valuation i.r.o.service tax on construction service.

[Guest]

Dear sirs,

If construction service provided by a contractor of a builder does not come under definition of works contract because of non compliance of sales tax, then in this case how will the valuation for S.T be calculated w.e.f. 2012. I think Valuation Rules,2006 is silent over this aspect.After all,the contractor should not be charged s.t on the material portion of the construction.where can i find the provision of valuation in such case.

[KASTURI SETHI]

Dear Sir,

In the absence of non-compliance of the condition of Sale Tax/VAT, service portion has to be worked out from the gross amount in the manner mentioned in Notification No.24/12-ST dated 6.6.12 effective from 1.7.12.

Rule 2 A--Determination of value of service portion in execution of Works Contract Service

(i) ____________________________________

(ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely :-

(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;

(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy per cent. of the total amount charged for the works contract;

Valuation Rules stand amended vide Notification No.11/14-ST dated 11.7.14 effective from 1.10.2014

W.e.f. 1.7.12 all construction services are under one roof i.e. Works Contract Service.

[Himansu Sekhar]

Works contract service means where the property of the goods were transferred during the service. It does not make any precondition of sales tax payment. The goods can be deemed to be transferred during the provision of service. Even if the service is only provided, it is very much a works contract service. Please go through the retrospective budgetary provisions this year. The tax will be on the full value of the consideration I.e the service portion since this is well defined. The raste is also subject to the provisions of notf. No 30/12 dated 20.06.12.

[KASTURI SETHI]

I agree with Sh.Himanshu Sha Ji. Payment of Sale Tax is not a precondition. Payment of Sale Tax is accepted as documentary evidence by the department as transfer of property. Retrospective amendment is an other methodology of valuation in WCS.This retrospective amendment does not nullify other options or facilities available for WCS.

[Himansu Sekhar]

Thank you sir. Very useful discussions. I was not aware of such an useful site.

[KASTURI SETHI]

Sh.Himansu Sha Ji,. You are welcome in this forum. We shall relish your participation.

[Ganeshan Kalyani]

I agree with the views of the experts, the condition is applicability of sales tax /VAT and not whether it is paid or not.

[Ganeshan Kalyani]

Welcome Sri Himanshu Sha Ji to TMI. Hope to see your active participation in this Forum. Thanks.

[Guest]

Dear Sirs,

In my case, the deptt is denying rebate under WCS because the service provider i.e the contractor does not have full documents relating to purchase of construction material ( he has only a few purchase documents) and has also not complied with sales tax provision. However ,there in no dispute with regard to construction of building. My point is that if there is no dispute regarding construction of building and building cannot be constructed without material then is he not eligible for rebate under WCS. Can there be second option of deducting cost of material with respect to what ever document he has from the gross receipt and pay full tax on the balance amount. The deptt is not willing to consider rebate under WCS without Sales Tax Compliance. OR is there any other way of getting benefit on the material value as S.T is not leviable on material value.Deptt contends that only the sales tax document can prove transfer of material in a works contract and therefore benefit under WCS can be given only if the provider has complied with sales tax. One more difficulty is that the builder has not entered in to any written contract with the service provider. Pl suggest some way to come out of this situation without having to pay S.T at least on the material value w.r.t. the documents he has.

Thanking you

AI Summary

Works contract valuation: prescribed allocation of service governs tax liability; sales tax documents provide evidence for material rebate. Valuation of construction services requires classification as Works Contract Service and application of prescribed allocation rules to determine the service portion when not otherwise identified; valuation rules and subsequent amendments provide specific allocation mechanisms for original works and for repair/maintenance. Sales tax/VAT compliance is not a substantive condition for works contract classification, but sales tax documentation functions as evidentiary proof of transfer of materials and is relied on by revenue authorities to grant rebates for the material component; lack of such documentation may lead to denial of material rebates despite statutory allocation options.