payment of vat under works contract service

[Guest]

Your valuable suggestion is solicited on the following points:-

1. From service tax angle,should Vat be actually paid on transfer of material in a composite contract for it to be considered as 'works contract' OR material should be simply leviable to VAT as per definition of Works Contract.

2. Is Deptt. right in not giving benefit of works contract to contractor of builder of residential complex because he has not paid vat and is neither in a position to produce purchase documents when on the other hand the builder has already paid S.T under Reverse Charge on audit's insistence and there is no dispute on the actual construction undertaken by the contractor. What should the contractor do now because he has not kept any purchase document as he was not aware of the service tax provision reg his liability.

3.Is there any case law in support of the contractor. If so, kindly give some to convince the department.

4. Can the contractor be considered as not eligible for Works Contract in the above circumstance when there is no dispute reg use of material in construction of building by the contractor specially in light of payment of tax under reverse charge already made by the builder on audit's insistence. In that case what will happen to the already deposted tax under reverse charge by the builder.

[KASTURI SETHI]

Sh.Prasad Ji,

Point-wise my views are as under:-

1. To be eligible for ‘Works Contract Service’ service must be provided with material. This is one of the conditions for composite contract and otherwise also for taking benefit of Service Portion (Not abatement) under Notification No.24/12-ST (Abatement is under Notification No.26/12-ST) VAT must be paid on the value of material consumed in construction of residential /commercial building. Payment of VAT accepted by the VAT department is also accepted by the Service Tax department as evidence. VAT is must whether you sell or use the material in the construction, if VAT is applicable.. It is also a fact that all goods are not subject to VAT but that is separate issue.

2.No.. The department is not right. VAT is an additional evidence which is a State subject and Service Tax Department has nothing to do but on the other hand you must have purchase bills for claiming the benefit of Service Portion under Notification 24/12-ST. Purchase Bills are requirement of Service Tax law. If you have no purchase bills, then the department may accept VAT returns as evidence. It is the discretion of the department. Without payment of VAT the department will not give any benefit, especially in the absence of purchase bills. Though all items are not subject to VAT. If you want to claim any benefit by way of deduction or exemption, you must have documentary evidence. The burden of proof is cast on the assessee. It is practice in the department to accept VAT returns as documentary. De facto, both are must in the eyes of the department. You know the adage, “Ignorance of law is no excuse”.

3. Case laws on the issue can be traced out on TMI and EXCUS. In such a grave situation benefit is possible through litigation only and that too depending upon facts and circumstances. The possibility of benefit by any court on the basis of physical verification cannot be ruled out. If you do not fight, you are defeated today itself. Issue is worth fighting, The party must fight legally.

4. Yes. The department will not give benefits of RCM and WCS. ST deposited will not go waste. That will be adjusted and, if RCM is not applicable, the Service Receiver can get refund, if not time barred.

 

 

[Ganeshan Kalyani]

I support the views of Sri Kasturi Sir. Thanks for enriching my knowledge.

[DR.MARIAPPAN GOVINDARAJAN]

I also endorse the views of Shri Sethi. As mentioned by Shri Ganeshan it is helpful for enrichment of knowledge.

AI Summary

Works contract service eligibility depends on VAT payment and documentary proof, affecting reverse charge adjustment and refund rights. Eligibility for Works Contract Service requires service with material and establishment of VAT on materials; VAT payment or VAT department acceptance may serve as evidence but purchase invoices are required for claiming the service portion benefit. Absent purchase bills, departmental discretion may allow acceptance of VAT returns, yet the burden of proof lies with the assessee. Where the builder has paid tax under reverse charge, that tax can be adjusted or refunded if reverse charge was not applicable, but denial of works contract benefits to the contractor is likely without documentary evidence; litigation based on facts and physical verification may be necessary.