Please clarify certain doubts regarding taxation of works contract service. My company is providing works contract service relating to maintenance workS and commercial construction to clients. Also we are registered under VAT as works contractor and are paying works contract tax under Kerala Vat at 3%. While raising our invoice for clients we are showing the gross value which is inclusive of VAT.
Again as per the new amended rule in service tax, there is an abatement of 60% on original works if we are opting for composition scheme and other maintenance work there is an abatement of 40%. My question and doubt is that for calculating the service tax payable, should we remove the vat component from the Gross value(since the gross value is inclusive of Vat) and calculate the service tax after providing the abatement of 60%/40% or should service tax be calculated on total gross value inclusive of vat. Please note that we are paying service tax under composition scheme. At present I am raising the invoices by calculation taxes in the following manner. Please verify and state if it is correct
Gross Value of Contract(inclusive of Vat) Rs 100000.00
Gross Value of Contract(Exclusive of Vat- 100/103 X Rs100000) Rs 97087.38
Value for Service Tax ( Rs97087.38 X 40%) Rs 38834.95
Service Tax @ 12%( 50% of (12.00% of Rs 38834.95)) Rs 2330.10 (Under Reverse mechanism 50% share)
Education Cess @ 2% of Rs 2330.10 Rs 46.60
SHEC @ 1% on Rs 2330.10 Rs 23.30
Total Payable( Rs100000 + Rs2330.10+46.60+23.30) Rs 102400.00
Please give expert opinion on above and whether the calculation has to be changed in future.