clarification relating to payment of service

[Ramakrishnan Seshadri]

Dear Sir,

We have received an invoice from a firm charging 15% (14%+0.5%+0.5%)service tax for the work done by them. The work they have done is welding work in the overhead crane rail . My question is whether i have to pay full tax to him or I have to pay 50% tax to the govt and ask the firm to pay the balance 50% or what is the procedure.

Kindly explain in detail.

Thanks & Regards,

S.Ramakrishnan

[KASTURI SETHI]

Dear Sh.S.Ramakrishan Ji,

From your query, it appears to me that it is a case of pure labour. Pure labour means service has been provided without material. If it is a case of pure labour, this service cannot be classified under Works Contract Service and hence no RCM is applicable.

You have also mentioned the word, 'Rail'. Does it mean overhead crane pertain to Railways ? Pl. clarify your query in detail so as to enable the experts to file fool-proof reply.

[Rajagopalan Ranganathan]

Sir,

You have to pay the service tax at full rate since, as explained by Shri. Kasthuri Sir, it is not a work contract service since no goods/property has been transferred by service provider while providing the service. Therefore reverse charge mechanism is not applicable to you.

[DR.MARIAPPAN GOVINDARAJAN]

I also agree with the views of experts.

[Ganeshan Kalyani]

Sir, I agree with the views submitted by my learned colleagues. It enriched my knowledge.

Generally, in a company there is Store Department which keeps all the maitenance related items to cater to the urgency. In you case I am assuming that the items required for welding work was supplied by you to the service provider. As a result, he had provided only labour service and therefore service is charged at full rate of tax on the invoice raised by him. Hence in my considered view no need to pay service tax under reverse charge mechanism. Thanks.

[Ramakrishnan Seshadri]

Dear Sir,

Thanks for your reply by experts. In our case the welding rods were not supplied by us. All the materials were used by supplier from his own. Apart from that this rail is nothing but the overhead crane movement in a factory for moving the craned here and there. To strenghthen the movement the rails are welded. This is the work.Please explain now Sir.

[Ganeshan Kalyani]

Sir, based on your information it seems that the provider is charging service on higher side. Both material and labour service is provided by him so the valuation rule should have applied where only 70% of Value of contract is subject to service tax. You may educate the service provider accordingly. Thanks.

[KASTURI SETHI]

Sh.Seshadri Ji,

Agreed with Sh.Ganeshan Kalyani, Sir. Service Tax is to charged on 70% of the gross amount. Since service has been provided with material, service would fall under the category of 'Works Contract Service' and RCM is applicable. Liability of Service tax is to be divided by 50 :50. 50 % is to be paid by Service Provider and 50% by service Receiver. Notification No.30/12-ST dated 20.6.12 as amended (Serial no.9 of the Table.) refers.

[Ganeshan Kalyani]

Sir, nice reply submitted by Sri Kasturi Sir. Thanks.

[JSW CEMENTLIMITED]

Sir

In my opinion service tax at full rate would be appliable as welding work may not be considered as works contract. In a works contract there should be transfer in property along with provision of service. In the instant case, welding rods are consumed in provision of service but there is no transfer in property. This is my opinion.

AI Summary

Works contract classification determines service tax treatment and shared reverse charge liability between provider and receiver. Classification of welding work hinges on material supply: if provider supplies materials, the service is a Works Contract Service subject to valuation rules and the reverse charge mechanism, with liability apportioned between provider and receiver; if only pure labour is supplied, it is not a works contract and reverse charge does not apply, so the provider must charge and remit service tax at the full rate.