Service Tax liability on Reverse Charge mechanism

[Bhairob Chandra Bor]

Dear Sir,

1. we are under construction of a factory building. contractor is charging service tax @12.36% (i.e 100%) on the bills raised by them. we are being paid the said service tax along with the payment of the bills. as per reverse charge mechanism service receiver is liable to pay service tax 50% of the total service tax applicable. in this case are we be liable to deposit service tax even though we are paying service tax through the contractor? Request to advice us urgently.

2. in the same construction our landlord (it's a lease hold land) is bearing the building construction cost . other cost like electrical, interior etc we are bearing. landlord's portion we are paying directly to the contractor. as per agreement this amount will be treated as a interest bearing security deposit and will be recovered from the future rent bill. land lord is an individual and not liable for tax audit under the income tax act. in this case are we liable to deduct TDS on the amounts directly paid to the contractor on behalf of the land lord? kindly advise.

kind regards,

bcb

[Akash Deep]

Dear Sir,

I am surprised to see that query is quite old and no body answered. service ax on construction industry is is trickiest part. any way i will attempt to answer your query. if the constructor is using his own building material and labour, he is executing a works contract. what is taxable under Finance act, 1994 is the service portion in the execution of works contract which is also covered under list of declared services under section 66E. The valuation of such service i.e. service portion in execution of works contract is to be done under section 67 read with Rule 2A of the service tax determination of value rules.

your are saying that your constructor who is service provider here is charging tax at the rate of 12.36% to the extent of 100%. however you feels that under reverse charge he should have charged you service tax to the extent of 50% only.

No doubt, under Notifiction No. 30/2012, both the service provider and service recipient is made liable to pay tax to the extent of 50% each. However, before jumping to this, we must have a look on what service has been notified under section 68(2) by Notification NO. 30/2012. what is notified for the purposes of reverse charge is the service portion the execution of works contract provided by an individual or HUF or partnership firm located in taxable territory to a business entity registered as body corporate located in taxable territory. so if your constructor is other than individual or HUF or partnership firm, his services though being service portion in execution of works contract, would not be covered under reverse charge and he would be right to charge to tax to the extent of 100%. similarly when service receiver is not a business entity registered as a body corporate, no reverse charge is applicable.

in your query you you have not provided the status of service provider and service recipient. i assume he must be a private ltd. company and that is why his services are not covered under reverse charge mechanism. if that is not the case plz let me know on my number in profile. so that we can advice you accordingly.

i am unable to comment on income tax Part as that is not my expertise.

Regards

Akash Deep

9873463912

[Ganeshan Kalyani]

In my view TDS is deductible and rate is depending on your status.

AI Summary

Reverse charge mechanism for works contract services applies when provider is individual/HUF/partnership and receiver is a corporate. Reverse charge liability for the service portion of works contracts applies only where the provider is an individual, HUF, or partnership firm and the receiver is a registered body corporate; otherwise the provider may charge full service tax. When the receiver is not the specified corporate entity, reverse charge does not apply.