Work contarct

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SANJAY PATHAK (Querist)
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17 May 2012
In case of civil construction if some material such as steel & cement is supplied by client to the contractor free of cost than what is vat status on such material supplied free of cost.

Prakash Kochar

Prakash Kochar (Expert)
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17 May 2012 cost/value of material is deducted from gross contract amount, it will be treated as sale in hand of client and purchases for contractor.
If the gross contract value is exclusive of cost of cement and steel supplied by client under the circumstances the gross value exclusive of material supplied by client will be consider as sale value for wct.

SANJAY PATHAK

SANJAY PATHAK (Querist)
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17 May 2012 if the gross contract value is exclosive of cost of cement and steel supplied by the client under this circumstances what is the status of service tax.

for example if contract value is 3.00 crore (exclusive of cement & Steel Value) and value of steel & cement is also Rs.3.00crore which is not included in contract value than what is the status od service tax under works contract services & construction services in respect of commercial or civil structure. pls calculate service tax liability .

Prakash Kochar

Prakash Kochar (Expert)
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18 May 2012 Value of material supplied by client free of cost for executing contact that is included for determining the TO for service Tax.

SANJAY PATHAK

SANJAY PATHAK (Querist)
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18 May 2012 How can it justified by us to department that cost of free material supplied by client is this because no bill is raised by the client to us. In case of service tax

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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03 August 2025 Here's a clear explanation based on your query regarding materials supplied free of cost by the client and service tax implications in civil construction contracts:

VAT on Materials Supplied Free by Client
When the client supplies materials like steel & cement free of cost to the contractor:

The client is deemed to have sold those materials to the contractor at their market value.

This value is added to the contractor’s cost/purchase for accounting purposes.

For VAT purposes, the client’s supply of materials is considered a sale to the contractor, and the contractor will treat it as part of their purchase.

Service Tax on Works Contract with Free Materials
If the contract value excludes the cost of materials supplied free by the client:

For service tax liability on works contract services, the value of the materials supplied free of cost by the client is also included in the taxable turnover.

So, taxable value = Contract value + Market value of free materials supplied by the client.

Example Calculation:
Contract Value (excluding materials) = ₹3.00 crore

Value of materials supplied by client = ₹3.00 crore

Total taxable value for service tax = ₹6.00 crore

Service Tax Liability (as per rates applicable around 2012):
Around that time, service tax on works contract services was approximately 10.3% (including education cess & secondary cess).

Service tax payable = 10.3% of ₹6.00 crore = ₹61.8 lakh

Summary:
Material supplied free by client is included in taxable value for service tax on works contract.

The client is deemed to have sold materials to contractor for VAT purposes.

Service tax is applicable on combined value (contract + free materials).

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