Changeability of Service tax and VAT

owners of building going in for addition and alteration of area of their flats.(addl. fsi) thru works contract to a civil Contractor. Do the owner need to pay service tax and vat if yes then at what rates. the contracts present quotation states VAT @ 8% on gross value and ST @ 10.5%. He says he had charged on composite basis which we think it would be wrong as vat should be charged on materials & goods and ST on labour services. Please advice a proper right way out.Tks.

There are 2 ways:

  1. If service portion can be ascertained, then levy ST on service portion and charge VAT on goods at applicable rates
  2. If service portion cannot be ascertained, then ST is levied on 70% of the contract value (i.e. @ 10.5%) and VAT can be levied @ composite rates which may be state specific.

For more details on ST, refer rule 2A of Service Tax (Determination of Value) Rules

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so solution ended with 5% vat and 6% ST for original works contract.


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