Work contract_urgent

This query is : Resolved

Bhavesh H Sanghavi (Querist)
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17 December 2013 Dear member,

in my Company tax department is having practice to charge ST @ 6% as recipient and service provider is also charging ST @ 6% so in total we are paying ST 12% .
Service provider shows service portion seprately and the rate is applied on service portion only but the confusion is that do we need to pay ST after abatement i.e 60% as it is for fitting of machinery and to apply 3.6% (12*60%*50%) as reverse chage applicable to us and without considering the option (Method) applied by Service provider.

also clarify about Cenvat credit of ST paid to Service provider and as per reverse charge in case 1 and case 2.

Thanks & Regards,

Bhavesh Sanghavi

Bhavesh H Sanghavi

Bhavesh H Sanghavi (Querist)
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17 December 2013 Is there anyone to help me regards above query?

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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03 August 2025 Hi Bhavesh,

This is a classic issue regarding Service Tax on Work Contract Services with Reverse Charge and abatement application. Let me clarify point by point:

1. Service Tax Rate and Abatement
For work contract services involving fitting and installation of machinery, the applicable Service Tax rate is 12% (including cess).

There is an abatement of 40% on the gross amount (Rule 2A of Service Tax Valuation Rules), meaning tax is charged on 60% of the contract value (service portion assumed as 60%).

So, taxable value = 60% of the contract value.

2. Reverse Charge Mechanism (RCM)
In many cases, the recipient (your company) is liable to pay Service Tax on a reverse charge basis.

Under RCM, you must pay 50% of the service tax amount applicable on the taxable value (60% of contract value).

So, effective Service Tax liability for you under RCM = 12% × 60% × 50% = 3.6% of total contract value.

3. Service Provider Charging Service Tax
If the service provider is charging Service Tax @ 6% on the service portion separately, they may be applying partial tax or partial reverse charge incorrectly.

Service provider charging ST and recipient paying ST on reverse charge for the same service leads to double taxation.

4. What Should You Do?
If Service Provider is charging Service Tax (normal charge):
You are not liable to pay Service Tax under RCM on the same service.

If Service Provider is NOT charging Service Tax:
You as recipient must pay ST under RCM at 3.6% of contract value.

5. About CENVAT Credit
Case 1: Service Provider charging ST on invoice

You pay the invoice amount including Service Tax (6% or 12%) to service provider.

You can take CENVAT credit of the service tax paid to the service provider on your input side.

Case 2: You paying ST under Reverse Charge

You deposit ST under RCM (3.6%) to government.

You can take CENVAT credit of the ST paid under reverse charge.

In no case should you pay ST twice on the same service.

6. Summary Table
Scenario ST Charged by Provider ST Paid by Recipient (RCM) Credit Available to Recipient
Provider charges ST fully Yes No Credit of ST paid to provider
Provider does NOT charge ST No Yes (3.6% on contract) Credit of ST paid under reverse charge
Provider charges ST partially (6%) Yes No or unclear Clarify liability to avoid double tax

Action points for your company:
Check if service provider has charged Service Tax on their invoice.

If yes, do not pay under RCM; claim credit for tax paid.

If no, pay 3.6% ST under RCM and claim credit.

Maintain proper documentation of tax payments and invoices.

Reconcile with your tax department to avoid double payment.

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