Works Contract

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 April 2010 Dear friends,

A company is engaged in work contracts of plumbing.

The bills raised by the company are composite bills for material and labour charges. No separate classification for material and labour charges is mentioned on the bill. VAT is being charged on 70% of the bill amount.

Please clarify how service tax will be charged? Will it be 10.3% on the 30% of the bill amount? Please clarify the abatement available in service tax? Also clarify that whether input credit of excise paid on goods or service paid on input services can be availed or not.

Thanks & Regards.

Kamlesh Chokhani

Kamlesh Chokhani (Expert)
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14 April 2010 The service provider who are registered under the taxable service category of “Work Contract Services” & exercise option to pay service tax under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 has the option to not to pay service tax at the rate prescribed under section 66 of the Act but to follow the provision as mentioned under said Rules.(Notification No. 32/2007)

1. Rate of service tax will be 4% plus apllicable cess of gross amount charges excluding amount of any taxes

2. Work contractor can not take credit of input used in providing work contract servoces but can take credit of input services and capital goods

I will check for option 2- whether any abatemet availavle and normal rate of service tax 10% plus cess available for this kinf of service
I will come back on same.

You can opt which is more beneficial to you.

thanks

Kamlesh

Kamlesh Chokhani

Kamlesh Chokhani (Expert)
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14 April 2010 Hi

2nd option:

abatement of 67% available under erecetion and installation services. plumbing covers under the definition of erection and installation services. serice tax is to be paid at normal rates

No cenvat credit is allowed in this case

thx

kamlesh

Querist : Anonymous

Querist : Anonymous (Querist)

14 April 2010 Thanx Kamlesh.

But in 2nd option, it is okay that plumbing is covered under the definition of erection & installation services but my case is of works contract services and as per your advice, I have an understanding that service tax is to be paid at normal rates ie. 10.3% of the gross bill. Am I right?

If what I understood is correct, it will result into double taxation viz service tax as well as VAT on the same bill amount.

Please see to it and give ur opinion.

Thanx & Rgds.

Querist : Anonymous

Querist : Anonymous (Querist)

14 April 2010 Rgds

Kamlesh Chokhani

Kamlesh Chokhani (Expert)
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14 April 2010
yes

you are right vat and service tax both is payable but are under different act.

1.Vat on work contract under local sale tax/ vat rules

2. service tax under service tax act which is a central act

% of abatemenmt will be different under two act.

under Vat applicable abatememt under local sale tac act

under service tax 67%. soppose bill amt is 100 rs. service tax of 10.3% will be payable on 33 Rs. ( 100-67)

There is double taxation but both are under different act . for your clarification in case of pur supply also we may require to pay Central excise as well as sale tax.

Thx

Kamlesh Chokhani

Querist : Anonymous

Querist : Anonymous (Querist)

17 April 2010 Thanks Sir.

But I am not satisfied with this reply.

I could not find any notification/circular/provision for abatement of 67% in case of works contract though this abatement is available in several other services.

Secondly, VAT and service tax could not applied simultaneously on the total bill though there could be double taxation on small fraction of the total bill due to difference in abatements under both the Acts.

However, abatement available in service tax is not yet cleared.

Thanks again.

Best Regards
Atul

Kamlesh Chokhani

Kamlesh Chokhani (Expert)
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17 April 2010 Dear Friend

If the gross value includes material plus services
................
option-1 raise bill under erection and installation services:
For claiming abatement of 67% the service tax category will be "Erection and installation services" ( notification no - 19/2003 dated 21.08.03) and no credit allowed in this case.

Option 2nd this can be treated as work contract- Service tax category work contract tax and composite rate will be 4.12 %. Credit of only input allowed. no credit allowed for input services and capital goods.

Hope this clarifies