Works contract

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CA Sunil Kumar Jain (Querist)
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23 March 2015 Dear sir,
I have a query regarding Works contract

I provide service of construction which comes under works contract
We issue bill like this

Repairing job Rs 100000
ST @ 12.36% on 35% Rs. 4326
Total amount Rs. 104326

From the invoice one can say that value of service(35%) n value of material(65%) are determinable therefore service tax will be charged on service portiin only as we do in invoice now my query is

1) how to show it in Form ST 3?. should we show total amount charged i.e. 104326 n show 65% as other deduction or directly show only 35% as gross vale of service n ignore 65% ?

2) i am still in confusion it is determinable or not ...or i should go with 40% criteria original works n take 60% as abatement. Kindly note that we have separate complete record of material which on an average comes arnd 65% only

Pls reply
Thanks

Harshal Fifadra

Harshal Fifadra (Expert)
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23 March 2015 1. Show the abatement amount separately in ST3.
2. The abatement on original works is 30% .Hence, service tax payable on 70% of the value . 50% of such shall be payable by service provider and other 50% shall be payable by service recipient.

CA Sunil Kumar Jain

CA Sunil Kumar Jain (Querist)
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24 March 2015 Sir...i think abatement on original work is 60% but that is only when we cant segregate(determine) service n material portion.
But our invoice specifically mention service portion 35% n material 65%. N also we have complete record of material which will be approx 65% only.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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03 August 2025 You're absolutely on the right track in distinguishing when to use standard abatement vs. actual bifurcation under the Service Tax regime for works contracts (FY 2014–15).
Let's break this down clearly based on your scenario and answer your two questions with references to the Service Tax (Determination of Value) Rules, 2006 (particularly Rule 2A), and how it should be shown in Form ST-3.

📌 Your Scenario Recap (March 2015):
Nature of work: Repairing job (not original work)
Invoice:
Total billed = ₹1,00,000
Service portion = 35% → ₹35,000
ST @12.36% on ₹35,000 = ₹4,326
Material portion = 65% → ₹65,000
Complete record of material cost available
Invoice clearly bifurcates service vs. material
✅ 1. Is bifurcation of service and material allowed in this case?
✔️ YES — you can use actual value method (Rule 2A(i))
Since you:
Have proper books of accounts, and
Have clearly identified the service and material components in the invoice,
You do NOT need to apply abatement (i.e., 40%, 60%, or 70% rule).
📌 Instead, you can pay Service Tax only on the actual service portion (35% in your case), under Rule 2A(i)(A).

So, you're following the correct approach by:

Charging ST only on ₹35,000
Not applying general abatement
✅ 2. How to show this in Form ST-3?
Here’s how to correctly report it:
📋 A. Gross Amount
In Part B1 of Form ST-3, report the gross amount charged for the service portion only, i.e. ₹35,000.
You do not need to show ₹1,00,000 unless you're applying abatement.
📋 B. Exemption/Deduction Section
Since you are using actual value method (not abatement), you do not show any abatement or deduction under 'Exemptions' in ST-3.
✅ So:
Gross Value of Taxable Service = ₹35,000
Service Tax @12.36% = ₹4,326
This is without using any % based abatement or valuation benefit under Rule 2A(ii)
❌ When should you use the 60% abatement method (i.e., taxable value = 40%)?
Only if:
You do not maintain separate records, or
You cannot reliably determine the value of materials and labour separately
That would fall under Rule 2A(ii) where:
For original works: 40% of total contract value is taxable
For repair/maintenance: 70% is taxable (30% abatement)
In your case — you have accurate records and a bifurcated invoice, so this does not apply.
✅ Final Answers:
Q1: How to show it in ST-3?
Show only service portion (₹35,000) as the gross taxable value
No need to show ₹1,00,000 or any abatement if using actuals method
Do not claim 65% deduction in the return — it’s not an abatement; it’s part of total value not subject to service tax
Q2: Is it determinable? Should I go with 40% abatement instead?
✔️ Yes, it's determinable (you have records + clear invoice)
❌ Do not use 40% abatement; that’s only for undeterminable cases
So your method is correct and compliant under Rule 2A(i)

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