Works contract

This query is : Resolved

CA ABHISHEK TEKRIWAL (Querist)
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09 October 2013 A proprietorship concern is engaged in providing "Construction services other than residential complex, including commercial/industrial buildings or civil structures"
It is charging gross amount of Rs.47 Lakhs for a contract.In which they Used material of Rs.25lakhs(Rs.20 Lakhs Material +Rs.3 lakhs Excise duty +Rs.2 Lakhs Vat)and it is also taking services of a labour contractor who charged Rs.10,30,900(10,00,000+ Rs.30900 for service tax 12.36% x 25% as reverse charge is applicable and Balance 75% is also paying)now Questions are:
1.Whether TIN number is also required for material used?
2.In which manner we will issue bill ?whether we will charge both Service tax and Vat separatly?
3.is there any option of composition
(Abatment)scheme?
4.what amount of service tax would be payable in both case??Input Credit of Excise,Service Tax,Vat can be availed or not??
5.whether reverse charge will also applicable in this case of work contract as individual is providing services to company??
please help me...very urgent....tried alot to solve but could not...Thanks

KAUSTUBH M JOSHI

KAUSTUBH M JOSHI (Expert)
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11 October 2013 ASSUMING THAT THE PROVISIONS OF MVAT ACT 2002 ARE APPLICABLE FOR YOU THE ANSWERS ARE AS FOLLOWS:
1.YES TIN NO OF SUPPLIER IS MUST TO AVAIL ITC OF INPUT MATERIAL WHICH IS CROSS CHECKED THROUGH ANNEXURE J1 J2.
2. YES, YOU HAVE TO CHARGE VAT AND SERVICE TAX SEPARATELY, PROVISIONS FOR ISSUE OF INVOICE UNDER TWO METHODS IS AVAILABLE, CHARGING VAT ON MATERIAL COMPONENT AND SERVICE TAX ON SERVICE COMPONENT. YOU HAVE TO MAINTAIN RECORDS ACCORDINGLY ABOUT CONSUMPTION OF MATERIAL AND LABOUR.
3.YES COMPOSITION SCHEME IS AVAILABLE.
4. VAT @ 8% AND SERVICE TAX @ 4.944% INCLUSIVE OF E. CESS SHALL BE CHARGEABLE ON NET AMOUNT. YOU CAN AVAIL ITC OF MATERIAL PURCHASED TO THE EXTENT OF 16/25TH PART OF TAX PAID. IN RESPECT OF SER TAX YOU HAVE TO PAY 50% OF YOUR TAX LIABILITY UNDER REVERSE CHARGE AND CONTRACTEE SHALL PAY 50% OF SERVICE TAX UNDER REVERSE CHARGE. CENVAT OF EXCISE DUTY CANNOT BE AVAILABLE FOR PAYMENT OF SERVICE TAX. SAME YOU CAN CLAIM AS AN EXPENSE DEBITING P & L.
5. REVERSE CHARGE IS APPLICABLE AND ANSWERED IN 4 ABOVE.
REGARDS
KAUSTUBH JOSHI

CA ABHISHEK TEKRIWAL

CA ABHISHEK TEKRIWAL (Querist)
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11 October 2013 Mr.X is engaged in providing Civil Construction Services and charging Service Tax.SO for which out of following he can claim input credit in "BOTH OPTION" if he is opting composition scheme of(60-40) or he is calculating value of actual service portion:
a.Excise duty paid on material used
b.Excise duty paid on capital goods
c.Service Tax paid on input labour Services 25% via Invoice
d.Service Tax paid on input labour Services 75% under reverse charge??

