- Nov
- 05
- 2012
Service Tax On Works Contract – Exemptions – After 01-07-2012
Amit Mundhra, FCA, ISA(ICAI)
Service tax provisions in respect to “Works Contracts” have undergone major changes after introduction of new service tax regime. Works contract in itself is a very lengthy subject and law relating to Works Contract in Service Tax is available in a very scattered way. I am trying to summarize all the legal provisions relating to Works Contract in this new service tax regime in a series of articles. This article is the first one in the series.
Following points are covered in this article.
- Definition of Works Contract
- Works Contract as Declared Services
- Works contract in Negative List
- Works contract in Mega Exemption Notification.
DEFINITION OF WORKS CONTRACT
Section 65B(54) defines “Works Contract” as
“Works contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property”
There are 2 parts of this definition
- A contract where transfer of property in goods involved is leviable to tax as sale of goods, AND
- Such contract is for carrying out certain specified activities in relation to Movable Or Immovable property.
By this definition, the scope of “Works Contract” has been vastly increased by inclusion of “Movable Property” in the definition. Earlier, service tax works contract is restricted to construction related activities, but now all kinds of works contract activity is liable to be taxed under Service Tax.
INCLUSION OF “WORKS CONTRACT” IN DECLARED SERVICES
Works contract is also included in the “Declared Service” under section 66E, which states as under
Section 66E : Declared Services
“The following shall constitute declared services, namely ………
(h) Service portion in the execution of a works contract.”
By this inclusion, the service portion in a works contract has become taxable under the Service Tax provisions.
“WORKS CONTRACT” IN NEGATIVE LIST OF SERVICES
Though, “Works Contract” is not expressly found in Section 66D “Negative List of Services” but there is one indirect reference to “Works Contract”.
Following is the sub clause (a) of Section 66D.
(a) Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere-
(i)……. (ii)……. (iii) ……….
(iv) Support services, other than services covered under clauses (i) to (iii) above, provided to business entities.
Here services provided by Government or a Local Authority is included in negative list but there is exclusion related to Support Services.
What is a “Support Services”
Section 65B defines “Support Services” as follows.
“Support services” means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or Works Contract, renting of immovable property, security, testing and analysis.”
The whole text above means that if Government or a Local authority is providing Works Contract Service to any Business Entity, then it will be taxable.
Though, I could not think of any practical example of this case where Government or Local authority is doing any works contract for anyone. So in my view, practically “Works Contract” is not in Negative List of Services.
“WORKS CONTRACT” IN EXEMPTION NOTIFICATIONS
Service tax Notification No. 25/2012 dated 20.06.2012 covers all the exemptions available under the Service tax provisions. Point number 12, 13, 14, 25 and 29(h) covers the exemption related to Works Contract. I am trying to summarize the exemptions related to “Works Contract” in a simple way.
POINT NO. 12 OF MEGA EXEMPTION NOTIFICATION
|
Services Provided TO-
Government – Local Authority or Governmental Authority
By Way of
Construction – Erection – Commissioning – Installation – Completion – Fitting out – Repairs – Maintenance – Renovation – Alteration |
OF
(a) A Civil Structure or other original works, meant for use other than for commerce, industry, or any other business or profession.
(b) A historical monument / archaeological site, or remains of national importance, archaeological excavation or antiquity specified under the Archaeological Act, 1958.
(c) A structure meant predominantly for use as Educational, clinical, art or cultural establishment.
(d) Canal, dam or other irrigation works.
(e) Pipeline, conduit or plant for (i) water supply (ii) water treatment or, (iii) sewerage treatment or disposal
(f) A residential complex meant for self use or for use of their employees or other persons specified in explanation 1 of section 65B(44).
|
Important Points in point no. 12 :
1. Service Receiver based exemption:
For claiming exemption under this point, Service receiver must be Government, Local Authority or Governmental Authority. If the service receiver is not Government, Local Authority or Governmental Authority then this exemption is not available.
