Construction Service

[SNEHAL SHAH]

Sir,

We are the manufacturing of pharma product and due to new expansion New building construction work continue .

We have contract with contractor for with labour and material .

Contractor issued bill to us With separate figure Labour charge and Material consume and Service tax pay on Labour charge only ( 12.36% ) and For Material party pay Vat .

Is it correct or not please suggest .

Thanks and Regards,

SNEHAL SHAH

[Rajagopalan Ranganathan]

Sir,

As per rule 2 A (i) of Service Tax (Determination of Value) Rules, 2006, value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.

Therefore the method followed by your contractor is correct.

[Ganeshan Kalyani]

In case where the labour charges and the value of material is shown separately in the invoice, then as per sub-rule (i) of Rule 2A of Determination of value of service portion in the execution of a works contract, the value of service shall be gross amount charged less the value of the material. Hence the service tax shall be on labor charges. Here if the receiver is company and the contractor is individual, then the liability shall be shared fifty-fifty.

AI Summary

Manufacturing Company Correctly Applies Service Tax and VAT on Contractor's Itemized Bill per Rule 2A(i) of 2006 Rules. A manufacturing company engaged in constructing a new building queried about the correct application of service tax and VAT on their contract with a contractor. The contractor billed them separately for labor charges and materials, applying service tax only on labor charges at 12.36% and VAT on materials. Two responses confirmed this approach aligns with Rule 2A(i) of the Service Tax (Determination of Value) Rules, 2006, which states that service tax applies only to the labor portion when labor and material costs are itemized separately. If the recipient is a company and the contractor an individual, the tax liability is shared equally.