Contractee’s responsibility under reverse charge (work contracts) as per amendments of Budget FY.12-13

[Guest]

 

Dear Sir,

We as a contractee going to finalized works contract for FY-12-13.

What would be our responsibility under reverse charge as a contractee?

Is any other change in service tax under the budget of FY-12-13 which should be kept in mind as a contractee?

 

Thanks

Jai

 

[Rajesh Sharma]

Dear Jai,

As per the budget amendments to be effective from notified date service tax needs to be paid by both service provider and service recipient in certain cases if the service provider is Proprietary/PF/LLP/AOP and receiver is company:
o Renting or hiring of motor vehicles-  (to the extent of 60% by receiver and balance by provider in case of abatement otherwise 100% by receiver.)
o Manpower Supply  - (to the extent of 75% by receiver and balance by provider.)
o Works Contract  - (to the extent of 50% each.

[Guest]

 

Dear sir,

Thanks a lot your valuable guidance

I want share more on this  

Suppose contract value is Rs.1, 00,000 (Value  of Material & labour)

 Assumed, Material value as per VAT act  75%           Rs.75, 000

Assumed Service Tax portion 25%   i.e. Rs.25, 000

Service Tax will be as per New Rate will be @12.36% on Rs.25,000 comes Rs.3,090

Now this Rs. 3,090 50% i.e. Rs. 1545 will be responsibility of contractee & have to be deposited   by the contractee.

Please suggest I am going on right track or any other understanding  is possible.  

 

[Rajesh Sharma]

Dear Jai,

You need to understand the whole concept of providing the % scheme as part of valuation rules. The provisions as provided in the notification prescribed that in a works contract the value of service needs to be arrived based on documents and books of accounts. However, in case the same cannot be arrived than value for service tax needs to be arrived at as per the % given in the each scenario.

In the example given by you the service tax would be as follow;

Value of contract including material - Rs. 100,000/-

Service tax @4.8% (40% of contract value)    4800/-

Edu Cess@2%                                                         96/-

SHE Cess @1%                                                       48/-

Now in case the service is received from Proprietary/PF/LLP/AOP and service receiver is a Co. than service tax liability would be discharged in the proportion of 50% each 

AI Summary

Guidance on Reverse Charge Mechanism: Contractee's 50% Service Tax Responsibility for Works Contracts in FY-12-13 Amendments. A contractee inquiring about their responsibilities under the reverse charge mechanism for works contracts in the FY-12-13 budget amendments received guidance on service tax obligations. The amendments require both service providers and recipients to share the tax burden in specific cases, such as renting vehicles, manpower supply, and works contracts. For works contracts, the contractee is responsible for 50% of the service tax. An example was provided to illustrate the calculation of service tax on a contract value, highlighting the importance of accurate valuation based on documentation or prescribed percentages.