2. Relevant Definitions under point No. 12
Following are the relevant Definitions under this point.
| Term | Definition |
| Government | Government is neither defined in this notification nor in the Finance Act. As per section 3(23) of General Clauses Act,“Government” includes Central Government and State Government.
|
| Local Authority | As per Section 65B(31) of the Finance Act “Local Authority” means;(a) A panchayat as referred to in clause (d) of article 243 of the constitution.(b) A municipality as referred to in clause (e) of article 243P of the constitution.
(c) A municipal committee and a district board, legal entitled to, or entrusted by the government with, the control or management of a municipal or local fund; (d) A cantonment board as defined in section 3 of the Cantonments Act, 2006 (e) A regional council or a district council constituted under the Sixth Schedule to the constitution. (f) A development board constituted under article 371 of the constitution. (g) A regional council constituted under article 371a of the constitution
|
| Governmental Authority | As per Notification No. 25/2012 dated 20.06.2012 “Governmental Authority” means;A board, or an authority or any other body established with 90% or more participation by way or equity or control by government and set up by an act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution. |
| Original Works | As per definition given in “Service Tax (Determination of Value) Rules 2006, “Original Works” means; i. All new constructions; or
ii. All types of additions and alterations to abandoned or damaged structures on land that are required to make them workable. iii. Erection, commissioning or installation of plant, machinery or equipment or structure, whether pre-fabricated or otherwise. |
| Residential Complex | As per Section 65B(24) of the Finance Act, “Residential Complex” meansAny complex comprising of a building or buildings, having more than one single residential unit. |
| Other Persons specified in Explanation to Clause 44 to Section 65B of Finance Act | Explanation to clause 44 of section 65B of the finance act.1. Members of parliament, members of state legislative assembly, members of panchayats, members of municipalities and members of other local authorities 2. Any person who holds any post in pursuance of the provisions of the constitution in that capacity 3. Any person as a chairperson or a member or a director in a body established by the central government or state governments or local authority and who is not deemed as an employee before commencement of this section. |
POINT NO. 13 OF MEGA EXEMPTION NOTIFICATION
|
Services Provided
By Way of
Construction – Erection – Commissioning – Installation – Completion – Fitting out – Repairs – Maintenance – Renovation – Alteration |
OF
(a) A road, bridge, tunnel, or terminal for road transportation for use by general public.
(b) A civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaaas Yojna.
(c) A building owned by an entity registered under section 12AA of the Income tax act, 1961 and meant predominantly for religious use by general public.
(d) A pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial or cremation of deceased;
|
Important Points in Point No. 13:
1. Status of Service Receiver is not important
Under this point, the status of Service receiver is not important. Only the specified services are eligible for exemption.
2. Relevant Definitions under Point 13
Following are the relevant Definitions under this point other than already discussed in point no. 12.
| Term | Definition |
| General Public | As per Notification no. 25/2012 dated 20.06.2012 “General Public” means;The body of people at large sufficiently defined by some common quality of public or impersonal nature.
|
POINT NO. 14 OF MEGA EXEMPTION NOTIFICATION
|
Services Provided
By Way of
Construction – Erection – Commissioning – Installation –
of
Original works |
Pertaining To
(a) Airport, port or railways, including monorail or metro,
(b) Single residential unit otherwise as a part of a residential complex,
(c) Low cost houses up to a Carpet Area of 60 square meters per house in a housing project approved by competent authority empowered under the “Scheme of Affordable Housing in Partnership” framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India,
(d) Post harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or
(e) Mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages |
Important Points in Point no. 14:
1. Status of Service Receiver is not important
Under this point, the status of Service receiver is not important. Only the specified services are eligible for exemption.
2. Some activities omitted
In these point activities of Completion – Fitting out – Repairs – Maintenance – Renovation – Alteration has been omitted as compared to point no. 12 & 13. This omission is worth giving attention.
