service tax

[jagannath prasad]

In residential complex service, if the builder has paid service tax under partial reverse charge for works contract provided by the contractors on the advice of departmental audit and the department has accepted the same then how far is the department correct in demanding proof of material purchased and the proof of VAT paid by the contractor while discharging the remaining 50% of tax liability by the contractors under reverse charge.

The fact of the matter is that the builder was paying tax on residential complex service and it is in the common knowledge of every one including the department that the builders engage contractors for supply of materials as well as service but till the time of this audit neither the department nor the earlier audit ever pointed out the builder or the contractor regarding their liability of paying service tax. Hence, they were unaware of any additional payment of service tax other than the tax they were paying on the residential complex service.

Since the contractors were not aware of the service tax rules, they simply purchased building materials from the market and with the help of manpower completed the required job of construction of residential complex of the builder without maintaining any records thereof, more so, because their payment was based on the measurement basis which did not require them to maintain records.There was no formal work orders. every thing was verbal. Therefore, no ill intention on the part of contractor can be attributed in the present case for not keeping any record of material purchased. Moreover, as at every stage credit was available to the contractor as well as to the builder, in ultimate analysis, the government exchequer was also not in loss.

There is no dispute regarding construction of residential complex and therefore, the use of building material and its vat able nature also cannot be disputed which is in line with the definition of Works contract.

The department's contention is that if the contractors do not produce the purchase documents and proof of payment of VAT then they will have to pay tax on the full value.

How far is department's contention of not agreeing to grant works contract status of the construction work done by the contractor correct in view of the fact that the builder has already paid 50% duty under reverse charge on the same service i.e works contract on the basis of departmental audit? Can tax be charged under reverse charge at the end of builder and at full rate at the end of contractor for the same service? If not, what would be the way out?

AI Summary

Builder Challenges Tax Department's Demand for Contractor Records; Disputes Additional Tax on Works Contract A forum discussion addresses a service tax issue involving a builder and contractors under a works contract. The builder paid service tax under partial reverse charge based on a departmental audit, but the department now demands proof of material purchases and VAT payments from the contractors, who lack records due to informal agreements. The builder and contractors argue that the department's demand is unfair since the builder already paid a substantial tax, and the construction involved VAT-able materials and labor. Replies suggest that ignorance of the law is not an excuse, and the department's demand for additional tax may not be justified.