Work contract

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Shivani

Learner

1881 Points Joined December 2012

Dear Members

I have query on works contract. Please correct me with reasons wherever u feel I am wrong.

(1) If a person buys a readymade house from builder whose construction is complete, then there is no service or sale of goods and hence no service tax or VAT will be charged. It being just a sale of immovable property.

(2) If a person goes to builder to buy a house and the house will be build then it is a works contract.

there will be service and valuation of service portion of works contract will be as per Rule 2A of Valuation Rules.

But will there be also sale of goods in this case?

Cement, bricks etc will go into making the house which are movable and hence goods as per VAT acts of state but what ultimately will be sold is a house which is a immovable property and hence not goods. And if house is not good then no VAT is possible.

If you agree that there is no sale of goods then it cant be a works contract because as per section 65B(54) of FInance Act, 1994 there has to be 'transfer in property of goods in execution of contract' for it to be works contract.

Regards

Replies (15)

Harshal Fifadra

Chartered Accountant

1489 Points Joined August 2011

Dear Shivani

You are correct. No VAT and Service tax on the sale of flat after it is being build up i.e it is readymade.

Akash

155 Points Joined May 2008

Dear Friends, I need your help on folliwng issue.

Background of Case :- Company A placed Annual Maintenace Contract on Company B. Company A is Service receiver and Company B is service provider. Co. B raised a bill on Company A for Rs.8250 in totality.It is covered under works contract with 30% abatement and Service tax liability is 50:50 between Co. A & B.Co. B has not shown service tax exculsively.

Issues :-

1.How much Service tax Co. A has to Pay ?

2.Will Co. A be liable since Co. B is not registered for Service Tax. ?

3.Will Co. A be liable since Co. B not raised invoice as per Rule 4 under Service tax ?

4.How much TDs should co. A deduct ?

Pl help this issue ?

Thanks in advance

Harshal Fifadra

Chartered Accountant

1489 Points Joined August 2011

1. Rs. 357 as service tax liability 2. If the service provider is not registered then service recipient will have to pay the liability in whole. 3.Co. A will be denied cenvat credit since the invoice is not as per service tax rules. 4. AMC is a type of works contract. Works contract TDS differ with states. In Maharashtra , it is 2% for registered dealers and 5% for unregistered dealers.

Akash

155 Points Joined May 2008

Sir,

thanks a lot for you faster reply.

May you please provide me related sec or/and rule under which Service Receiver is required to pay whole liability in case Service provider is not registered for Service Tax.

Thanks a lot for previous faeter reply.

Akash

155 Points Joined May 2008

Backhround of Case :- Service provider is registered for service tax but Service provider is not depositing service tax levied in bill with authority and service receiver is also not paying service tax to service provider in the absence of service tax deposit challan along with raised invoice. Please Note that this Service provided is not covered under reverse charge mechanism.

Issue :- Will the service receiver has any liability towards service tax authorities ?

Pl clarify such issue with supporting section and/or relevant rules.

Harshal Fifadra

Chartered Accountant

1489 Points Joined August 2011

Service provider is registered. Therefore, the onus is on the service provider to discharge liability. Further, there would not be any liability for service receiver if the service is not the one for which service tax is to be discharged on RCM basis. Additionally, it is the headache of the service provider for depositing tax once the service recipient has paid the tax along with invoice value to the service provider.

Akash

155 Points Joined May 2008

Sir, thanks a lot for you faster reply.

May you please provide me related sec or/and rule under which Service Receiver is required to pay whole liability in case Service provider is not registered for Service Tax and service is covered under RCM.

Thanks a lot for previous faeter reply.

Harshal Fifadra

Chartered Accountant

1489 Points Joined August 2011

If service is covered under RCM then the service recipient is bound by the finance act to discharge service tax liability irrespective of whether the service provider is registered or not.This is in accordance with the provisions of section 68(2) of the Finance act,1994

Akash

155 Points Joined May 2008

I agree with your opinion that Service tax is to be paid by Service Receiver but Will Service receiver be liable to pay a certain % of service tax as per RCM mechanism or Will Service receiver be liable to pay 100% service tax liab. (Service tax liab. of both service receiver and provider). Pl provide relevant sec or/and rule in support of your opinion ?

Shivani

Learner

1881 Points Joined December 2012

Dear Harshal Thanks for your reply on Point 1 of my query. But about Point 2 of my query. Am I right there? Dear Ravi I request you to not post your own query in my thread. Please create a separate thread for your queries. Regards

Harshal Fifadra

Chartered Accountant

1489 Points Joined August 2011

It depends upon the type of service. Please Search in caclubindia.com for files on RCM

AKHIL P

Taxation

79 Points Joined December 2008

Service recipient has to discharge his portion of 50% only under RCM .he need not pay providers portion of 50% irrespective of registered or not under RCM. eg if the provider is below limit of 9 lac he need not take registration but recipient has to pay his 50% even if provider is below limit. And if the provider is registered and charged ST in the invoice pay his 50% to him

If you pay 100% to govt., provider still can demand his portion from you. Because ultimate liability on provider for his 50%.and this is a debatable issue. You can be considered as an agent and no further demand on provider based on decision of Mumbai CESTAT in famous cricketer case Zaheer khan b khan vs CST 2013 CESTAT Mumbai....