Payment of service tax - under different category

[Deepak Goel]

If a person who is paying service tax on a Construction of Residential Complex, now he wants to change the option to pay Service Tax under Work Contract on the said project OR this is applicable only on new work contract OR he can terminate the said contract and sign again for balance work and pay service tax under Work Contract Scheme. Deepak Goel Mob No. 9818112228

[sudhir V S]

Dear Mr. Deepak, as per the provision of Rule 3(3) of Works Contract (Composition Scheme for payment of Service tax) Rules, 2007 the option of 2% can be opted before the payment of any service tax on that particular works contract. But the option could have been exercised on 01.06.2007 i.e is the effective date of intro of Works Contact. Once tax has been paid after such date under normal rate, it may be difficult to change. Entering into a fresh contract may not be feasible as the reference here is "works Contract" and not "contract". Hence the works contract referred to here is the actual project.

[Madhukar N Hiregange]

It maybe possible to terminate the existing contract and enter into a new contract. However the Mc Dowell case on using colorable devices to evade taxes maybe kept uin mind.

AI Summary

Works contract composition option must be exercised before any service tax payment; restructuring risks anti avoidance scrutiny.
The composition option under Rule 3(3) must be exercised before any service tax payment on the relevant works contract; once tax has been paid under the normal rate it is difficult to change. "Works contract" refers to the project as a whole rather than an individual contract. Termination and re contracting to access the composition scheme may be possible but risks being treated as a colorable device to evade tax and attracting anti avoidance scrutiny.