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Service Tax on Labour charges

Harinder (student) (219 Points)

12 January 2011

A "XYZ" company, registered under VAT & Service Tax category Works Contract, is procuring a manufacturing fabrication contract from its clients. This includes man, material, premises from the part of the "XYZ" company, and the end product is billed to the Client. Here we need to charge VAT.

Further, "XYZ" arranges all the material, equipments required for fabrication work at its premises / yard and appoints another company "PQR" for providing only labour service viz: welder, fabricator. "PQR" is registered under Service Tax category "Repairs & Maintenace". Considering the fact that "XYZ" has appointed "PQR" for new manufacturing / fabrication work, can "PQR" charge Service Tax to "XYZ"?

"XYZ" can only charge VAT on manufactured product from its Client.

Can "XYZ" claim cenvat credit for service tax charged by "PQR"?

Kindly advise.

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6 Replies

Pankaj Arora (Learner) (3134 Points)
Replied 12 January 2011

yes xyz claim service tax credit.

prashant nema (Advocate) (52 Points)
Replied 12 January 2011

1. As to your 1st querry you need to charge the vat on sold good which is in your case gross bill amount as reduced by the labour work amount ( normaly it is taken at 40% of the bill amount but if the nature of work involves more or less labor than you can claim accordingly).

2. Yes PQR should charge service tax to XYZ and the XYZ can avail cenvat credit against service tax so paid to PQR.

Harinder (student) (219 Points)
Replied 12 January 2011

Originally posted by : prashant nema
	1. As to your 1st querry you need to charge the vat on sold good which is in your case gross bill amount as reduced by the labour work amount ( normaly it is taken at 40% of the bill amount but if the nature of work involves more or less labor than you can claim accordingly). 2. Yes PQR should charge service tax to XYZ and the XYZ can avail cenvat credit against service tax so paid to PQR.

Thank you for your reply.

But I still have a doubt, as "PQR" is registered under service tax category Repairs & Maintenance, how can they charge Service Tax for new Manufacturing / Fabrication work, which actually falls under Works Contract (Service Tax)

srikumar (Manager - Accounts) (27 Points)
Replied 10 January 2012

We are doing labour work for a company. Our annual labour charges would be Rs.50 lakhs. Is service tax applicable? Please advise me.

Harinder (student) (219 Points)
Replied 11 January 2012

Originally posted by : srikumar
	We are doing labour work for a company. Our annual labour charges would be 50 lakhs. Is service tax applicable? Please advise me.

Yes, Service Tax will be applicable to you as limit of Rs. 10 Lakhs is crossed

(Guest)

Originally posted by : prashant nema
	1. As to your 1st querry you need to charge the vat on sold good which is in your case gross bill amount as reduced by the labour work amount ( normaly it is taken at 40% of the bill amount but if the nature of work involves more or less labor than you can claim accordingly). 2. Yes PQR should charge service tax to XYZ and the XYZ can avail cenvat credit against service tax so paid to PQR.

Yes, I totally agree with prashant. thanks for giving us this useful information.

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