Construction Service or Works Contract Service ??

[paresh ayadi]

Sir,

Our company has executed contract for following activities

1. Construction of compound wall at dam under Corporate Social Responsibility project

2. Local Road renovation under Corporate Social Responsibility

3. Repairs & maintainance of office building which includes civil work, painting work, carpenter work, sanitation work etc..

under which category above activities fall ? Whether service covered under RCM ? Service Provider is non body corporate.

what is key factor for distinguish between construction service and works contract service ?

thanks

[KASTURI SETHI]

Sh.Paresh Ayadi Ji,

KEY FACTOR : In case Construction service is provided with material, it would fall under Works Contract Service and if construction service is provided without material, then only pure labour is involved. Pure labour cannot classified under WCS. Then it would fall under respective erstwhile category i.e. Commercial or Industrial Construction Service, Construction of Residential Complex, Erection, Commissioning etc. If pure labour, no RCM, no abatement is allowed. Entire liability is cast upon Service Provider i.e. Contractor.

Remaining queries are to be examined issue-wise. It will take time.

[Ganeshan Kalyani]

I agree with Sri Kasturi Sir, though preliminary reply can be casted but the detailed and desired requires time. The arrangement of supply of material if any by the service receiver to the provider of the service is required to be seen. And several services has been mentioned by you. Hence I too view that considerable time is justifiable. Thanks.

[KASTURI SETHI]

Concrete reply is possible only after going through the terms and conditions of the contract.However, preliminary point-wise reply is as under:-

1. Exempted vide Notification No.25/12-ST dated 20.6.12 as amended. Serial No.12(d)

2. Exempted vide Notification No.25/12-ST dated 20.6.12 as amended. Serial No.13(a)

3. Exempted vide Notification No.25/12-ST dated 20.6.12 as amended. Serial No.12(a)

Prima facie, these fall under Works Contract. Service Receiver should be business entity for the purpose of RCM otherwise not entitled to the facility of RCM.

[Ganeshan Kalyani]

Sir, my additional views is : abatement in case of original work is 60% and in case of repair and maintenance the abatement is 30% of the total works contract amount. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, Legally we cannot call 60% and 30% as abatement for original works and maintenance, repair, renovation etc. respectively. Actually, Service Portion @40% and 70% has been determined for payment of ST vide Notification No.24/12-ST dated 6.6.12 as amended.

[Ganeshan Kalyani]

Sri Kasturi Sir, thanks for correcting me. Though we call it as abatement generally, but legally it is a service portion involved in the execution of works contract. This is as per Service Tax (Determination of Value ) Rules, 2006. As per the rule 40% of Value of Gross amount and 70% of Value of Gross amount is the Value of Service on which Service tax shall be worked out. Thanks once again Sir.

AI Summary

Works contract classification depends on material supply; pure labour treated as construction service with RCM only if receiver is business. Classification depends on material supply: supply with material constitutes Works Contract Service, while pure labour is Construction Service; pure labour services are not subject to reverse charge and liability rests with the service provider. Reverse charge applies only if the service receiver is a business. Specified CSR activities are prima facie works contracts and certain entries are exempt. For valuation, service portion is 40% for original works and 70% for repair/maintenance under the Service Tax (Determination of Value) Rules, 2006.