Turnkey project
This query is : Resolved
02 August 2010
XYZ is a Charitable trust, which runs a pharmaceutical college.It has awarded a contract for construction of new college premises to kfc construction co ltd.KFC has taken the contract. However, it has broken the contract and awarded several sub contracts.My client is awarded the entire electrical contract by KFC Ltd. Whether in such case, my client should collect service tax from KFC Ltd?KFC Contends that the final authority that benefits from contract is XYZ, which is a charitable org, no service tax arises. Pls help.
02 August 2025
Great question about service tax on contracts involving charitable trusts and subcontracting in turnkey projects. Here’s a clear explanation:
---
### Scenario Recap:
* **XYZ Trust** (charitable trust) awards turnkey construction contract to KFC Construction Co. Ltd.
* KFC subcontracts part of work (electrical contract) to your client.
* Query: Should your client collect **service tax** from KFC Ltd?
* KFC says no service tax since final beneficiary is charitable trust.
---
### Service Tax Perspective (Pre-GST context):
1. **Service Tax on Works Contract:**
* Construction services (works contracts) are **taxable services** under service tax law.
* When KFC awards electrical subcontract to your client, your client is **providing taxable service** to KFC.
2. **Who pays service tax?**
* Service tax is charged on the **service provider to service recipient**.
* Your client should charge service tax to KFC on the subcontract value.
3. **Does the charitable status of XYZ Trust affect this?**
* **No.** The taxability is between your client and KFC.
* The fact that the final beneficiary is a charitable trust **does not exempt** the service provided by your client to KFC.
* KFC is the service recipient and must pay service tax on services received.
4. **KFC’s claim:**
* KFC is incorrect in saying no service tax arises because the final beneficiary is charitable trust.
* Service tax is payable on the **service transaction between your client and KFC**, regardless of end use.
---
### Conclusion:
* Your client **must collect service tax from KFC Ltd** on the electrical subcontract.
* KFC, in turn, pays service tax on the main contract and can avail input credit if applicable.
---
If you want, I can help draft an email or legal opinion clarifying this for your client or KFC. Would you like that?
---
### Scenario Recap:
* **XYZ Trust** (charitable trust) awards turnkey construction contract to KFC Construction Co. Ltd.
* KFC subcontracts part of work (electrical contract) to your client.
* Query: Should your client collect **service tax** from KFC Ltd?
* KFC says no service tax since final beneficiary is charitable trust.
---
### Service Tax Perspective (Pre-GST context):
1. **Service Tax on Works Contract:**
* Construction services (works contracts) are **taxable services** under service tax law.
* When KFC awards electrical subcontract to your client, your client is **providing taxable service** to KFC.
2. **Who pays service tax?**
* Service tax is charged on the **service provider to service recipient**.
* Your client should charge service tax to KFC on the subcontract value.
3. **Does the charitable status of XYZ Trust affect this?**
* **No.** The taxability is between your client and KFC.
* The fact that the final beneficiary is a charitable trust **does not exempt** the service provided by your client to KFC.
* KFC is the service recipient and must pay service tax on services received.
4. **KFC’s claim:**
* KFC is incorrect in saying no service tax arises because the final beneficiary is charitable trust.
* Service tax is payable on the **service transaction between your client and KFC**, regardless of end use.
---
### Conclusion:
* Your client **must collect service tax from KFC Ltd** on the electrical subcontract.
* KFC, in turn, pays service tax on the main contract and can avail input credit if applicable.
---
If you want, I can help draft an email or legal opinion clarifying this for your client or KFC. Would you like that?
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