Supply of material

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This query is : Resolved

Ashim (Querist)

19 April 2013 Dear Sir,

If a vendor is not a authorised vendor in Service Tax(not having S Tax Code)and when he supply materials and with labour he submit a bill to a company. What should the company do that mean what is the Service Tax implications here in that particular bill before releasing his bill.

Please help.

Regards,
Ashim

CA Vikas Acharya

CA Vikas Acharya (Expert)

19 April 2013 ITS COMES UNDER WORK CONTRACT, CO. IS LIABLE TO PAY TAX ON 50% PORTION, WHETHER THE PROVIDER IS REGISTERED OR NOT.
THOUGH COMPANY CAN NOT TAKE THE CREDIT IF THE PROVIDER IS NOT REGISTERED AS THE INVOICE GIVEN BY HIM WOULD NOT BE SUFFICIENT DOCUMENT FOR TAKING CCR.

Ashim

Ashim (Querist)

11 April 2014 Dear Sir, Thanks for your reply, but I have some queries.

1. What is the Credit that company gets

2. Whether the Un-registered vendor mentioned Service Tax of that 50% in his Invoice that he will submit to the Company.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

26 July 2025 Great question! Let me clarify the **Service Tax implications** when a vendor **not registered under Service Tax** supplies materials along with labor (i.e., a works contract), and how the company should handle it.

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### Situation Summary:

* Vendor **not registered** under Service Tax (no Service Tax Registration).
* Vendor supplies **materials + labor** (works contract).
* Vendor submits a bill without Service Tax.
* Company needs to know how to deal with this before releasing payment.

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## 1. **Liability to pay Service Tax (Works Contract Service)**

* Under Service Tax laws (pre-GST regime), **works contract is a taxable service**.
* The **company (recipient of service)** is liable to pay Service Tax on **50% of the contract value** under the **reverse charge mechanism (RCM)** if the vendor is **unregistered**.
* So, even if the vendor does not charge Service Tax, the company **must pay Service Tax on 50% of the amount (materials + labor)** to the government.

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## 2. **Input Credit**

* Since the vendor is **not registered**, he **cannot issue a valid Service Tax invoice**.
* The company **cannot take CENVAT credit** on the Service Tax paid under reverse charge.
* This means **Service Tax paid by the company on RCM is a cost and not creditable**.

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## 3. **What should the company do before payment?**

* **Verify** the vendor’s Service Tax registration status.
* If the vendor is **unregistered**:

* The company should **pay Service Tax on 50% of contract value on reverse charge basis**.
* The company should **inform the vendor** about this liability.
* The company must **deposit the Service Tax** and **issue a payment voucher** as proof.
* If the vendor is registered:

* The vendor should charge Service Tax on the service portion.
* The company can take credit on the Service Tax paid.

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## 4. **Vendor’s Invoice**

* An unregistered vendor **cannot mention Service Tax** in the invoice.
* The invoice will show only the **total amount (materials + labor)**.
* The company will compute and pay Service Tax separately on 50% under RCM.

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## 5. **Summary Table**

| Situation | Company’s Action | Input Credit Available? |
| ------------------------------------------ | ----------------------------------------------- | ----------------------- |
| Vendor unregistered | Pay Service Tax on 50% under reverse charge | No |
| Vendor registered and charging Service Tax | Pay vendor Service Tax, take credit if eligible | Yes |

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