Liability of Sub contractor

[Asked by Guest]

A civil contractor sub-let a part of the contract to Sub-contract. Is Sub-contractor liable to Sevice tax in respect of work done for Contract not involving separate contract from the party.

Subcontractor will not be subject to service tax provided both the main contractor and sub-contractor are registered under the same category. Further subcontractor is not providing services to the customer directly

[Surender Gupta]

There are certain circulars in which services of a subcontractors are allowed without payment of service tax provided the main contractor is paying service tax and falling in the same category. But, it is pertinent here to note that these circulars are addressing specific services one side and were issued prior to inception of Cenvat Credit Rules, 2004. Therefore, it is highly advisable that sub contractor should charge service tax from the main contractor. The main contractor would in tern avail the cenvat credit.

[Madhukar N Hiregange]

If the query is for the past where service tax has not been charged and collected then the circulars can be relied on and claim that the same is sub contract can be taken. However if it is prosepctive/ future then it maybe advisable to charge the servcie tax ( after abatement of 67% or value of materials under 12/2003) as the principla who pays is also eligible for the input service credit if not not under 1/2006.

AI Summary

Service tax liability: subcontractor may be exempt where same-category main contractor pays and claims cenvat credit.
Where the main contractor and subcontractor are registered in the same category and the subcontractor does not provide services directly to the customer, the subcontractor is generally not liable to service tax; historical circulars support this for past periods. For future contracts it is advisable for the subcontractor to charge service tax so the main contractor can avail Cenvat credit, applying applicable abatement or valuation rules and taking account of subsequent credit rules.