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Service tax - work contract or construction services

CA Bijay Shrestha (Never Give up....No matter what....) (858 Points)

20 October 2016

In case of many Real Estate Developers and Builders, while accouting for Service Tax and filing returns, they choose ST category of "Work Contract" or some choose "Construction Services" . Why ???

Are both same ? in economic substances ?? are they free to choose any category or is there any legal methodolgy?

Please advice.

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6 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160484 Points)
Replied 31 October 2016

Builders should choose Construction Services. Works contract has different meaning.

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CA Bijay Shrestha (Never Give up....No matter what....) (858 Points)
Replied 31 October 2016

Originally posted by : Dhirajlal Rambhia

Builders should choose Construction Services. Works contract has different meaning.

Sir will u please elaborate your answer???

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160484 Points)
Replied 31 October 2016

Though there is hair thin difference between the two, let me put it as: Service will be taxable under the head ‘Works contract’ if the specific contract is works contract on which VAT is payable. Contract will remain service contract if either no material is involved and if involved then VAT is not payable.

Secondly, for levy of service tax, government has distinguished these services as per section as: “Works contract”, as per the section 65(105)(zzzza), while for "Construction of Residential Complex" as per Section 65 (105) (zzzh) of the Finance Act, and "Construction Commercial and Industrial Service" as per Section 65(25b) of the Finance Act etc.

As the rates of abatement also differ as per the different type of services, its better to choose correct option available.

For more clarification advised to refer: 1. F. No. B1/16/2007-TRU dated 22.05.2007.

2. https://www.luthra.com/admin/article_images/service-tax.pdf

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CA Bijay Shrestha (Never Give up....No matter what....) (858 Points)
Replied 31 October 2016

Thanks sir.

Generally, builders give contracts to sub-contractor who use thier material and services and raise bills on builders and on the other hand, builders collect service tax & VAT from prospective buyers. So here builders are liable to pay ST and VAT to Sub-contractors.

So I understand that for both Service Tax paid to Sub-contractors and collected from buyers, builders should categorise under " Work Contract" Service . Right sir??

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160484 Points)
Replied 31 October 2016

As I said earlier, in general terminology, one may take it in that manner. And yes, for contractors and sub-contractors, it will be Service under 'Works Contract' But for builder or Developers when a sub-catagory is specified, one should select that. Otherwise rates (and all other laws under ST act) of service tax on 'Works contract' would be applicable on Builders.

Finally, all these anomalies will subside with onset of GST.

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