Tax in Work contract composition scheme

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 August 2010 i have one question about tax rate. one EPC construction co. make a contract in Dec. 2006 & agst this contract he recieved advance. & he start the work in april 2007.
as on 1/6/07 the composition scheme come & he opt for this scheme & start the paying tax on 1 sep.2007 first time @ when he receved the payment @ 2% & 4% whatever aplicable,but they not deposited the tax on advances they have received in 2006-07.
now they want to deposit the service tax.
What is the rate of tax he will pay. can he deposit the tax @ 2% +interest under composition scheme or he is liable for 12.36 % rate on that time exsisting services. Kindly help Me .

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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02 September 2010 As per rule 3(3) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 once compounding is opted the service provider has to follow the same method for the entire works contract. If that view is taken, the service provider is eligible to pay tax as per the composition rate prevailing plus interest.

But a different view also will emerge since composition scheme was not in force at the time of receiving advance and the service provider should have paid tax on advance at normal rate if tax has been paid in time.

Thus the issue will lead to litigation. So ,as per my understanding, the service provider may pay tax at compounded rate on the advance money by taking an abandent caution for not to loose the composition rate for the entire conract amount.

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Querist : Anonymous

Querist : Anonymous (Querist)

02 September 2010 Thanks for your answer, but when that company receved the advance he is not registed in the department. he is registerd in april.2007 but he receved the advance in jan.2007

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