Service tax and excise on Ready Mix concrete

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 January 2011 Dear All,

What are the taxes and duties applicable on RMC (Ready Mix Concrete?

Present our RMC supplier charging state VAT in his bill. We asked him to install plant at our construction site and then we will buy and supply all material needed for concrete mix to him and we will pay service charges to him along with service tax applicable.

My question is my approach is correct? As State VAT exemption is there for our plant, no input tax for us. In this situation how can we avoid state sales tax? Can we go for service contract with him?

Please give your valuable suggestion?

Thanking you,
Swamy.K

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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12 January 2011 In case of VAT , always write the name of state.

You can take the service by supplying the material and after job work sold in the market.

Yes you have to go for service contract in this case.

Querist : Anonymous

Querist : Anonymous (Querist)

13 January 2011 sir, thanks for your reply.

I am from Vizag, A.P, present on purchase of RMC we are paying VAT/sales tax @ 14.5% on sale bill. He is not charging excise duty in his sale bill.

As we can't claim any input tax on VAT/sales tax paid, we are planning to enter a service contract with him.

Suppose, after entering RMC service contract, if he supplied any material like cement etc. along with service, can he claim exemption in his service bill for goods supplied along with service as per service tax act.

Plese explain sir,
Swamy.K

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Hi Swamy,

Your situation with Ready Mix Concrete (RMC) and the related taxes is a common concern, and it’s good that you’re exploring how to structure your arrangement to optimize tax efficiency.

Let me break down the key points and clarify your queries about VAT, Excise, and Service Tax in the RMC context.

1. VAT on RMC Supply
When you purchase RMC from a supplier, typically VAT (or State Sales Tax) is charged on the sale price of RMC.

In your case, the supplier charges VAT @ 14.5% but no excise duty.

Since you cannot claim input VAT credit on this purchase (due to the nature of your project or state VAT rules), VAT becomes a cost for you.

2. Excise Duty on RMC
Ready Mix Concrete may or may not attract excise duty, depending on whether it is classified as a manufactured product and whether the supplier is an excise manufacturer.

If the supplier is manufacturing RMC in a plant, excise duty could apply.

But in many cases, RMC supplied directly to construction sites is considered a work contract service rather than a sale of goods, and excise duty may not apply.

In your case, since the supplier is not charging excise duty, it suggests that they consider the RMC supply under work contract or service model.

3. Service Tax on RMC
If you enter a service contract with the supplier where:

You supply all raw materials (cement, sand, aggregates, etc.)

The supplier provides the service of mixing and delivering concrete
then service tax is applicable on the service charges paid to the supplier.

This arrangement converts the transaction from a sale of goods (with VAT) to a service contract (with service tax).

4. VAT Exemption on Your Plant
You mentioned that the plant installed at your construction site has VAT exemption.

This implies that if you buy materials yourself and have the supplier just provide the mixing service, you may avoid VAT on the service charges (as VAT is not charged on services).

You will, however, pay service tax on the service charges.

5. Supplier Supplying Materials Along with Service
If the supplier also supplies goods (like cement or other materials) along with the service, then:

The supplier cannot claim service tax exemption on the entire bill because the value includes taxable goods.

The supplier needs to separate the value of goods and services in the invoice.

VAT will apply on the value of goods supplied.

Service tax will apply on the value of service portion.

To claim exemption, the supplier should restrict the contract to only service, with you supplying all raw materials.

6. Your Approach and Suggestion
Your approach to enter a service contract with the supplier where you supply all raw materials is correct to:

Avoid paying VAT on the whole RMC supply

Pay only service tax on service charges

You should ensure:

The supplier’s invoice clearly separates service charges from any goods supplied

The supplier does not supply any goods if you want to avoid VAT on goods component

Proper documentation and agreements are in place

Summary
Situation Tax Implication Your Benefit / Concern
Purchase RMC with VAT & no excise VAT charged on total invoice Cannot claim input VAT → cost burden
Service contract with supplied materials Service tax on service charges only Avoid VAT, pay service tax only
Supplier supplies goods + services VAT on goods + Service tax on services Exemption not possible; pay VAT and service tax

Recommendation:
Go ahead with the service contract model where you supply all raw materials, and the supplier provides only the service of mixing/delivery. Ensure the invoice reflects this clearly.

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