Sub contractor- exemption from service tax

[AJAY AGRAWAL]

One of the contractor has been awarded the trunkey work of renovation of STATIDUM . The award letter clealy state for reimbusement of service tax. The Contract was awarded prior to 01.03.2008 and contactor was paying 2 % under composition scheme. From 01.03.2008, the contractor is paying 4 % as service tax besides the work contract tax i.e VAT . The subcontractor are also claiming the service tax from the contractor. My QUERY IS : 1. Whether, such sub contractor can avail the expemption from service tax , being sub contract. 2. If the contractor has to pay the service tax on subcontract, Will he claim the CENVAT Credit under composition scheme

[Guest]

As I understand, unlike VAT provisions, in the case of service tax, tax is chargeable in both the hands of contractor and sub-contractor. Thus (1) there is no exemption from service for being sub-contract and tax is to be collected/paid by him. (2) If both sub-contractor/Contractor opts for composition scheme, then no CENVAT credit can be claimed by them.

AI Summary

Service tax liability applies to both contractors and subcontractors; composition scheme bars CENVAT credit under the regime. Subcontracting does not exempt the subcontractor from service tax; tax is chargeable on both contractor and subcontractor for their respective taxable services. Reimbursement terms do not remove the subcontractor's tax obligation. If a contractor or subcontractor has opted for the composition scheme, they are not entitled to claim CENVAT credit, and where both opt for composition, neither may claim such credit.