Service tax credit for works contract

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Deepak

Internal Auditor

25 Points Posted on 23 July 2012

Hi All

One of our business is to provide Works Contract. We provide spares, consumables and also provide the required service support and raise invoices at the end of every month.

We have gone into the Composition Scheme under VAT and hence we pay VAT on 80% of the invoice value and Service Tax on the remaining 20%.

For eg : if the invoice amount is Rs. 10000, then we pay VAT @ 5% for Rs. 8000 (Rs. 400) and Service Tax @ 12.36% for the remaining Rs. 2000 (Rs. 247.20)

My question is can we claim Service Tax Credit? (From Courier and Telephone Bills)

If so, can we claim it on the entire Service Tax amount, i.e. for Rs. 247.20? Or is it limited only to a certain percentage as not everyone is involved in the provision of services and this is not our only line of business.

Expecting your replies at the earliest.

Thanks

Deepak

Replies (2)

CA Ganesh Karthik

Chartered Accountant

368 Points Posted on 25 July 2012

Please refer the Notification No. 24/2012.

As per the notification (relating to Determination of Value Rules), Rule 2A, CENVAT Credit on inputs is not allowed to be claimed as credit.

CENVAT Credit on input services and capital goods can be availed as input credit for the payment of service tax.

Further, you've mentioned that you pay tax on 20% of the value. Pls check this. This will no longer be permitted. You have to follow the Service Tax Valuation Rules. The mode of calculation of service element iss prescribed there.

Others may pls offer their comments in case they disagree.

Deepak

Internal Auditor

25 Points Posted on 26 July 2012

Hi Ganesh

Thanks for your reply.

With regard to 20%, as we supply both materials and also provide services and raise a consolidated invoice, we are not in a position to exactly fix what %age of the invoice constitutes materials and what %age is for labour. Hence, under VAT, we have gone into the composition scheme, whereby we pay VAT @ 80% of the invoice value and service tax @ 20% of the invoice value assuming that 80% of the invoice is towards materials and 20% is towards service.

This percentage varies from state to state, as in some states it is 75% and 25% and in some it is 70% and 30% and so on.

Let me put my question more clearer :

We have sales teams and also service teams. Both the teams use mobile bills. Can we take service tax credit from mobile bills of both the teams? Or should it be only from the bills of the service team? In case the bifurcation from a consolidated bill is a tedious process, can we claim any specific %age of the service tax paid on the mobile bills as credit and adjust our service tax liability?

Hope the question is clear.

Thanks and Regards

Deepak