works contract - service tax on sub contractor

[SANJAY MACHE]

One of my client (B) is working as sub-contractor (B) for providing services to main contractor (A) towards the service contract(C) of main contractor (A) with his client (C). Main contractor has paid the service tax on total value of services (C). As per agreements/work awards by main contrator (A) with my client (B)the service tax is to be borne by main contractor (A). Total turnover of my client (B) by subcontracts from main contrator (A) has exceeded Rs. 12 Lakhs. My Client (B) holds service tax registration and is paying service tax on direct orders (excluding sub-contract works).In this case whether my client (B) is liable to pay service on sub-contracts? Whether he shall show the sales towards services-by-sub-contract in service tax returns with tax liability as nil? please advice and provide references in service tax notifications/circulars/acts.

[Guest]

In terms of reference code 999.03/23.08.07 of Circular No.96/7/2007-ST issued in F.No.354/28/2007-TRU dated the 23rd August, 2007 of Government of India, Ministry of Finance, Department of Revenue, Tax Research Unit, irrespective of the terms of the work order, where the service is taxable, whether in the hands of the sub-contractor or the main contractor, the same is liable to payment of service tax. In your case, as a sub-contractor, you have to pay service tax on the value received; and you have to show the value in your returns for arriving at the cumulative value; the main contractor may take input service credit and utilize the same for payment of service tax on his output service. This position is effective from the date of issue of the above clarificatory circular. Prior to 23/08/2007, the position as stated by you prevails, i.e., sub-contractor need not pay any service tax when the main-contractor paid the same; secondly, sub-contractor can show Nil value in his returns.

[Guest]

Prior to 23/08/2007, where the services provided by both the sub-contractor and the main contractor fall under different categories, then both the above persons have to discharge service tax on their respective values; and the main contractor is eligible to take cenvat credit on the service tax paid by the sub-contractor; in case the service provided by the sub-contractor is an input service for the main contractor. After 23/8/07, the position is as stated earlier.

[Surender Gupta]

I agree with the views of Mr. Napolean Bonaparte. You have to pay service tax on sub-contract activities.

AI Summary

Service tax liability on sub-contractors: pay and disclose sub-contract value in returns; main contractor may claim cenvat credit. Sub-contractors must pay service tax on taxable services they render and report the value in returns; the main contractor may claim cenvat credit for service tax paid by the sub-contractor where that service constitutes an input service.