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Service tax-reverse charge-works contract

Jyothis (Article) (1127 Points)

05 August 2015

What all expense comes under new regime of reverse charge on works contract to include all works contract services in relation to movable/immovable property.

Do a company needs pay reverse charge on vehicle repairs considerable as works contract (Material + labour charges)

What if a company buys material from a supplier and undertake labour service from any other party.Can a company evade tax in such a way.

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2 Replies

SamTK (Chartered Accountant) (194 Points)
Replied 06 August 2015

Firstly, there will be no "evasion" of tax. You will have to pay for the taxes one way or another. If you choose another route, you will have to pay the applicable VAT etc. So, it's more of tax planning than evasion.

If you choose to buy the materials from elsewhere, you will have to pay the applicable VAT. For the labor charges, you'll have to incur Service Tax.
You could do some back of the envelope calculations to see which would be more effective for you. Bear in mind, there is an abatement on works contract, so the coupled deal might be more feasible for you.

And either way, you'll get an Input Credit for it, so I don't think you should worry much.

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Jyothis (Article) (1127 Points)
Replied 06 August 2015

Firstly,there is no abatement on works contract.Reduction is so called valuation method choosen.Which justify material cost but only by 60% incase of orginal works contract & 30 % incase of others.

There is a possibility of tax evasion,if buy material a supplier and pays vat for it & undertake such work from another local workers/contractor not liable to charge service tax on bill, where it is only a labour service & company is not liable pay service tax on reverse charge basis.

Please correct me if am wrong.