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

Service tax valuation for works contracts clarified; VAT applies to material component and credit limited to service inputs. Whether and how service tax and OVAT apply to a civil works invoice depends on allocation between labour/service and material components and valuation rules: VAT applies to the material component subject to standard deductions for labour, while service tax applies to the service portion either by deducting value of goods from gross contract price or by applying prescribed valuation methods for works contracts; input credit is available for input services and capital goods but not for inputs whose value is excluded from service valuation.