Service Tax - Abatement of 70%-Construction Service

[PAWAN KUMAR]

Dear Sir,

An Company give contract to an construction contractor for constructing boundry wall in company's premises. The contractor is registered under service tax. The company provide all the materials freely to contractor. After completing the work, contractor raise the bill claiming 70% abatement and declare that he has not taken cenvat credit on inputs & input services used in providing the service.

Is contractor is eligible for claiming abatement of 70% under notification No.26/2012-ST dated 20.06.2012 (S.No.12) and liable only on 30% amount ?

Kindly provide your valuable opinion.

Regards,

Pawan Kumar

[Rajagopalan Ranganathan]

Sir,

If the works contract entered into is composite e contract for supply of goods and provision of services and their respective values are not separable then only the contractor can claim 70% abatement. If the contractor provide the service of construction of the wall then he has to pay service tax on the full value of service provided without any abatement.

[PAWAN KUMAR]

Dear Sir,

As per notification no. 26/2012-ST dated 20.06.2012, any service provider the service of which is listed under the afore-said notification can claim abatement subject to fulfillment of condition prescribed to that service.

Example - An cab operator provides service to a person. The option is available to cab operator whether he can claim abatement or not. If he claim abatement in such case cenvat credit will not admissible of inputs, capital goods & input service has not been taken. If he does not claim abatement he can take cenvat and he can charge service tax on full value.

Similarly in case of construction service contractor abatement can claim subject to fullfillment of condition for nonavailment of Cenvat credit.

Kindly guide.

AI Summary

Service tax abatement option for construction services: available if statutory conditions met, but forgoes cenvat credit and affects tax base. Query whether a contractor using materials supplied free by the client can claim 70% abatement under Notification No.26/2012 ST. One view: abatement applies only to composite contracts with inseparable goods and services values; if client supplies materials and the contractor only provides construction service, no abatement and tax on full value. Alternate view: abatement is available for listed services if conditions are met; claiming it requires foregoing Cenvat credit, while not claiming it allows taking Cenvat and charging service tax on full value.