Service Tax on Works Contract

[Laxmaiah Vanamamula]

Dear sir, Any Exemption have from Service Tax on Works Contract Please give Notification or any other details, Thanking You, V.Laxmaiah.Sudhakar Polymers Limited

[CA Rachit Agarwal]

Please refer Rule 3 of Works Contract Composition scheme where you will be required to pay 4% of the contract value.

You will not be eligible to take the cenvat creit on the inputs.

Further the Contract Value includes the value of inputs/ input services however excludes the cost of tools, machineries and other state level taxes.

[Ramanujam Varadarajan]

In addition exemption under Notification 12/2003-ST on value of goods sold under the documentary evidence is available for all the services.

[Brijesh Verma]

Dear Friend,

I am afraid that I don't agree with the contention of my Ld. Friend Varadarajan Ji. Benefit under  notification 12/2003-ST is not available in case of Works contract Service. Legally only two options are available to WC Service Providers i.e. :

• either pay tax under Composition Scheme under WC (Composition ) Rules 2007 [Notif. No. 32/2007]
• or pay tax on actual calculation under rule 2A of the Valuation Rules 2006

So, in my view, since legally there are only two options, but the third one i.e. (paying tax on normal value after taking benefit of 12/2003 is absolutely risky.

AI Summary

Works contract service tax: composition or valuation options, exemption under notification may not apply and is risky.
Service tax for works contracts is governed by two main options: elect the Works Contract composition scheme, which levies a flat composition on contract value and disallows cenvat credit, with contract value including inputs and input services but excluding tools, machinery and state taxes; or calculate tax under Rule 2A of the Valuation Rules. The applicability of Notification 12/2003 ST exemption for goods sold is disputed and treating it as available for works contracts is considered legally risky.