3. Relevant Definitions under Point 14
Following are the relevant Definitions under this point other than already discussed in point no. 12.
| Term | Definition |
| Single Residential Unit | As per Notification no. 12/2012 dated 17.03.2012 “Single Residential Unit” means;An independent residential unit with specific facilities for living, cooking and sanitary requirements. |
POINT NO. 25 OF MEGA EXEMPTION NOTIFICATION
|
Services Provided TO-
Government – Local Authority or Governmental Authority
|
By Way of
(a) Carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up gradation; or (b) Repair or maintenance of a vessel or an aircraft. |
Important Points in point no. 25 :
1. Service Receiver based exemption:
For claiming exemption under this point, Service receiver must be Government, Local Authority or Governmental Authority. If the service receiver is not Government, Local Authority or Governmental Authority then this exemption is not available.
POINT NO. 29(h) OF MEGA EXEMPTION NOTIFICATION
|
Sub Contractor
Providing Services
|
By Way of
Works contract to another contractor providing works contract services which are exempt.
|
Important Points in point no. 29(h) :
1. Only sub contractor providing works contract service is exempt:
For claiming exemption under this point, Sub Contractor providing services by way of Works contract is exempt. If sub contractor is providing services other than works contract, then exemption is not available
Exemption from Service Tax is a very important subject. It is to dealt with utmost care and after understanding the true intention of the legislature to avoid any legal complications.
Amit Mundhra FCA
Author is a Fellow member of the ICAI and he can be reached at amit.mundhra@gmail.com
Sandeep Kanoi+
Dear All,
I have a query regarding WCT applicability. The WCT rates are specified by the State Govt. to illustrate in an example: WCT rate in Delhi is 4% irrespective of the type of contract. What about the Threshold limits. Is that also with respect to States or is it based on nature of Work.
Any help would be appreciated.
With Regards,
Rajat.
sir,
I am a contractor doing civil construction work in UTTAR PRADESH RAJYA BHANDARAN NIGAM(U.P.STATE WAREHOUSING CORPORATION).This department is providing services as CENTRAL WAREHOUSING CORPORATION i.e.handelling & transportation of food grains including preservation for government organisations like food corporation of india,rationing & food corporation etc.
I want to know that ,do I have to deposit the service tax for these works or it is exempted.If exempted,then under which clause.I also want to tell you that the are not paying me the same.
Thanks.
A.K.Tripathi
Works Contractor service tax and vat percentage details
Dear Sir,
We have entered in a contract with a company to install solar power project at Rajasthan. The company will install the solar project including material,labour,technical assistance. Some material supply by suppliers directly to company and some through the company who will install theproject. advised about WCT .
thanks
kindly suggest about the works tax service tax on a contract value of 15 cr
Dear Sir
I am a government contactor working with a Uttar Pradesh Developement Authority. I have constructed 100 houses with Carpet Area of 36 square meters under the Kashiram Gareeb Avas Yojna. These houses were given to BPL citizens of Uttar Pradesh free of cost. I will like to ask whether my Firm will be relieved/exempted of service tax as mentioned in no. 14 of your Article.(construction before 2012)
Please reply me on my email i.e sbikramsmailbox@gmail.com
Thanking You
Prithipal Singh
We are coke oven contractors and providing services in the field of operation and maintenance of coke plant. We are giving this service to big industrial houses like Tata, Jindal Steel & Power ltd and many other companies.
Now Tata is giving this as Support services and paying full Service Tax @ 12.36 %.
JSPL is not giving any service Tax giving reference of notification 25/2012 stating this work as intermediary services and as steel is Excisable falling under mega exemption Point no 30(C)
Jaibalaji and one more company is giving 25% of 12.36% stating manpower supply for job contract.
Now in our case all the service receivers are steel manufacturers hence excisable and we are providing service of similar nature but Service Tax is different in all cases.
What should be our stand and how we should file service Tax return. Can we have all different type of tax structure. Please advice
Sharad Agarwalla
Hi All,
Please let me know, We are handling the accounts section of a construction company, we are working GOVENMENT PROJECT OF BRIDGE WORK, and we have gaven a sub contract to other person. are we applicable for service tax or not. And sub contractor submitting the service tax bill it is applicable or not
Please let me know on which Ratio the service tax will be charged on BASIC VALUE and how much % of exemption will comes.
