Taxability in case of works contract and under service tax.

[LAXMIKANT ARORA]

This is with reference to your queries regarding taxability of the works contract. We hereby inform you that the fabrication services of readymade garments  with , without or even part materials supplied by the exporters/ main manufacturers are not exempt under service tax and works contract tax (WCT).

The following are the cases of the fabrication services of readymade garments,  provided  to the exporter/main manufacturer :-

1. If all the input materials are supplied by the exporter/main manufacturer and only services are provided to the exporter/main manufacturer, then only service tax shall be applicable at the rate of 12.36 percent
    
2. If no material is provided by the exporter/main manufacturer i.e. it is the case of contract given then only VAT is applicable at the rate of 12.5 percent on supply of readymade garments.

1. If cloth is provided by the exporter/main manufacturer and other input materials are provided by the works contractee. In this case works contact tax and service tax both shall be applicable with the following rates:-

• Works Contact Tax (wct) at the rate of   6.25 percent and
• Service tax at the rate of 7.416 percent

This means that total tax shall be 13.666 percent of the sales.

In context of your other query regarding construction contracts of civil works* the following are the cases :-

( * CIVIL WORKS Contracts shall include construction of building or complexes – residential or commercial, bridges, flyovers, dams, barriers,  canals, diversions, other works of similar nature and the collaboration agreements or joint development agreements or similar other arrangements between land owner and contractor/ builder by whatever name called for construction of complex or property.)

1. If all the materials are supplied to the contractor , then only service tax shall be applicable at the rate of 12.36 percent
    
2. If materials are supplied by the contractor , then the wct rate shall be 12.5*75 percent = 9.375 percent of the total value of contract excluding the cost of land transferred (if any) and service tax rate shall be 12.36*25 percent = 3.09 percent
3. If it is the case of collaboration agreement, the value of contract shall be actual value of construction including profit which is transferred by the contractor to the land owner and the tax rates of service tax and wct shall be 3.09 percent and 9.375 percent respectively on the value of contract. 

Have a look friends and revert in case of any mistake.

[DR.MARIAPPAN GOVINDARAJAN]

Whether you have got clarified in the above issue? If not please inform.

AI Summary

Service tax applicability for works contracts and material-supply profiles determines concurrent WCT exposure under contract arrangements. Taxability depends on who supplies input materials: where the manufacturer/exporter supplies all materials only service tax applies; where the contractor supplies all materials VAT or WCT applies as appropriate; where inputs are split both WCT and service tax apply concurrently. For civil works and collaboration agreements the contract value is apportioned between WCT and service tax according to the supply profile and contractual form.