Shifting of Commercial Construction Contractors under Works Contract

[rajesh marwaha]

The existing Commercial Construction Contractors,other civil contractors are presently convred under Commercial construction. Thay pay VAT also on their turnover as the same is Taxable under VAT / Sales Tax LAw of the State. Can we shift all them under Works Contract and pay Service TAx @ 2.06% on their turnover or on the turnover after deducting the amount chargeable under VAT (Which shall be practically NIL as they have already been paying VAT on whole Turnover under VAT composition Scheme).

[Madhukar N Hiregange]

Yes they can all opt in for WC and pay 2.06 % after deducting the amount on which VAT is paid. Further they are admissible for the credits on capital goods as well as input servcies ( sub contractors, telephone, insuracne,etc)

[Guest]

Yes, you can transfer them all under Works Contract by getting your Reg. Certf. amended. If you are not already registered, you can take reg. for renering taxable services under 65(105)(zzzza). However, if you are paying Sales tax/VAT on Gross Amount of Works Contract, than service tax is not payable by you. This has been held by CESTAT (Mumbai) in the case of Bharati Tele Venture Ltd. Even otherwise, since construction activity is a Works Contract, the same cannot be made subject to service tax in view of Apex Court judgement in the case of Daelim Industrial Co. Ltd. (in which the Apex Court upheld that verdict of High Court) stating that service tax cannot be levied on Works Contract. A similar decision was rendered in the case of Larson & Tourbo by CESTAT Mumbai. However, after said verdict of the Apex Court, since Govt. has reacted fastly to nullify the effct of the same by inserting the provisions of taxability of works contract, said ruling of Apex Court is no longer applicable from 01.06.2007 i.e. the date from when S. Tax on works contract will come into being. Howerver in the Bharati Televeutures case (supra) the Tribunal observed as under (which is important to take note of) :- 1. The appellant's case is, prima facie, covered by the decisions in the case of Daelim Industrial Co. Ltd. and Larsen & Toubro Ltd. and one of those orders remains confirmed by the Supreme Court. 2. The new provision in the Finance Bill also would indicate that works contracts attract levy only after that provision is enacted. The present tax demand is, therefore, not sustainable. In view of above, my suggesstion is that :- (1) for past period - burry your worry. Daelim Industrial Co. Ltd. judgement confirmed by Apex Court will come for your rescue. (2) going forward - would advice you to get registered with service tax deptt. for rendering taxable services under 65(105)(zzzza) i.e. works contract and pay tax @ 12.36% on Net service revenue (Gross Contract Value - value of goods transferred) and avail Cenvat credit of Inputs/Input Service and Capital Goods or Simply pay 2.06% of Gross Contract Value and avail Cenvat Credit of Input services and capital goods (but not inputs). See which of the two would optimise the tax outgo. For State VAT also you need not pay VAT on whole value of contract. Otimise your VAT outgo after considering the various options given by that ACT and rules made thereunder.

[ravi agarwal]

will the service tax also applicable for the works executed for govt department/ undertaking. If work is executed for govt undertaking under slum rehablitation scheme then will it be exempted as residential

AI Summary

Works contract service taxation: contractors may opt into works contract regime with differing tax bases and credit eligibility. Contractors can opt into the works contract service regime by registering for the relevant taxable service and pay service tax either on net service revenue (gross contract value less goods transferred) with full Cenvat credit of inputs, input services and capital goods, or on a presumptive gross basis with credit limited to input services and capital goods; VAT paid on the contract value should be deducted where applicable, and past-period protection exists under prior judicial rulings though legislative change affects future levy.