Works Contract aggrement with unregistered Vendor

[Ashish Bansal]

Dear Experts,

What if any contract is entered into with a supplier of material for Supply and fixing of material and Vendor is not registered with Service Tax and charging CST/VAT on whole bill.

In other words vendor is charging bill for supply only and it will be inclusive of labour charges.

Will that type of contract amount to works contract thereof attracting 60% abetement and 50% reverse charge, or it is fine to book whole as supply only thus ignoring labour charges.

regards

Ashish

[Rajagopalan Ranganathan]

Sir,

You need not worry whether the vendor is registered with Service Tax Department or not. Section 65 B (54) defines "works contract ' as-

"works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;

Since the vendor supplies the material and fixing the same it is works contract. therefore you have to pay 50% of 40% of bill amount charged by your vendor and pay it to the government. It is for the Department to collect vendor's portion of service tax from the vendor. You need not worry about it. To safeguard your interest, in my opinion, it is better you pay your portion of service tax.

[Tarun Agarwalla]

dear Asis ji

in your case the fact required to be understood as to whether the transaction really involve any service element?

fixing along with material need to be seen as to is it just a installation or it require specific work or specific activity for it.

if this is covered as works contract then you have to discharge your obligation if reverse charge applicable to your case vide rule 2(d) of the Service tax Rule.

thanks

CA. Tarun

[YAGAY and SUN]

Dear Ashish,

Through your query, we understand that the supply is the dominant part in this transaction. If you could tell us what material/goods were supplied and fixed, then, after going through the material facts, we would be in a position to respond within the framework of Service tax laws and provisions.

Regards,

YAGAY and SUN

(Management, Business & Indirect Tax Consultants)

[YAGAY and SUN]

Dear Ashish,

Thanks for providing snap for clarification. This transaction would come under the purview of Works Contract under Service Tax law and under State Specific VAT Laws. Pay taxes accordingly.

Regards,

YAGAY and SUN

(Management, Business & Indirect Tax Consultants)

[Kailash Singhal]

IN CASE OF WORKS CONTRACT ABATMENT PROVISIONS ARE AVAILABE IN ALL MOST OF THE ALL THE STATE VAT LAWS WHICH VARIES FROM 15 % TO 40 % . CONTRACTEE HAS TO CHCEK THE PROVISIONS OF RELATED STATE AND ADVISE TO CONTRACTOR TO CHARGE WCT VAT / WCT - CST ACCORDINGLY

REGARDS

CA KC SINGHAL , SILVASSA

AI Summary

Works contract treatment may trigger reverse charge liability even if the vendor is unregistered; contractee must ensure tax compliance.
Where a vendor supplies materials and performs fixing, the transaction should be treated as a works contract, making the contractee liable under the reverse charge mechanism for the service element while state VAT/CST abatement provisions govern VAT treatment; vendor registration status does not alter the contractee's obligation to discharge reverse-charge tax.