Vat & service tax liability in works contract

Both the options are open to you. You can charge VAT as per the schedule provided in the VAT Act for the purpose of Works Contract and claim for the same from the value of the contract as exclusion for the purpose of charging service tax, or charge service tax as per the Service tax (Determination of Value) Rules, 2006.In the said rule the turnover on which VAT is paid is specifically excluded from the total contract value for the purpose of determining the value of service portion in a Works Contract. You can opt for any option in which the outgo for tax is less.