Levy of VAT on Service Tax - works contract

[MANOHAR KALBURGI]

Dear Reader/s, I have a query on works contract where both service tax and VAT / CST is applicable. a. Should VAT / CST be levied on works contract value plus Service Tax or only the base value of the works contract before levy of Service tax? b. Will Service Tax on the Service portion in a given works contract for pre-sale expenses attributable to the goods? Please discuss and also provide judicial precedents for and against the argument, if any. Thanks. M.K.Manohar 9845116215

[Brijesh Verma]

Both Service Tax and VAT are applicable on a works contract. However the same is on different amount and there can be no double taxation. Taxation under VAT is derived from the Gannon Dunkerlay case and of service tax by rule 2A of valuation rules. VAT shall be levied only on goods/sale portion so no question arises for inclusion of service tax.

[Sankar Bagchi]

Yes, both VAT/CST and ST are applicable on works contract. In WC VAT/CST is payable on deemed sale of goods involved in execusion of WC and ST is payable on balance value of WC.Yes, Service Tax is payable on pre-sale expenses like Engineering Services.

AI Summary

VAT confined to goods component of works contracts; service tax applies to service portion including pre-sale expenses. Both VAT/CST and Service Tax can apply to a works contract but operate on separate taxable bases: VAT/CST is limited to the deemed sale of goods and is computed on the goods portion without including service tax, while Service Tax applies to the service component and extends to pre-sale expenses attributable to goods, requiring apportionment between goods and services for correct valuation.