Treatment of service tax by sub-contractor

[Guest]

Construction of a building work order received from Principal Contractor i.e. SBH, Hyderabad to Main Contractor (ABC Partnership firm) and the same work handed over to Sub-contractor (XYZ Partnership firm).

Now my question is -

1. How to file service tax return by Main Contractor & Sub-contractor? Explain briefly with examples.

2. If Principal Contractor deduct the Service tax liability from each running bill, what is the treatment of both the contractors i.e. Main Contractor & Sub-contractor?

3. The sub-contractor purchases the material in the name of Main Contractor then who can avail input service tax on purchase of material i.e. excise portion?

Thanks in advance for your prompt response.

[Madhukar N Hiregange]

The eligibility of credits is not clear therefore please read a commentary on what is eligible or an article on the same.

ST is a consumption based destination tax and the deduction by main contractor is not legal unless the contract is clear on the same.

AI Summary

Service tax as consumption-based destination tax restricts contractor deductions unless contract expressly permits them in construction contracts Service tax in subcontracting requires allocation of tax liability and return filings to reflect who supplies taxable services to the consumer. Input tax credit eligibility depends on documentary entitlement and transaction nature; creditability is unclear without detailed analysis. Crucially, service tax is a consumption-based destination tax, and a main contractor may not lawfully deduct service tax from running bills unless the contract explicitly permits and the accounting supports such deduction.