WORKS CONTRACT

[SUMEDH AYARE]

We are service recipient.

 

As going through the bills of various parties, different parties are charging the service tax rate on different amount of total contract value (such 40% or 60% or 20% of total contract value) i.e 12.36% on 40% or 60% or 20% of the contract value.

 

Now the question arise that whether we have to pay the service tax on the balance amount of contract value (60% or 40%  or 80%) on account of reverse service tax  w.e.f 01-7-2012.  

 

This is important and urgent as the value of contract is huge and the due date of service tax payment is 5-9-2012.

[YAGAY andSUN]

The service tax under works contract service is payable on the services part only.  In your scenario, it seems that VAT is not paid on the ACTUAL value, “the person liable to pay tax on service portion involved in the execution of works contract” will calculate the same as follows:-

(i) In, works contract for original works, service tax will be payable on 40% of total amount charged;

(ii) In works contract for maintenance/repairs/ reconditioning/ restoration/ servicing of any goods, service tax will be payable on 60% of total amount charged.

(iii) In case of other works contract (like maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property)not covered in above two clauses, service tax will be payable on 20% of total amount charged.

Further, reverse charges is applicable on the following condition,namely:-  it is prescribed that the 50% service tax on works contract will be paid by the service recipient and 50% will be paid by the service provider in the cases where the service provider is an individual/firm/LLP and the recipient is the body corporate.

If the services of works contract is provided from a company to company then service provider company will be liable to charges services tax on the 40% or 60% or 20% of the contract value and on remaining amount you need not to pay the service tax as the balance amount represents the value of goods involved in execution of works contract.

 

AI Summary

Works contract service tax: taxable service portion allocated by contract type; reverse charge may allocate liability between supplier and recipient. Service tax on a works contract applies only to the service component, computed by presumptive percentages of total contract value according to contract type (40% for original works; 60% for maintenance/repairs/reconditioning/restoration/servicing of goods; 20% for other finishing/completion services). The balance is treated as value of goods and is not service-taxable. Reverse charge applies where provider is an individual/firm/LLP and recipient is a body corporate, with tax apportioned 50% to recipient and 50% to provider; company-to-company supplies leave supplier liable on the presumptive service portion.