Works Contract Reverse Charge

[POLYPLEX CORPORATIONLTD]

Dear Expert

We are receving Works Contract Service from an individual contractor having threshold limit above 10,00,000. He is in construction of New Building in the factory. We are giving him only cement and torr steal.

He is billing all the other materials with labour expect cement and steal  & charging service tax 2.472 % (40% of bill value , 50% of 12.36%) as per reverse charge mechanism.

My question is that, while depositing the service tax we should add value of material (cement & steal) provided by us to the contractors. or the contractor should mention these things in his invoice.

Second,  How to calculate service tax liability if no service bill received during the month after consumed cement/steel by contractor on same month.

Third, As he is not showing the same in this bill then interest liabilty arises on both of us.

[YAGAY andSUN]

It would be better, if, Service Provider, while issuing an invoice, should incorporate such free suplies of Cement and Steel in their bill.

Service Tax liability would be calculated under the provisions of POTRs.

[Vijay Chitte]

Ans- 1 : As per Rule 2A(ii) of Service tax (Determination of Value)  Rules 2006, [as amended w.e.f 01.07.2012]  makes provision for valuation of works contract undre compositions scheme. As per your query contract is composite contract.

Under composition scheme, service tax is payable at a specified percentage of  "total amount", i.e. total value of works contract including valued of free material supplied by customer either under same contract or under different contract.

Ans-2 : Billing petern is not relevant for calculation of service tax, making seperate invoice for material despite of ST liability arise, Actual contract is relevant for service tax liability.

 

[POLYPLEX CORPORATIONLTD]

Thanks Sir,

My question is that now we will deposit the service tax of  free of suply value with interest @ 18%. (value of free supply*40/100*12.36%/50%) as per reverse charge fot rhe period of july to sept.

is contractor is also liable to pay his share under reverse charge (50%) with interest.

Or we said the contractor to make new invoice of differtial duty to avoid interest value.

[Vijay Chitte]

Actually, service provider has to charge service tax on mtrl and service and make declaration on invoice that 50% of ST payable by service receier.

Before ask for new invoice from Contractor, Pls. note that, for question of interest arise only when payment are not made within six month from the date of Invoice.  W.e.f. 01.04.2011, service tax is payable on accrual basis and not on receipt basis. However where service tax is payable under reverse charge, tax will be payable by service receiver only after payment of bill is made to service provider.  

[POLYPLEX CORPORATIONLTD]

Sir

As we are in not paying service tax for Free supply of material.

but if the contractor is raises bill for free supply then only we pay the service tax amount (50%) of our share

Is interest arises if the free supply of material bill date in the month of October (material consumed for the period of July to Oct.) and we pay him in month of Nov.

[Vijay Chitte]

You need not say your contractor to raise invoice of free mtrl, simply you have to discharge your portion of service tax liability on free mtrl. Why should you increase your st liabiltiy at your own?

Date of consumtions of mtrl is not relevant of Interest,  This service is fall "Continuous supply of service" (if exceeding three months), &  As per POT Rule 3(B)(i) [inserted w.e.f. 01.04.12] the date of comletion of each event as specified in contract shall be deemed to be the date of completion of provisoin of service.

For example, if the contract provides for payment of certain amount at each stage like plaster, finishing etc. such event will be date of completion of service of (that part of) service.

[Guest]

i think you should only pay 50% service tax on the services portion done in the works contract ( e.g 30% or 20% etc) under reverse mechanism...rest 50% shall be paid by the service provider on his own.

AI Summary

Reverse charge on works contracts requires the receiver to account for tax on value of materials supplied, altering tax apportionment. Under the works contract composition rules the taxable base includes the total contract value, explicitly embracing the value of materials freely supplied by the customer; therefore, when cement and steel are provided by the recipient, their value must be included in the works contract valuation and attract the receiver's liability under the reverse charge mechanism. Invoicing practice does not alter this obligation, and timing for payment and interest follows accrual and reverse charge payment rules with contract completion events determining deemed provision dates.