new construction work

[Guest]

Dear Experts,

Please guide which one is correct, there is two (below) scenario of new construction work under service tax 40% (taxable) & 60%(exempted) ,

1. In this case one company charge service tax on 40% @14.5% (supply and apply include)
2. In this case another company charge service tax on 40% @14.5% and Sale tax on 60% @5% (supply and apply include)

Regard

Vikram

[KASTURI SETHI]

Sh.Vikram Singh Ji,

In both methods, percentage of Service Portion is same. You have written 60% exempted. It is not exempted. It is abatement provided under Notification No.24/12-ST dated 6.6.12 as amended. Regarding VAT/Sale Tax, it is not my area.

[Guest]

I agreed sir, 60% is abatement. but my concern is that, Is sale tax applicable or not on 60% in this case.

Regard

Vikram

[KASTURI SETHI]

Sh.Vikram Singh Ji,

On the basis of common knowledge, Sale Tax/VAT is applicable on the remaining 60% portion but VAT/Sale Tax is not my field. There are experts in this forum who have specialization in VAT. They can confirm whether VAT is applicable on 60% portion.

[Rajagopalan Ranganathan]

Sir,

As per rule 2A (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."

For the purposes of this clause,-

(a) 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;

(b) value of works contract service shall include, -

(i) labour charges for execution of the works;

(ii) amount paid to a sub-contractor for labour and services;

(iii) charges for planning, designing and architect's fees;

(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(vi) cost of establishment of the contractor relatable to supply of labour and services;

(vii) other similar expenses relatable to supply of labour and services; and

(viii) profit earned by the service provider relatable to supply of labour and services;

Under clause (ii) of the said rule 2A "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." Here the total amount charged includes the vale of property transferred during the course of execution of the works contract.

You are paying service tax under clause (ii) of Rule 2A of Service Tax (Determination of Value) Rules, 2006. As far as your query regarding sales Tax/ Vat issue I do not have experience to comment upon the same. Please consult a sales tax/VAT practitioner

[YAGAY andSUN]

Dear Vikram,

Please refer Table annexed to Rule 68 (2) of HPVAT Rules in this regard and opt the appropriate category of Works Contract which is being conducted. Deduct the percentage as mentioned in the Table from the Gross Value of the Contract and pay the tax.

Regards,

YAGAY AND SUN

(Management, Business and Indirect Tax Consultants)

[Ganeshan Kalyani]

As said by experts the valuation of service is correct. In the second case VAT is levied because his turnover should more than the threshold limit and therefore he should have registered under VAT. As far as valuation for material value for VAT purpose is concerned it is as per the table in the Act as replied in Sri Yaga & Sun's reply. Hence both are right as I inferred. However fact for not charging VAT by the first contractor is best known to him .thanks

AI Summary

Works contract valuation: service portion taxable; abated portion may attract VAT depending on registration and local rules. Valuation for works-contract service tax treats the service portion as gross contract price less value of goods transferred; where not separately determined, a prescribed fallback fixes a portion of the total contract price as the service portion. Gross price excludes VAT/sales tax. The remaining abated portion may be subject to state sales tax/VAT according to registration thresholds and state valuation tables, requiring VAT-specific analysis.