Service tax under Works contract

[Srivatsan Krishnamachari]

Dear Experts,

I need clarification on below issues related to Works contract & Service tax.

a) How to calculate WCT (VAT) payable in the works contract scenario, under composition scheme and non-composition scheme

b) Benefits in Composition and in non-composition schemes

c) What is the service tax amount i need to pay and how to calculate the same.

d) Do i need to submit any forms before execution of the works contract to Sales Tax dept.

e) Any other useful info related to the WCT & SERVICE TAX.

Thanking you in advance

Regards

Srinivas

[Ganeshan Kalyani]

Sir, the Works Contract Tax is a very hot topic in Taxation. Lots of cases are pending before the authority. The taxability of free issue of material given by receiver of service to the contractor. All are debatable. Thus we would like to solve your specific query rather than giving general information which will create sea of doubts. Thanks.

[KASTURI SETHI]

Sh. Srivatsan Krishnamachari Ji,

Rightly advised by Sh.Ganeshan Kalyani, Sir. Concrete solution is possible only after going through the terms and conditions of the Contract executed. However, preliminary information can be provided.Point-wise reply is as under:

a. VAT is not my area.

b. In composite project, you are entitled for abatement @ 60% in respect of Original Works i.e. ST is to be paid on Service Portion @ 40% in terms of Rule 2A of Service Tax ( Determination of Valuation) Rules, 2006) and facility of RCM is available under Notification No.30/12-ST. 50% liability is on the service receiver and 50% on the service provider. In case of construction service without material i.e. only pure labour is involved, no abatement and no RCM is allowed. The whole liability will be cast on Contractor/Service Provider. Pure labour cannot be classified under Works Contract Service. In this situation, construction service would fall under the erstwhile category of 'Construction of Residential Complex or Commercial or Industrial Construction. When pure labour is involved, the question abatement and RCM does not arise.

c.. In case of Composite project, you will pay ST @14.5% (15% w.e.f.1.6.16) including SBC and KKC after availing abatement or after arriving at service portion under Notification No.24/12-ST and thereafter it is to be shared 50 :50 (Notification No.30/12-ST dated 20.6.12 as amended).

d.It pertains to VAT.

e. Any specific query ?

[Srivatsan Krishnamachari]

Dear sir,

Thank you for your detailed reply.

Regards

Srinivas Chaganti

AI Summary

Works contract service abatement reduces taxable service value; reverse charge liability is shared between receiver and provider. For composite works contracts, valuation rules grant a 60% abatement for original works so the taxable service portion is treated as 40%; service tax is applied to that service portion and, where reverse charge applies, liability is apportioned 50:50 between service receiver and provider. Pure labour construction is excluded from abatement and RCM, leaving full service tax liability on the contractor. VAT/WCT procedural matters and composition scheme calculations fall under VAT rules and require contract-specific review.