Building Construction/Labour Chg. under wct reverse charge

[RAM SHARMA]

Dear Experts,

I want to know your view regarding Building Construction and labour charges under reverse charge machenism notification no 30/2012 and Notification No. 24/2012. Pl explain service tax liabilty in this regards.

Thanks

[CASeetharaman KC]

I presume you are talking about Works Contract service and Manpower Supply and the impact under 30/2012 and 24/2012. Notification no 24/2012 is relevant on the valuation aspect for Works Contract as it is only the service portion of the Works Contract which is subject to service tax and hence the value of the service portion in a works contract has to be determined to tax the same.Notification no 30/2012 is relevant on the reverse charge mechanism aspect and provides about the percentages at which the burden of taxation is shared by the service provider and the service receiver. Notification no 24/2012 gives two options for determination of the value of  the service portion of  the Works Contract which are as follows:

First Option

Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.

Explanation.- For the purposes of this clause,-

(a)  gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;

(b)  value of works contract service shall include, -

(i)  labour charges for execution of the works;

(ii)  amount paid to a sub-contractor for labour and services;

(iii)  charges for planning, designing and architect's fees;

(iv)  charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v)  cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(vi)  cost of establishment of the contractor relatable to supply of labour and services;

(vii)  other similar expenses relatable to supply of labour and services; and

(viii)  profit earned by the service provider relatable to supply of labour and services;

(c)  Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.

Second Option 

 Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;

(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract;

(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract;

Explanation 1.- For the purposes of this rule,-

(a)  "original works" means-

(i)  all new constructions;

(ii)  all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(iii)  erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

(b)  "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-

(i)  the amount charged for such goods or services, if any; and

(ii)  the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Explanation 2.--For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.".

Now coming to the reverse charge mechanism , notification no 30/2012 provides that the service tax on the service portion of a works contract shall be shared between the service provider and the service receiver equally i.e @ 50% : 50% and in the case of manpower supply the ratio is 25%:75% between service provider : service receiver respectively provided the service provider is an induvidual , HUF or Partnership Firm, whether registered or not, including an association of persons, located in the taxable territory and the service receiver is a business entity registered as a body corporate located in the taxable territory.

[RAM SHARMA]

Sir,

I want to know in which condition a corporate entity is liable to pay service tax on Labour chg and Building constrution under reverse chg notification no. 30/2012 

[CASeetharaman KC]

As per Notification No. 30/2012-ST when any service is provided or agreed to be provided by way of supply of manpower for any purpose or security services or 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 reverse charge mechanism would be applicable where the liability of service tax would have to paid by the service provider and the service receiver according to the percentages provided in the Notification; Hence the liability of a corporate would arise when service is provided to the Corporate by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a Coporate entity located in the taxable territory

[Ashish Lohia]

Sir, Plz Provide me the solution

Is Reverse Charge Mechanism is available in case of a construction contract where only labour has been supplied...?

AI Summary

Reverse charge mechanism: corporate recipients may bear part of service tax on works contract and manpower supply. Notification No. 24/2012 prescribes two methods to determine the service portion of a works contract: (1) gross contract value less value of goods transferred, with enumerated components includible in the service portion; or (2) a presumptive valuation of the total contract value for categories such as original works, maintenance/repair and other works, with definitions for 'total amount' and 'original works'. Notification No. 30/2012 applies a reverse charge mechanism requiring specified apportionment of service tax between certain unincorporated suppliers and corporate recipients when such services are supplied to a body corporate.