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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03 August 2025 You're dealing with a Works Contract scenario (pre-GST, Financial Year 2013–14), involving both VAT and Service Tax. Let's go through your questions step-by-step, tailored to the rules applicable as of 2013, especially for construction services other than residential complex (i.e., commercial civil construction).
📌 Summary of Facts:
Proprietorship firm
Providing civil construction services (not residential)
Total contract value: ₹47 lakhs
Material used: ₹25 lakhs (₹20L + ₹3L Excise + ₹2L VAT)
Labour contractor billed: ₹10,30,900 (including service tax)
Service recipient pays service tax under reverse charge (RCM) partially
🔍 Q1. Is TIN number required for materials used?
✅ Yes.
Since you're buying and using materials and charging VAT on outward supply (under works contract), you are acting as a dealer under VAT law. Therefore:
You need a TIN (Taxpayer Identification Number) under the Andhra Pradesh VAT Act (APVAT).
If you're under composition scheme of VAT, the TIN is still required, but filing is simplified.
🔍 Q2. How should the bill be issued? Should both VAT and Service Tax be charged separately?
✅ Yes, both VAT and Service Tax must be charged separately if you are under regular scheme (not composition):
Invoice format should be bifurcated:
Gross Contract Value = ₹47 lakhs
Less: Labour charges (if you separate them)
Then:
Add Service Tax (on service portion)
Add VAT (on material portion)
📝 Typical format:
Gross Value of Contract: ₹47,00,000
Less: Labour Charges: ₹X
Taxable Value for VAT: ₹Y → VAT @ applicable rate
Taxable Value for Service Tax: ₹Z → Service Tax @ 12.36%
But if opting for composition under either Service Tax or VAT, billing will be simplified accordingly (explained below).
🔍 Q3. Is there any composition (abatement) scheme available?
✅ Yes, in Service Tax (2013–14), you had 2 options:
➤ Option 1: Composition Scheme (Abatement Method – 60:40 Rule)
Taxable portion of service = 40% of total contract value.
Service Tax @ 12.36% on 40% of ₹47 lakhs.
Conditions:
No CENVAT credit on inputs/materials
No separate VAT shown on invoice (if not opted for dual taxation)
➤ Option 2: Actual Value Method (Rule 2A of Service Tax Valuation Rules)
Split material and labour accurately based on books.
Pay Service Tax on labour portion only
You can claim CENVAT credit on:
Input services
Capital goods
Excise duty on inputs (if not under abatement)
➤ VAT Composition (AP VAT):
VAT Composition Scheme available @ 5% on entire value (without claiming input credit)
If under VAT composition, no input tax credit (ITC) on VAT
🔍 Q4. What amount of Service Tax is payable under both options? Can Input Credit be availed?
➤ Under Option 1 (Composition/Abatement Scheme - 60:40):
Taxable portion = 40% of ₹47L = ₹18.8L
Service Tax = 12.36% of ₹18.8L = ₹2,32,368
❌ No CENVAT credit allowed on:
Inputs (materials)
Input services
✅ Only credit on capital goods may be allowed
➤ Under Option 2 (Actual Method – Rule 2A):
Labour + Services = ₹10 lakhs (based on your data)
Taxable portion = ₹10 lakhs
Service Tax = 12.36% of ₹10L = ₹1,23,600
✅ CENVAT credit allowed on:
Excise Duty on inputs
Excise on capital goods
Service tax paid on input services
Partial credit on RCM also allowed (see below)
🔍 Q5. Is Reverse Charge applicable if an individual is providing services to a company?
✅ Yes.
Under Service Tax law (2013–14), for manpower supply or works contract, Reverse Charge Mechanism (RCM) applied if:
Service provider is an individual/partnership
Service receiver is a body corporate/company
In your case:
The proprietorship (Mr. X) is receiving service from a labour contractor (individual)
Hence, RCM is applicable
75% of Service Tax is payable by recipient (you)
25% is charged and paid by contractor
✅ You can claim CENVAT credit on both:
25% tax charged via invoice
75% tax paid under RCM (self-payment)
✅ Final Notes on Input Credit Eligibility
Credit Type Option 1 (Abatement) Option 2 (Actual Value)
a. Excise duty on inputs ❌ Not allowed ✅ Allowed
b. Excise on capital goods ✅ Allowed ✅ Allowed
c. Service tax on input services (invoice) ❌ Not allowed ✅ Allowed
d. Service tax under RCM (75%) ❌ Not allowed ✅ Allowed
🧾 Quick Recap:
TIN is required under VAT for material component
Both VAT & Service Tax are chargeable, separately if under regular scheme
You can opt for:
Composition (60:40) – Simplified but no input credit
Actual value – Lower tax if labour portion is high, input credits allowed
RCM applies, and credit can be claimed on service tax paid

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