Do we need to pay both service tax & vat on works contract ?

In case of Works Contract Service tax is payable only on the service portion involved in execution of works contract and Vat is payable on the transfer of property in the goods involved in execution of works contract. Service tax rate is presently 14.5% including SBC. However, one need to find out the value of the taxable services involved in execution of works contract. The value as such may be actual or presumptive. The method of calculation of the value of the service porion involved in execution of Works Contract is  provided in Rule 2A of the Service Tax Valuation Rules. Service Tax or VAT is therefore not payable on the Gross amount of the Works contract . So far as VAT is concerned the rate of vat payable on transfer of property in goods depends on the rates prescribed by the respective state Govt. . However. various state Govt has framed a Composition Scheme for levy of VAT in relation to or in respect of  Works Contract.

Thank you Promod ji,

This is the work of road laying, drainage line laying and other related land development works contracts for real estate co.in AP. However the contractor is asking for payment of both VAT @ 5% and Service Tax as per rate applicable on 40% of total bill amount. Is it possible to differentiate both material and service part on these works ?? We may also come under RCM.