Service Tax by Sub Contractor

[MAHENDRABHAI DESAI]

Dear All,

One contractor who is into construction of industrial sheds on works contract basis has paid service tax on construction work at full rate or under works contract category on 40 percent of taxable value.

Some of their labour contractors has not charged and paid service tax even if they crossed threshhold limit and department has started proceedings against them.

Will ration of DNS Contractor and others Vs Commissioner of Central Excise Delhi  = 2014 (5) TMI 764 CESTAT New Dehli, help them in any way ?

Regards.

[Rajagopalan Ranganathan]

Sir,

                   On or after 01.07.2012, when a sub-contractor provide service to main contractor who provides exempted service, then only the sub-contractor is exempted from payment of service tax.  Otherwise the sub-contractor is liable to pay service tax which can be availed by the main contractor as credit under CENVAT Credit Rules, 2004.  However, an option under Rule 2A (ii)Service Tax (Determination of Value) Rules, 2006 is available to the main contractor that he pay service tax on 40 percent of the gross value of the works contract if he opts not avail CENVAT credit on inputs and input services.  In this case also the sub-contractor has to pay service tax.

        The case law referred to by you is applicable to the period prior to 01.07.2012.  You are requested to conclude accordingly.

[MAHENDRABHAI DESAI]

Many Thanks Sir,

Labour contractors are facing enquiry from 2008-09 till 2013-14.

AI Summary

Sub-contractor service tax liability persists unless the main contractor supplies an exempted service; forty percent option does not absolve sub-contractors. A sub-contractor must pay service tax unless it provides services to a main contractor who supplies an exempted service; where a sub-contractor pays tax the main contractor may take that tax as CENVAT credit. The main contractor may opt for the Forty Percent valuation under Rule 2A(ii) and forgo CENVAT credit, but that option does not absolve sub-contractors of their separate service tax liability. The cited authority applies to the pre-01.07.2012 period and is not determinative for subsequent tax liability.