TAXATION CLARIFICATION

[KUSUMBA MAHENDER RAO]

Sir,

balance has handling system works which involves Design,Engineering,procurement&supply of material,erection,testing and commissioning was awarded to a contractor. The above works contract has two parts viz., supply contract and service contract.

Please clarify what taxes to be applied to:

a. Supply contract

b. Service contract

[Ganeshan Kalyani]

This is a works contract service. This has been always in debate for taxing works contract service may it be under vat act or service tax. Under service tax there are case law which favours the assesses if the material portion and services are tracked properly. You can prepare service order for service portion and supply contract for material portion separately provided clear bifurcation you do and maintain record in this regard.

AI Summary

Works contract taxation: bifurcate supply and service, document separation to support distinct tax treatment. The document addresses taxation of a works contract split into supply and service components and recommends operational bifurcation: treat the engagement as a works contract service subject to debate between VAT/CST and service tax, rely on case law that favours taxpayers if material and service portions are tracked, and prepare separate supply and service orders with supporting records to substantiate the distinct tax treatment.