service tax on construction activity

[MAYUR DODIYA]

Which method for payment of service tax should be applied where a construction activity is eligible for abatement at the rate of 75 percent on gross value? In other words if gross value of Rs.1010 (Rs.10 included towards VAT) inclusive of all is paid by customer as full consideration, should we pay service tax on Rs.250 at the rate of 12.36 percent by 'forward calculation' or should we pay service tax on Rs.250 by 'back calculation' ?

[Madhukar N Hiregange]

The abatement of 75 percent is when the value includes the value of land. Therefore 250 is inclusive of ST. Backward calculation would be appropriate.

AI Summary

Abatement application requires backward calculation of service tax when construction value includes land, extracting tax from the stated amount.
When construction service value qualifies for an abatement because it includes land, the taxable portion is treated as tax inclusive and service tax should be determined by backward calculation, extracting the tax from the stated amount rather than applying forward calculation on the reduced value.