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

Debate Over Taxing Works Contracts: VAT vs. Service Tax for Design, Engineering, and Supply Services Under Scrutiny A query was raised regarding the applicable taxes for a works contract involving design, engineering, procurement, supply, erection, testing, and commissioning awarded to a contractor. The contract is divided into a supply contract and a service contract. The response highlighted the ongoing debate over taxing works contracts under VAT or service tax. It was suggested that if the material and service portions are clearly tracked and recorded, separate contracts for each can be prepared, potentially benefiting from favorable case law for the assessed parties.