Clearify Service Tax

[subhash komalwar]

Dear sir,

               We are the Borewells & Tubewells contractors since 25/11/2010 out the earth drilling work in all formation of earth in Chandrapur & Gadchiroli districts of maharastra state of zilla parishads under state govt. scheme & Private work as well for the purpose of Drinking water only.

              So kindly clarify to us whether the services which are rendered to excavate the borewells & Tubewells incluidng Installation of Hand Pump over said Borewells & Tubewells may be govt. or private for Drinking water only, are liable for Service Tax or otherwise please.

Thanking you

This involves two segments - one is drilling of borewells using only the labour and other involving drilling and equipping with materials.  If  only labour supply is involved this will be treated accordingly.  Otherwise it is whole turn key contract including materials then VAT also involved.  It is left to you either to treat it as a turnkey 'Works contract'  and pay service tax or pay VAT @ 5% (check VAT rate in Maharashtra, some state govt. exempt from tax if it is for drining water in drought hit/backward areas) in which case no service tax is applicable.

AI Summary

Works contract classification determines whether service tax or VAT applies to borewell and tubewell drilling services.
Classification depends on whether the borewell/tubewell work is labour-only or includes materials and completion as a single contract. Labour-only supply is treated accordingly; where drilling plus materials constitutes a turnkey works contract, service tax applies and VAT implications arise. The provider may either treat it as a works contract and pay service tax or apply state VAT in which case service tax is not applicable. Verify state VAT rates and any exemptions for drinking-water projects in drought or backward areas.