If Material and Service bill give separate

[Guest]

Dear Sir,

We are a manufacturer and we doing one ducting line for pass the smoke of our company the vendor doing this work with material and service. If the vendor will raise the bill material and labor combined then it will be attract for service tax under RCM as this vendor is proprietor.

if Vendor give the bill separate bill for material and separate for labor for installation in this case it is attract service tax under RCM or not.

and it is eligible for input credit or not ?

[Rajagopalan Ranganathan]

Sir,

According to Section 65 B (54) "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.

According to 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.

However, gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract. OR

Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;

²[(B) in case of works contract, not covered under sub-clause (A), including works contract entered into for,-

(i) maintenance or repair or reconditioning or restoration or servicing of any goods; or

(ii) maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property,

service tax shall be payable on seventy per cent. of the total amount charged for the works contract.

Therefore, in my opinion, if the service provider issues a combined bill for supply of material and service provided and since you are constructing a new duct for passing of smoke you are liable to pay service tax on 40% of the total amount charged for the works contract.

If the contractor issues separate bills for material and service provided then you have to service tax @14% on the value of service provided.

[Ganeshan Kalyani]

If two separate bill is issued by the contractor then the contractor should charge full service tax on service bill. and he should charge VAT on material bill.

[ashish chaudhary]

Separation of consideration between material and service does not change the character of transaction and it continues to be of works contract (it otherwise it is.) This is only one of the method of valuation under service tax and VAT laws.

In my view, there is still liability under RCM on labour charges.

[KASTURI SETHI]

Bizarre case. Why two bills ? Modus operandi of the contractor ? Own creation as per contractor's whims ? Status of providing service with material cannot be changed by vivisecting the bill into two parts. After analyzing pros and cons of the situation viz-a.viz statutory provisions, I fully agree with reply dated 9.11.2015 of Sh. Ashish Chaudhary.

AI Summary

Works contract valuation dictates service tax on the service portion; separate material/service bills do not defeat RCM liability. Valuation and incidence under a works contract govern service tax: the service portion equals the gross contract price less value of goods or, if not determined, is taken by rule (forty percent for original works; seventy percent for other works). A combined invoice attracts service tax on the service portion; separate invoices should bear service tax on services and VAT on materials. Separation of bills does not per se change the works contract character, and reverse charge liability on labour/service charges may remain; input credit entitlement is questioned but not conclusively addressed.