Civil Works

[N Balachandran]

Sir,

 

We are Manufacturer of Wind Mills having the Manufacturing unit at Pondichery.  We receive the Order from Customer for supply of Wind Mills from Pondichery to Tamil nadu under CST Sale and the Customer also place the work order on our Unit in Tamil Nadu for Civil work and Erection work.   Our Tamil nadu unit execute the Civil works and discharge the service tax liability @ 4.12%  ( Prior to 01.04.2012 ) under Works Contract Service .  The Erection work also done by Tamil Unit  and discharge the Service tax liability @ 10.3% under Erection and Commissioning Service.

Pl clarify, the method adopted by us for payment of Service tax is in line with the provisions or not ?.

Will the dept include the  supply value of Wind Mill which was done from pondy for payment of Service tax under works contract service?.  

Regards

 

N.Balachandran 

 

[YAGAY andSUN]

There are three  options available to you regarding Taxable Service i.e. Works Contract Service under Finance Act, 1994 as amended time to time, namely:-

1. Deduction of material used in execution of Works Contract under Rule 2Af .
2. Payment of Service Tax @ 12.36% on the 40% value of the contract.
3. Payment of Service Tax @ 4.8% of the gross value of the contract.

Do you feasbility and cost benefit analysis in this regard that which scheme is suitable to you according to the nature of works contract.

Futher, the provisions pertaining to Reverse Charge Mechanism may apply depending on the nature of service provider that whether he is individual, LLP, HUF or Association of persons.

 

 

[N Balachandran]

Thanks for ur clarification.  The Dept has the view that, the same company executes the Suppply, erection & Civil Wroks with dvisible contract ( Seperate contract for Each activity ) , the payment of service tax under compounding method for  Civil works under Works contract service can not be execerised .  Once we declare that,  the payment is made under works contract service , we have to include the supply & Erection value also along with civil works and discharge the Service tax liability on the total value of all the three contracts.   Pl clarify

 

Regards

 

N.Balachandran

[YAGAY andSUN]

In continution to my above reply, please note that service tax is applicable only on services portion though there are three scheme under works contract category, as stated above, you may choose whatever is feasible to you after conducting the cost benefit analysis.

If the material is being supplied by you, free of cost, then, it's notional cost would be included, in the taxable amount of the services so provided but the rate of tax would be either 4.80% or 12.36% on the 40% value of the total contract value.

Choice is yours, conduct the CB Analysis and pay the service tax accordingly.  Department can't enforce you to opt any option available under Works Contract Services.

AI Summary

Works contract service: choice of compounding methods governs taxable base; notional material value may be includable. Three alternative compounding schemes are available for Works Contract Service: material deduction under the relevant rule, tax on a fixed portion of contract value, or a flat compounding rate; the taxpayer should perform a cost benefit analysis to choose. If materials are supplied free, their notional value is included in the taxable service amount. Reverse charge may apply depending on provider type. Revenue may seek aggregation of supply, erection and civil contract values where the same entity executes divisible contracts, but the taxpayer may still opt for any permitted compounding method and compute tax on the service portion.