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Vat/excise on free supplies under work contract services

Rohan (Consultant) (91 Points)

05 July 2012

My Query regarding detereming fair value of free supplies provided by the Service Receiver - A to Service Provider - B. "A" has provided Cement & Steel costing 100/- + VAT 4/- + Excise 25/- (Total :- 129/-) to "B". "B" a Developer/Builder builds the Commercial complex for "A" in return. Contract is entered excluding the value of Free Supplies for 50/-

Question : - Taxable value of Service would include Fair Value of Free supplies, agreed. However, would the Taxable value include VAT&Excise paid on Inputs or free supplies. i/e whether the Taxable Value be 50+100=150/- or 50+129=179/- for the Contractor.

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Rohan (Consultant) (91 Points)
Replied 05 July 2012

As per Rule2A of Service Tax Determination of Value Rules in respect of Work Contract Services. Explanation 1 which reads as follows.

(b) "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting—

(i) the amount charged for such goods or services, if any; and

(ii) the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Explanation 2.—For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.]

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 06 July 2012

Originally posted by : Rohan
	My Query regarding detereming fair value of free supplies provided by the Service Receiver - A to Service Provider - B. "A" has provided Cement & Steel costing 100/- + VAT 4/- + Excise 25/- (Total :- 129/-) to "B". "B" a Developer/Builder builds the Commercial complex for "A" in return. Contract is entered excluding the value of Free Supplies for 50/- Question : - Taxable value of Service would include Fair Value of Free supplies, agreed. However, would the Taxable value include VAT&Excise paid on Inputs or free supplies. i/e whether the Taxable Value be 50+100=150/- or 50+129=179/- for the Contractor.

As per Rule2A of Service Tax (Determination of Value)Rules, 2006 the amount of materials supplied by the service receiver in the course of execution of Works contract is not included in the value of the Works Contract for the purpose of ascertaining the amount of Service tax liability. Hope it clarifies your query.

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