Dear Sir,
I am a civil contractor. I have a query there is a tender advertised by Haryana Tourism for Construction of Multipurpose hall on the land adjoining Gymkhana Club, HUDA at Jagadhari. The hall would be part of the Gymkhana club. Is the service tax applicable on such type of works?
Rahul
Sir,
Our Institute is providing Technical education and is an autonomous body fully funded by Govt. of India. Whether Security/ Sanitation Services and other Civil/Electrical Works carried out by us through outsourcing are exempted from Service Tax or not. Please intimate the same on e-mail ID – sajjan4s@yahoo.com
Hoping for early reply.
Sir,
Please let me know if the cleaning , housekeeping & security services for the housing societies is exempted from service tax? if, yes what is the supporting clause?
As the housing societies do not come under business entity & they are non profit organization hence are the housing societies exempted from service tax?\
Please respond to my email ID info@synergyservices.co.in
I am looking for accounting /auditing consultant for our company.
regards,
Nitin Visputey
SYNERGY SERVICES
Dear Sir, We are borewell Drilling company, we undertake turn-key projects for water borewell drilling, Rain Water Harvesting, Monitoring borewells for environment assessment etc. i.e. we deal into water resources development. please advice if there is any exemption from service tax for Rain Water Harvesting projects etc. Also, I request your clarification for the follwing clause -
3
[(97a) “site formation and clearance, excavation and earthmoving and demolition” includes, —
(i) drilling, boring and core extraction services for construction, geophysical,
geological or similar purposes; or
(ii) soil stabilization; or
(iii) horizontal drilling for the passage of cables or drain pipes; or
(iv) land reclamation work; or
(v) contaminated top soil stripping work; or
(vi) demolition and wrecking of building, structure or road,
but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing,
renovating or restoring of water sources or water bodies;]
Please reply & oblige. Thank You!
Dear Sir
We are small builder in bhubaneswar building 11 duplex in bhubaneswar on sharing basis which comprise of 3 beed room,3 toilet, one kitchen,one darwing room and one dining room.we have sold 7 plot to our customer and have started construction with agreement for construction.The rest 4 duplex with land is to be given to the landlord.i want to know about the service tax applicability ?
Respected Sir,
We want to know that if in a Company, men power is supplied by a registered Contractor,whether he will liable for service tax on amount of bill raised upon Co. for supply of man power. We alos point out that Co. is paying commission to the contractor on total amount of bill raised
Please provide us suggestions
Thanks
Dear Sir
My client is Interior decorator can he opt above work contractor scheme.Can he eligible for input cenvat credit on materials
Hi All,
We are handling the accounts section of a construction company, and the respective company’s undertaking is Works Contract. we need to charge a Service Tax on our bills.
Please let me know on which Ratio the service tax will be charged on BASIC VALUE and how much % of exemption will comes.
Dear Amitji
thanks for nice and deatiled presentation.
Please elaborate term Governemntal authority as defined in Not No 25/2012 for the purpose of clause 12(f). Whether the conditions given for the term are cumulative or not.
My client is a state government u/t. Engaged in the activity other than assigned to municipality. Please clarify that the service tax is payable for the resident quarters constructed for its employyes engaging contractors. Previsouly same is exempt as per explanation of term residential complex. pl clarify position after 1.7.2012.
Thanks in advance
CA Ashutosh Shrivastava
Thanks and regards
Hi
I am doing washing of linen like bedsheets, towels etc used in the trains like rajdhani belonging to Indian Railways. I have a laundry where i carry out this washing work. My people also deliver this linen in the trains and remove the dirty linen from the trains ( loading and unloading )
What is my service tax impications
Please advice
Regards,
Rohan
In reference to the point no. 25 of the mega exemption notification what will be the status of taxability of services provided by sub-contractor which are directly passed on to the service receiver who is government authority by the principle of accretion and the main contractor has nothing more to pass.
