Calculation of Service Tax

[Srivatsan Krishnamachari]

Dear Experts,

Kindly Clarify how to calculate Service Tax in case of Works contract case and

a) do we need to submit any letter to the department

b) we have paid Sales Tax as per WCT

c) How to calculate Service tax amount

d) in the pricing excisable material values is only 40% of the Value and rest of the amount is civil / freight / site development and other charges which are non excisable.

Kindly clarify.

Thanking you,

Srinivas

[KASTURI SETHI]

Sh Srivatsan Krishnamachari Ji,

ST is not to be paid on amount of Sale Tax. Pl. read Notification No.24/12-ST dated 6.6.12. ST is to be paid on service portion only.

Why are you referring excisable material and non-excisable material ? Do you want to take cenvat credit on inputs ? Pl. clarify.

[Srivatsan Krishnamachari]

Dear Sir

Since this was done on Works contract basis, Value of the excisable goods involved in the contract is only 40% of the total work order and balance is Civil works and other works, where we have procured locally near to various sites all material related to civil/plumbing, where there is no excise and no credit has been taken. This order received thru State government.

Regards

Srinivas

[Rajagopalan Ranganathan]

Sir,

According to rule 2A 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 this purpose 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. 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.

As per your example if the gross amount charged for the works contract is ₹ 1,00,000/- and vlaue of goods/property transferred is ₹ 40,000/-, then you have to pay service tax on the remaining value of ₹ 60,000/- at the rate of 15% (S.T. 14% Swatch Bharat Cess 0.5% and Krishi Kalyan Cess 0.5% (with effect from 1.6.2016).

[Srivatsan Krishnamachari]

Dear Rajgopalan Ji,

Thank you very much for your detailed reply. I need one more clarification. Since this is a works contract from State Government where construction activity is involved,, can i take exemption from payment of Service tax against Mega exemption notification 25/2012 vide sl.no.12 or/and 12A. We received this order on 26.03.2015.

Thanks for your support.

Srinivas

[Rajagopalan Ranganathan]

Sir,

Sl. No 12 of Notification No. 25/2012-ST dated 20.6.2012 as amended exempts services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of (i) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958), (ii) canal, dam or other irrigation works and (iii) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. This Sl. No. does not stipulate a condition regarding entrance of an agreement prior to 1st March 2015.

Sl. No. 12A of Notification No. 25/2012-ST dated 20.6.2012 as amended exempts services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of (i) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession (ii) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment and (iii) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said Act.

For the purpose of Sl. No. 12A the notification stipulates a condition that a contract which had been entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date. since in your case date of entering into contract is not disclosed. You have stated that order is received on 26.03.2015. If the order itself is treated as agreement then you are not eligible to avail the exemption. If the agreement entered into is on different date then you may be eligible to avail the exemption.

[KASTURI SETHI]

I fully endorse the views of Sh.Rajagopalan Ranganathan, Sir. Very penetrative and comprehensive reply indeed.

[Ganeshan Kalyani]

Sir, a detailed reply and fool-proof reply is submitted by Sri Rajagopalan Sir. It enriched my knowledge. Thanks.

AI Summary

Works contract valuation: service tax applies to the service portion after excluding value of goods; exemptions may depend on contract date. Service tax on a works contract is payable on the service portion obtained by deducting the value of property in goods transferred from the gross contract value; gross amount excludes any value added tax or sales tax. The service portion includes labour charges, subcontractor payments for services, planning and design fees, hire of machinery, consumables used in execution, attributable establishment costs, similar service-related expenses, and profit attributable to services. Exemptions for government contracts exist but may be subject to a contract-date condition.