MATTER OF WORK CONTRACT

[Rajeev Khulbe]

GOOD EVENING TO ALL EXPERT

WE HIRED A CONTRACTOR FOR WORK CONTRACT ALUMINIUM PARTITION MAKE. I WANT TO KNOW ONLY THAT ON WHICH AMOUNT I WILL PAID SERVICE TAX @ 70%

DETAIL ARE GIVEN BELOW.

MATERIAL VALUE = 75000 PROVIDED BY SERVICE PROVIDER / CONTRACTOR

VAT = 10125

TOTAL BILL = 85125

HE ALSO PROVIDE ANOTHER SEPERATE BILL OF LABOUR CHARGES .

PLZ TOLD ME THAT ON WHICH VALUE I WILL DEPOSIT 70% SERVICE TAX

[Akash Deep]

Dear Sir,

In fact there is no need to refer to Rule 2A of determination of value rules, 2006.One should refer to Rule 2A only where contractor is raising a single invoice containing charges for supply of goods as well as for labour. In that situation only Rules 2A would come in play. In your case contractor is raising two bills (not charging gross amount for works contract) one for sale of material and other for labour charges. in invoice for supply of goods he has already provides on what value he has paid vat and that value of goods shall be treated at value of goods for determining value of goods portion in a works contract. In fact clause (c) of explanation to Rule 2A(i) provides that where VAT or sales tax has been paid on the actual value of the goods then such value of goods shall be taken to determine the service portion in execution of works contract.

what is taxable is service portion in the execution of works contract and Rule 2A of the determination of value rules provides a mechanism for valuation of service portion in a works contract where it is not available. in your case contractor is already issuing saparate invoice for service portion. so no need to refer rule 2A.

you simply need to pay tax on the labour charges. if your service provider is individual, huf or partnership firm and you are a business entity registered as a body corporate, you will be covered under partial reverse charge machanism and both shall have the liability to pay tax to the extent of 50% by SP ad 50% by SR.

Regards

Akash deep

[Ganeshan Kalyani]

If separate bill is raised for material value by Charing VAT and separate bill for labour charges, then service tax liable is not on you. Both VAT and service tax which he has collected shall be deposited to the government by him only. Thanks.

[KASTURI SETHI]

Sh.Rajeev Khulbe Ji,

You have a separate bill for labour charges (service charges). Thus you are aware of pure labour charges. Pure labour charges cannot be classified under Works Contract Service. You r not eligible for abatement as no value of material has intermingled with the value of labour charges. Since you r out of WCS, no question of RCM. As opined by Sh.Akash Deep the issue of service portion arises only if you are unable to bifurcate value of material and labour chages (service portion). I agree with Sh.Akash Deep to the extent that Rule 2 A of Determination of Valuation Rules, 2006 is not attracted here.

[Rajeev Khulbe]

THANK YOU VERY MUCH TO ALL EXPERT FOR REPLY OF MY QUERY

AI Summary

Service tax on labour charges: Rule 2A inapplicable where separate invoices exist, and partial reverse charge may apply. Where the contractor issues separate invoices for materials (on which VAT is charged) and for labour, service tax is payable on the labour/service invoice; Rule 2A applies only to single, composite invoices where the service portion is not separately stated, and the actual VAT-paid value of goods is to be treated as the goods portion. A partial reverse charge may apply when the supplier is an individual, HUF or partnership and the recipient is a corporate entity.