works contract

[Samik Chaudhuri]

Sir

Our manufacturing co engaged contractor to construct the new building and inner road development etc. It is to be mentioned here that 90% material will be supplied by our company and rest 10% (Bricks & sand) will be supplied by the contractor. Now i would like to know whether service tax will be calculated on only service portion or the including the total material with service portion. Pleas advise me.

With thanks & regards

Samik Chaudhuri.

[SHIVKUMAR SHARMA]

Dear Sir

As per my view you have to pay service tax on 40% of total cost of Works contract.the Example given as under.:

Cost of Labour with material (as per service provider/contractor) Rs. 10000

Cost of material supplied by service receiver ( Free of cost) Rs. 40000

Total cost Rs. 50000

Service tax 14% on 40%of ₹ 50000/- 2800

SBC 0.5% -do- 100

KKC 0.5% -do- 100

TOTAL TAX 3000

50% TAX TO BE PAID BY SERVICE RECEIVER ON RCM 1500 1500

LESS : COST OF MATERIAL FREE SUPPLIED BY SERVICE RECEIVER 40000

BILL TO BE RAISED BY CONTRACTOR 11500

[Ganeshan Kalyani]

Sir, practical solution given by Sri Shivkumar Ji. There are several issues under litigation on the subject. If amount is substantial then one should go as per provision of Section 67 of the Finance Act 1994. Thanks.

[Ganeshan Kalyani]

Sir, also see the rules applicable for reverse charge mechanism as per Notification No. 30/2012-ST as amended. Thanks.

[KASTURI SETHI]

Regarding inclusion/exclusion of free supply of material into the gross amount, the issue is pending with Supreme Court. In the case of Pratibha Constructions Engineering and C(I) Pvt. Ltd.

I endorse the views of Sh.Ganeshan Kalyani, Sir.

[YAGAY andSUN]

Enriching my knowledge through your perfect replies. Please also share the Citation of Pratibha Constructions Engineering and C(I) Pvt. Ltd. 2014 (8) TMI 627 - CESTAT MUMBAI

[Ganeshan Kalyani]

Thanks for touching the query /topic M/s. YAGAY AND SUN.

AI Summary

Works contract service tax: inclusion of receiver supplied materials affects tax base and triggers reverse charge liability. The central operative position is that taxable value in a works contract is often treated by applying a service component proportion to the total contract price (commonly 40%), with reverse charge application so part of the tax is payable by the service receiver; valuation should be examined under statutory valuation principles and applicable reverse charge notifications, while the inclusion of receiver supplied materials remains subject to higher adjudication.