly or indirectly, in any manner
for recruitment of manpower, to a client.
And
whereas, CBEC instruction ENo. B.43/5/97‑TRU
dated 2.7.1997 clarifies that the coverage of the term "Manpower
Recruitment Agency" is wide and includes within its ambit, the services
provided by an agency from the primary stage of building a database of manpower
for different categories of personnel employment, determining manpower
requirement for the client, preliminary identification, short listing and
screening of prospective candidates, providing specialists for interviewing
prospective candidates, arranging for their interviews at each stage; placing
advertisements for recruitment of manpower in the print or electronic media,
etc. In short, Service Tax on Manpower Recruitment Agency shall cover within
its fold, the entire gamut of services provided by a man‑power
recruitment agency to a client from the initial stage of selecting/ identifying
man‑power required for any prospective employment, till the stage of
actual selection for the same. In cases, where a person approaches a Manpower
Recruitment Agency for being employed in a suitable position abroad, as
normally happens in cases of employment in Gulf countries, the prospective
candidate becomes the client for purposes of Service Tax.
Therefore,
the main ingredient of any service to fall under this category should be:
i) that it has to be a commercial concern,
ii) that it provides services for
recruitment of manpower, and
iii) that such service is rendered directly
or indirectly in any manner.
In my
opinion, you being merely a labour contractor, though are a commercial concern
but you do not help your client in recruitment of labour in any way. Therefore,
the supply of labour on contract would not be covered under the definition of
Manpower Recruitment Agency.
However
your service, are now taxable w.e.f 10.9.2004 under the head Business Auxiliary
Service provided the status of your concern is other then that of 'individual'
or 'HUF'. That means if the status of your concern is that of Individual or HUF
you are not liable for service tax considering the highlighted conditions laid
down vide the following notification:
Notification No. 14/2004‑Service
Tax, Dated : September 10, 2004
In
exercise of the powers conferred by sub‑section (1) of section 93 of the
Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it
is necessary in the public interest so to do, hereby exempts taxable service provided to a client by a commercial
concern in relation to the business auxiliary service, in so far as it relates
to,
(a) procurement
of goods or services, which are inputs for the client;
(b) production of goods on behalf of the
client;
(c) provision of service on behalf of the
client; or
(d) a service incidental or auxiliary to any activity specified in (a) to (c) above, from the whole of the service tax leviable thereon under section 66 of the said Finance Act:
Provided that nothing in this notification shall apply to,
(i) a factory registered
under or governed by the Factories Act, 1948 (63 of 1948);
(ii) a company established by
or under the Companies Act, 1956 (1of 1956);
(iii) a partnership firm,
whether registered or not registered;
(iv) a
society registered under the Societies Registration Act, 1860 (21 of 1860) or
under any law corresponding to that Act in force in any part of India;
(v) a co‑operative
society established by or under any law;
(vi) a corporation established
by or under any law; or
(vii) a body corporate
established by or under any law,
unless such factory, company, partnership firm, society, co‑operative
society, corporation or body corporate, as the case may be, provides any
business auxiliary service in. respect of any activity specified in (a) to (d)
above in relation to agriculture, printing, textile processing or education.
Q.
No. 2.
We are
manufacturers and allow the use of our registered trade mark to another
manufacturer on the goods manufactured by him. Against which we are paid
royalty amount. We are neither rendering any advice or consultancy of any sort.
Kindly let
us know whether the royalty received by us is taxable under 'Management
Consultancy Service'?
As per
Section 65(65), "Management consultant" means any person who is
engaged in providing any service, either directly or indirectly, in connection
with the management of any organisation in any manner and includes any person
who renders any advice, consultancy or technical assistance, relating to
conceptualising, devising, development, modification, rectification or
upgradation of any working system of any organization.
In lieu of
above definition, and considering the facts of your case, mere receiving of
royalty is not covered under the purview of Management Consultancy Services.
However,
royalty received against use of trade mark is now taxable w.e.f 10.9.2004 under
the head "Intellectual Property Service", which is defined as below:
As per
Section 65(55b), "Intellectual
Property Service" means
(a) transferring, whether permanently or otherwise;
or
(b) permitting the use or enjoyment of any intellectual property right"
Whereas,
as per Section 65(55a),
"Intellectual property right" means any
right to intangible property, namely,
trade marks, designs, patents or any other similar intangible property, under
any law for the time being in force, but does not include copyright.
There fore
in view of the above discussion it may thus be concluded that royalty against
use of trade mark is not taxable under Management Consultancy Service but under
the head Intellectual Property Service.