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

Service tax on works contract: service portion equals contract value minus materials, so tax applies to labour charges.
Service portion of a works contract equals the gross contract amount less the value of goods transferred; where invoices separate labour and materials, service tax is chargeable on the labour/service component, and where the recipient is a company and the contractor an individual, tax liability may be shared fifty-fifty.