Difference between Repair & Maintenance & works contract

[kutub sheikh]

Dear Sir

Pls explain the difference between works contract & Repair & Maintenance works with example & rate of S Tax

Thanks

[Ganeshan Kalyani]

Sec. 65B (54) "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;

[Ganeshan Kalyani]

For taxing service portion in works contract service, please refer below provision.

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;

²[(B) in case of works contract, not covered under sub-clause (A), including works contract entered into for,-

(i) maintenance or repair or reconditioning or restoration or servicing of any goods; or

(ii) maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property,

service tax shall be payable on seventy per cent. of the total amount charged for the works contract]

[Ganeshan Kalyani]

Pls refer below provision existing prior to 01.07.2012, for your understanding of the terms mentioned in your query.

[(64) "management, maintenance or repair" means any service provided by -

(i) any person under a contract or an agreement; or

(ii) a manufacturer or any person authorised by him, in relation to, -

(a) management of properties, whether immovable or not;

(b) maintenance or repair of properties, whether immovable or not; or

(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle;]

^D3[Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this clause,-

(a) "goods" includes computer software;

(b) "properties" includes information technology software;]

[Ganeshan Kalyani]

Rate of service tax is as below:

Service tax - 14%

Swach Bharat Cess - 0.50%

Krishi Kalyan Cess - 0.50%

[YAGAY andSUN]

In simple words

Repair means: to put something that is damaged, broken, or not workingcorrectly, back into good condition or make it work again.

Maintenance means:

1. Activities required or undertaken to conserve as nearly, and as long, as possible the original condition of an asset or resource while compensating for normal wear and tear.
2. Accounting: A periodic cost incurred in activities that preserve an asset's operational status without extending its life. Maintenance is an expense that, unlike capital improvement (which extends an asset's life), is not capitalized.
3. Engineering: Actions necessary for retaining or restoring a piece of equipment, machine, or system to the specified operable condition to achieve its maximum useful life.

Works Contract mean: Goods and services involved in executions of a work/task.

[kutub sheikh]

Dear Sir

I am having Works Contract service registration and i do rewinding of electrical motors and for this i raise invoice and charge STax 70 % of service value with RCM clearly showing in invoice. now i got a job for ovehauling of motors which comes under Repair & Maintenance , my query is on what portion i should charge STAX wether 100 % or after any abatement. pls do reply.

And also let me know that is repair & maintenance comes under 100 % service Tax (no reverse charge mechanism)

[Ganeshan Kalyani]

Dear Kutub Sheikh Ji,

The reverse charge is applicable only when the provider of service is an individual, HUF, Firm and the receiver of the service is a body corporate. (Pls. Check whether this condition satisfies in your case)

Winding of motor, in my view, falls under 'other than original works ' so service tax shall be , as per valuation rule, on 70% of Value of contract value. 50% of the service tax is payable by service receiver and balance 50% by the provider of service. ( Pls. Check whether you have , provided the condition in above para satisfies, charged only 50% of service tax payable.

Overhauling work falls under other than original work. The material portion is less and Labour portion is more. So valuation shall be as explained in above para.

AI Summary

Works contract classification determines taxable service portion and reverse charge applicability for repair and maintenance engagements. Classification of a contract as a works contract or as a maintenance/repair service determines the taxable service portion and valuation abatement to be applied. Works contracts-encompassing construction, installation, repair, maintenance and similar activities with transfer of property in goods-are subject to prescribed service portions for tax valuation, with original works treated differently from other works. Maintenance and repair services, including reconditioning, restoration and servicing of goods and software, fall under management/maintenance rules. Reverse charge applies in specified provider-receiver relationships, and invoices must reflect correct valuation and reverse charge treatment.