Civil work - How to charge Servic Tax & VAT

[Bhalchandra Ramdasi]

Respected Sir,

We have to invoice for Civil work which includes 62% of Material  and rest is Labour. How to charge both the taxes in single bill ?. State is Orissa.

1]Can we charge Service tax on 100% basic value and OVat on 62% material?

2]Or Service tax on 38% and OVat on 62%? Can we avail credit of Input service tax & Cenvat credits?

3]Or should we charge service tax on 40% & Ovat on 60%? Can we avail credit of Input service tax& Cenvat Credits?

Thanks,

 

[YAGAY andSUN]

Under OVAT, The rate of tax on the material involved in execution of works contract varies on the percentage of standard deduction of labour from the gross value of contract.

On civil woks, the rate of labour, service and other like charges as a percentage of the Total value of contract varies from 15% to 30%.

And under Service tax the tax liability can be calculated on following basis, namely:-

1.  Under Rule 2(A)
2. On the 40% of the contract value
3. or payment of 4.8% on the total value of the contract

Furhter, provisions of partial reverse charge mechanism may be applicable if you are not a Company.

[Vijay kumar]

As far as service tax is concerned, since you know the value of the material exactly, pl follow rule 2A(i) of the Service Tax (Determination of Value) Rules, 2006 which states as follows:

"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."

You can take cenvat credit on the input services and capital goods, but not on the inputs since their value is not included for the purpose of payment of service tax. You may raise separate invoices since the invoice under Rule 4A of STR, 1994 requires certain particulars to be mentioned.

AI Summary

Guidance on Charging Service Tax & VAT for Civil Work: Rule 2A Highlights Tax Calculation & Cenvat Credit Details A query was raised regarding the appropriate method to charge Service Tax and VAT for civil work in Orissa, where 62% of the work involves materials and the rest labor. Two responses were provided. The first response suggested that under OVAT, the tax on materials varies based on labor deductions, and service tax liability can be calculated using Rule 2(A) or as a percentage of the contract value. The second response advised following Rule 2A(i) of the Service Tax Rules, 2006, allowing Cenvat credit on input services and capital goods, but not on inputs. Separate invoices may be necessary.