Work Contract Service

[RAM SHARMA]

Dear Experts,

We have given a contract for new building construction in which Builder will  be bear every expenses except cement and steel. Cement and Steel will be provided by the owner. How will come out  the service tax value. Pl advice.

Thanks 

[YAGAY andSUN]

Value of the Cement and Steel will be added while determining the Gross value for the purpose of calculating the Service Tax liability.

Service Tax @ 4.944% (including cess) will be payable on the Gross value of the Contract. Provisions of Partial Reverse Charge may be applicable.

[RAM SHARMA]

Now the question is arise that why a builder pay service tax on owner's material (cement and steel) under provision of  partial  reverse charge machenism. Please advice.

Thanks

[CASeetharaman KC]

Actually the builder is not not paying service tax on his own material. The value of the material is being included for valuation purposes so as to arrive at the total contract value.

[RAM SHARMA]

You mean to say if Contractor/Builder charged bill amount Rs.100/- including own material. He charged service tax @12.36% on Rs.40/- but owner's gave him Rs.100/- material. Will we assess service tax on Rs.80/- in which 6.18% is payable by Contractor and balance 6.18% is payable by owner. Am i write. Pl. advice.

Thanks

[RAJESH MANGAL AGRAWAL]

In my opinion yes. THe total service tax liability in the given example  will be Rs.200*40%*12.36%=Rs 9.888. Now the payment mode depend upon the status of the service provider & service receiver. If the taxable service provided or agreed to be provided by way of  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; than the service reciver & service provider will pay service tax 50% each i.e. Rs.4.944 each. But if the above condition does not fulfil than service provider has to charge the full amount of Rs. 9.888 from U and it is his liability to pay the same in the exchequer accounts. For further detail kindly go through Notification No. 30/2012 dated 20.06.2012.

AI Summary

Valuation of owner-supplied materials increases taxable contract value, triggering partial reverse charge for specified suppliers and recipients. Valuation for service tax on a works contract includes the value of owner-supplied materials in the gross contract value, and service tax is computed on that gross amount. A partial reverse charge may apply such that, when specified conditions regarding the supplier and a body corporate recipient are met, the tax liability is apportioned between service provider and service receiver; otherwise the provider must charge and remit the full tax.