SERVICE TAX ON SUB CONTRACTED LABOUR

[GANESH KANCHAN]

DEVELOPER FIRM EXECUTING RESIDENTIAL CUM COMMERCIAL PROJECT HAS SUB CONTRACTED ENTIRE LABOUR INVOLVED IN THE PROJECT AND CONTENDS THAT SERVICE TAX IS NOT PAYABLE UNDER CONSTRUCTIO OF COMPLEX SERVICE AS SERVICE TAX IS PAYABLE ON ' LABOUR PORTION ONLY'  AND THAT SUB CONTRACTOR HAS TO PAY THE SERVICE TAX ON LABOUR CHARGES RECEIPTS BY HIM. IS THE CONTENTION CORRECT ?

IF THE DEVELOPERS REGISTER HIMSELF UNDER 'WORKS CONTRACT' SERVICE AND CLAIM EXEMPTION OF TURNOVER INVOLVED IN TRANSFER OF PROPERTY IN GOODS/MATERIAL -IS IT CORRECT ?

 

[CASeetharaman KC]

From the description provided it is clear that the building project constitutes a Works Contract and as per your query in the second para the developer should consider this as a works contract service. As per notification no 30/2012 the service tax is payable on the service portion in the execution of works contract where the burden would be shared between the service provider and the service receiver in the ratio of 50% : 50% provided the service provider is an individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory which is providing the service to a business entity registered as body corporate, located in the taxable territory. The constitution set up of the service provider and the service receiver needs to be looked into before the sharing mechanism is implemented.

AI Summary

Works contract service: service tax on the service portion shared between provider and corporate receiver under notification. The building project constitutes a works contract and service tax applies to the service portion of the execution of the works contract rather than solely on subcontractors' labour invoices. The statutory mechanism allocates the service tax on the service portion between provider and receiver where the provider is an individual, HUF or partnership (including association of persons) in the taxable territory and the receiver is a business entity registered as a body corporate in the taxable territory; the constitution of the parties must be examined to apply the sharing rule and related turnover exclusions.