Manpower services taxable

CHATROOM

Earlier, only "commercial concerns" providing recruitment services had to pay tax.

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Our trust is running a number of professional colleges, and we facilitate placements of students in the industry after completion of their courses. Many industries conduct interviews at our campuses and recruit. We charge a nominal sum for making available our facilities and to cover the administrative charges. We have now received a notice from the authorities to pay service tax on the amounts that we collect. We have represented that we are educational institutions and not manpower recruiting agencies. Are we liable to pay service tax? What is the correct position?

As per sub-clause (k) of clause (105) of Section 65 of the Finance Act, 1994 "any service provided or to be provided to a client, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower temporarily or otherwise, in any manner" is a taxable service.

The coverage of the term "manpower recruitment agency" is rather wide. Circular no. B.43/5/97-TRU dated 02.07.1996 from the Central Board of Excise and Customs (CBEC) says that the expression shall include within its ambit services provided by an agency from the primary stage of building a database of manpower for different categories of personnel employment, whether white collar or blue collar, whether for employment in India or overseas; determining manpower requirement for the client, preliminary identification, short-listing and screening of prospective candidates, arranging for their interviews at each stage; placing advertisements for recruitment in the newspapers, etc.

In short, service tax on manpower recruitment agency shall cover within its ambit the entire gamut of services provided from the incipient stage of selecting/identifying manpower required for any prospective employment, till the stage of actual selection for the same.

Clause (68) of Section 65 of the Finance Act, 1994 says that "manpower recruitment or supply agency means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise to a client."

The term "person" is not defined in the context of service tax. Clause (42) of Section 3 of General Clauses Act, 1897, however, says that "person shall include any company or association or body of individual, whether incorporated or not." Therefore, in the context of service tax, individuals, partnership firms, corporation, company, trust, etc., will also be covered within the meaning of the term "person".

Therefore, there is no way that you can escape service tax on the amounts that you charge from the companies who pay you certain amounts for facilitating recruitment. You may, however, take note that before 18.04.2006, only "commercial concerns" engaged in manpower recruitment were liable to pay service tax and not "any person".

Year before last, we were paying full excise duty and availing Cenvat credit. Last year, we opted for SSI exemption under notification no. 8/2003-CE dated 1.3.2003 and reversed the credit on inputs in stock. After reaching the Rest. 1 crore limit, we have taken credit of the duty related to the inputs in stock an started paying duty. We are also utilising the credit of duty relatable to the capital goods. The central excise department is objecting to the use of capital goods credit claiming that it had lapsed when we opted out of the scheme. Is that correct?

Rule 11(2) of Cenvat Credit Rules, 2004, mandates payment of equivalent amount which was availed as Cenvat credit on the inputs only when the option is exercised. This means that the credit on inputs lapse but not the credit on capital goods. Condition no. 2 (iv) of the notification bars utilisation of credit on capital goods during the stage when exemption is being availed but not the taking of the credit of duty paid on capital goods. Condition no. 2 (iii) says that a manufacturer opting to avail the said exemption shall not avail credit on the inputs used in the manufacture of final products cleared for home consumption till the exemption limit is reached. Although these conditions speak about current credit, the point is that there is no provision for lapse of credit of duty paid on capital goods at the time of opting for exemption.

Specified quantity of inputs are used for manufacture of exempted goods against which no credit can be taken and specified quantity of inputs are used for manufacturing dutiable final products against which credit can be taken. In view of the above, in my opinion, you can very well utilise the credit of duty relatable to the capital goods accumulated before opting for the exemption, after reaching the exemption limit of Rs 1 crore.