Defination of work contract & reverse charge

[Vikas Aggarwal]

Dear Sir,

Please help to solve my query.

1. Material was mandatory to fall in the defination of work contract, if a service provider provided services say AMC or repair & maintenance but in that service there was only labour portion whether the above case fall under defination of work contract.

What is the situation if material was provided by service receipant.

2. If an individual provided work contract services to other & raised bill of Rs. 20 Lakh, service receipant is also an individual, than in that case service provider charge service tax on full amount or 50% of bill raised.  (50% of Rs. 20 lakh).

 

Regards,

Vikas Aggarwal

[CASeetharaman KC]

As per clause (54) of Section 65B of Chapter V of the Finance Act,1994 , works contract is defined as under

 "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;

Typically every works contract involves an element of sale of goods and provision of service. It is a well settled position of law, declared by the Supreme Court in BSNL's case [2006 (3) TMI 1 (SC)], that a works contract can be segregated into a contract of sale of goods and contract of provision of service. In your case there is only service which is involved and the question of Works Contract does not arise as it involves only services.

Regarding your query with relation to reverse charge in the case of works contract, notification 30/2012 is quite clear as it states that the provisions of reverse charge would apply on the service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory. As such the provision of the works contract service has to be by the specified service providers , which includes an induvidual but the service receiver has to be a body corporate, falling which the sharing mechanism as required by the notification 30/2012 would not apply. As such in your case the whole service tax would have to be paid by the service provider as the sharing mechanism would not apply

AI Summary

Works contract distinction: pure service segments aren't works contracts; reverse charge applies only to corporate recipients.
A works contract requires transfer of property in goods constituting a taxable sale; pure labour-only or service-only arrangements do not qualify as works contracts and are treated as services. The reverse charge notification applies to specified individual/HUF/partnership providers of works contract services only when the recipient is a body corporate; where the recipient is not a body corporate the reverse charge does not apply and the provider must discharge the service tax.