Service tax - work contract or construction services

[Bijay Shrestha]

In case of many Real Estate Developers and Builders, while accouting for Service Tax and filing returns, they choose ST category of 'Work Contract' or some choose 'Construction Services' . Why ???

Are both same ? in economic substances ??

are they free to choose any category or is there any legal methodolgy?

Please advise.

 

[DR.MARIAPPAN GOVINDARAJAN]

Please ascertain the services you are rendering. then refer the definition of 'Construction service' and 'works contract' and choose the correct one.

[Mahir S]

Sir,

1 ) When the contractor buys the material and carries out construction and bills you for the whole, VAT / CST is payable on the material used which is transferred to you in the form of constructed structure. The amount paid to the contractor thus has a component of material and a component of service , is known as Works Contract.

2 ) When the contractor carries out the construction with material provided by you and bills you for the work only, it is construction service.

Hope the query is clear now.

[Bijay Shrestha]

Agree.

Generally builder collects service tax from buyers in one hand and gets construction done by other sub-contractor and pays service tax on other hand.

What happens when builder collects service tax from customers/buyers??

So it means if builder outsource construction to sub contractors and that sub contractor uses his material and services then it falls under work contract right ?? And if builder also supply matrial to sub-contractor but sub contractor uses only that material and bills only for service then it falls under construction services right ??,

Also if builder only uses own material and do construction on its own and collect service tax from buyers of flats etc. Which category is used ???

[Ganeshan Kalyani]

Works contract service .

[Mr Rao]

Explained clearly by Mr.Mahir ji. As such, if buyer supplies material and contractor constructs for buyer, then it is classified under construction service and if contractor uses his material and constructs for buyer, then it is works contract, as rightly explained.

[Ganeshan Kalyani]

Hope querist is satisfied withthe reply.

[Bijay Shrestha]

Agree with u all.

Thanks a lot for your valuable inputs.

AI Summary

Works contract vs construction service: classification depends on who supplies materials, altering service tax treatment. Classification turns on who supplies materials: if the contractor supplies materials and bills a composite price embedding goods and labour it is a works contract (material component subject to VAT/CST and a service component subject to service tax); if the buyer supplies materials and the contractor bills only for labour it is a construction service. The same distinction governs subcontracting arrangements and determines appropriate tax accounting and return filing.