Please clarify.
Regards,
Abhay Aggarwal,
Advocate
9810932285
Dear Mr. Rajiv
The exemption to sub contractor is only available if the works contract of the main contractor is exempt under exemption notification.
This is a kind of umbrella provision. If main works contract is exempt, then its sub contract works contract is also exempt.
It may be noted that only “Works contract Service” of the sub contractor is exempt under point 29(h). All other services to the main contractor will be taxable.
CA Amit Mundhra
Dear Vijay Joshi,
Yes, your observation is correct. there is no scope for services rendered to Educational institutions under the Exemption List. Point no. 13(c) covers the institutions registered u/s 12A. but there is cumulative condition that such building should be used for religious purpose by general public. Educational purpose cannot be said to be religious purpose.
CA Amit Mundhra
This is with reference to the above captioned subject
there are about 100 people those who have purchased the appartments have paid the service tax to the service tax Department through the developer in 2007-08 & 2008 – 09, based on the demand given by the developer. The developer also has deposited the service tax to the government. Later, there was a clarification through a Govt. circular that the service tax in connecting with the construction of residential complex is not applicable. Based on this service tax position prior to 1st july 2010 reg, there is a clarification which i could able to find out thru website issued by Commissioner of Central Excise, Pune-III, Trade Facility No. 1/2011, dated 15-2-2011 stating that
With effect from 1-7-2010 (the Finance Act, 2010), an explanation has been inserted below sub-clause (zzzh) of section 65(105) to clarify that unless the entire consideration for the property is paid after the completion of construction (i.e. after issuance of completion certificate by the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly .
And he clarifies that:
(a) Where services of construction of Residential Complex were rendered prior to 1-7-2010 no Service Tax is leviable in terms of para 3 of Boards Circular number 108/02/2009-S.T., dated 29-1-2009. The Service of Construction of Residential Complex would attract service tax from 1-7-2010. Despite no service tax liability, if any amount has been collected by the builder as “Service Tax” for Services rendered prior to 1-7-2010, the same is required to be deposited by the builder to the Service tax department. Builder can not retain the amount collected as Service Tax.
(b) For services rendered after 1-7-2010 for which payment has been or is made after 1-7-2010, service tax is leviable and builder is liable to deposit the service tax to the service tax department. The only exception to this is provided within the parenthesis () in the “Explanation” in para 3.
(c) For services rendered after 1-7-2010 for which payment was made prior to 1-7-2010, service tax has been exempted by the Govt. based on documentary evidence vide notification no. 36/2010-S.T., dated 28-6-2010 as amended. Therefore, this benefit can be availed by builders on the basis of documentary evidence.
Commissioner of Central Excise, Pune-III, Trade Facility No. 1/2011, dated 15-2-2011
In this situation where the service tax refund case stands for.
I have made severe follow-up pn 2-3 occassions since no one ready to give any help let me know what needs to be done, to get back this service tax refund.
Please help
Regards
Dear Mr.Amit
WIth respect to Point NO: 29h, If you read the Point, it gives a meaning that exemption to subcontractor is available only if the service of the main contractor is exempt. Those subcontractor, who are providing service to main contractor, which is taxable, will also be subject to tax.
Pls clarify whether i am correct.
thanks and regards
nss
Dear Amit,
Question on Reverse Charge under Works Contract – X ltd takes a construction contract from Y and sub contracts the work to Z. In this Case will X Ltd become a Service Receiver although he is actually service provider who is just sub contracting the work to Z. Please let me know your opinion.
Regards, Rajiv Sharma
Dear Amit,
Thanks for the detailed presentation!
In one of the case a contractor is constructing a building with material for a educational institution having registered u/s.12A of the Income Tax and also registered under Public Charitable Trust Act.
However, I am not able to find any scope in the Negative List and/or Mega Exemption Notification for the said contractor. Although the direction/logic of the negative list and/or mega exemption notification sounds to be in his favour.
Please find out. Regards!
CA Vijay Joshi