Works contract service

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ANAND BALKRISHNA PANCHAL (Querist)
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17 November 2011 We are in lift business wherein we purchase the components & supply them on the site where final product(lift) comes into existance. A special labour contractors(sub-contractors) does this job for us of errection,commissioning & installation of the lift. We charge service tax under works contract service because our business comes under works contract act. We charge service tax @ 10.30% on 15% of contract value.Here we presume that our service portion is 15%. We don't take any setoff agst input services or any cenvat credit.
Pls inform whether rate of service tax is right? It seems there is another option also to discharge the liabilty under Works Contract Service(Composition Scheme)where rate is 4.12%. One of our customer has raised a query that we are charging wrong % . Pls guide

PUNEET GOYAL

PUNEET GOYAL (Expert)
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21 November 2011 FOR THE SERVICES TAXABLE UNDER THE HEAD WORKS CONTRACT SERVICES U/S 65 (105)(zzzza) following provisions shall be applicable:
OPT FOR COMPOSITION SCHEME
1. VALUE OF TAXABLE SERVICES
Value of all goods (including FOC)+ value of all services -vat or sales tax -cost of machinery and tools used for execution of work.
(As per explanation of rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007)

2. CENVAT CREDIT MAY BE TAKEN OF
1. Input services
2. Capital goods
But cenvat credit cannot be taken of input and goods involved in execution of work.
The CENVAT credit of tax paid on taxable services as referred to under sub-clauses
(zzd), (zzq) and (zzzh) of clause (105) of section 65 of the Finance Act, 1994, shall be available
only to the extent of 40% of the service tax paid when such tax has been paid on the full value of the service after availing CENVAT credit on inputs.
(WEF 01.03.11)
3. RATE OF SERVICE TAX
4.12%
NOT OPT FOR COMPOSITION SCHEME
1. VALUE OF TAXABLE SERVICES
Gross amount charged – value of goods – sales tax/vat
(As per rule 2A of SERVICE TAX (DETERMINATION OF VALUE) RULES, 2006)

2. CENVAT CREDIT MAY BE TAKEN OF
1. Inputs
2. Input services
3. Capital goods
But cenvat credit cannot be taken of goods involved in execution of work.
3. RATE OF SERVICE TAX
10.30%

I hope above analysis will resolve ur all query. Your treatment is not correct. You should follow the above provision.

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