Advocate Santosh Kumar
With the issuance of Notification No. 18-ST dated- 1st June, 2012, it had been decided by the Central Government that Section 65 (containing definitions including that of taxable Services) of the Finance Act, 1994 will not be in effect from 1st June, 2012.
After deleting the “definition section” from the Finance Act, 1994, one new Section 65B (Interpretations) has been inserted by the Finance Act, 2012. The Central Government vide Notification No. 19-ST, dated 5th June, 2012, has declared that “interpretations Section” will be effective from 1st July, 2012
As per the sub-section(54) of Section 65B of the Finance Act, 1994 “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, improvement, repair, renovation, alteration of any building or structure on land or for carrying out any other similar activity or a part thereof in relation to any building or structure on land.
Declared Services
Vide Notification No. 19-ST, dated- 5th June, 2012 it has been notified that provisions of Section 66E of the Finance Act, 1994, which is about declared services, will come in effect from 1st July, 2012. As per the section 66E (h) “service portion in the execution of a works contract shall constitute declared services.”
Value of Works Contract Services
Under the changed circumstance, provision regarding valuation of works contract needed to be modified. Vide Notification No. 24-ST, dated 06-06-2012, the new provision regarding “Determination of value of service portion in the execution of a works contract” has been subsituated w.e.f. 1st July, 2012. New provision reads as follow:-
“2A. Determination of value of service portion in the execution of a works contract.- Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:-
(i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.
Explanation.- For the purposes of this clause,-
(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;
(b) value of works contract service shall include, –
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect’s fees;
(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;
(vi) cost of establishment of the contractor relatable to supply of labour and services;
(vii) other similar expenses relatable to supply of labour and services; and
(viii) profit earned by the service provider relatable to supply of labour and services;
(c) Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.
(ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-
(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract;
(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent of the total amount charged for the works contract;
(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent of the total amount charged for the works contract;
Explanation 1.- For the purposes of this rule,-
(a) “original works” means-
(i) all new constructions;
(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 structures, whether pre-fabricated or otherwise;
(d) “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.”. +
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Name:- Santosh Kumar (Advocate)
Address :- WZ-64A, Mukherjee Park ,
Tilak Nagar, New Delhi- 110018.
Mobile:- 9958391853
is service tax applicable for supply of battery and tyres to central govt department before GST?
Dear Santoshji
I have some clarification, One of our customer is register under Works Contract but we are not registered and we have raised two separate invoice for Material Supplied (DG Set) & Service (Erection & Commissioning). But when we raised bill for Service we charged 6.18% instead of 12.36% on the basis of Notification provided by the Customer under Section 65B(54) of Finance Act 1994. And when we making service tax return we could not able to do the return because of percentage does not matched and notification number is required.
So here i requesting you to please give me a suggestion on this Subject, until now we could not solve this problem.
Manjunath S.
Dear Santoshiji,
it is very clear and elaborate. we would like to know if we are alloted some work for painting of cylinders and we have to pay service tax on it. please let me know how should we pay and how the contractor company should pay.
2. Whether we should raise for the whole amount of service tax and share it bill as reverse charge mechanisim or off the price we have to calculate only our share of service tax and raise an invoice.
please clarify the same.
Thank you Santosh ji for such an informative article. Ours is a construction company and your article has helped us to understand this subject. We are having the following doubts and require some clarification and help from your end.
Kindly explain what is meant by services in the below context:
(ii) amount paid to a sub-contractor for labour and services
Secondly, in the following context does “otherwise” include own machinery/ depriciation on machinery/ shuttering/ depriciation on shuttering etc.
(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;
Thirdly, in the following context which type of services is included as the same is not properly explained.
(vii) other similar expenses relatable to supply of labour and services.
Kindly explain::
1) If we are paying Service tax of 40% on total labour and services amount, should this amount of labour and service on which we have paid service tax be deducted from the total amount of works contract at the time of paying VAT on works contract to avoid double taxation. Also , is there any judgement on same to avoid double taxation.
2) If we have paid Service tax on 40% as per the clause. But as per financials if the percentage of labour and services is shown less( approx 25%)in the balance sheet, when we go to the VAT authorities they only deduct the actual service amount (25%) from the total work as per balance sheet and again charge VAT on 75% ( as per example) of the works contract total amount . There is double taxation on 15% . Is there any judgement of court or law regarding same.
Regards
P.L. Mehta
Dear Sir,
Ours is proprietorship Company (based Bangalore) dealing with airconditioning work/service/sales installation etc., we have Annual maintenance service contract wherein we are charging VAT @14.5% on 75% of the the basic value of contract and & Service TAx on 70% of the basic value of the contract @6.18%/12.36% (PVT,LTD /Individuals/institutions etc.respectively ) . Most of our clients are asking the justification on this charges . please let me know any Govt. circular on VAT charges on this type of business.
eg: AMC basic value 5000/-
VAT @14.5% on 75% 544/- *
S.Tax @6.18 on 70% 216/-
TOTAL 5760
Request fwd any circular or notification from govt.
Sir,i would like to know about retreading of old tyre(tyre retreading),comes under works contract.In which we cannot asertain the value of service portion.so how to decide taxable amount
Value of Works Contract Services
Under the changed circumstance, provision regarding valuation of works contract needed to be modified. Vide Notification No. 24-ST, dated 06-06-2012, the new provision regarding “Determination of value of service portion in the execution of a works contract” has been subsituated w.e.f. 1st July, 2012. New provision reads as follow:-
“2A. Determination of value of service portion in the execution of a works contract.- Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:-
(i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.
Explanation.- For the purposes of this clause,-
(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;
(b) value of works contract service shall include, –
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect’s fees;
(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;
(vi) cost of establishment of the contractor relatable to supply of labour and services;
(vii) other similar expenses relatable to supply of labour and services; and
(viii) profit earned by the service provider relatable to supply of labour and services;
(c) Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.
(ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-
(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent of the total amount charged for the works contract;
Dear Santoshji,
In the above in clause (B), notification 24/2012, in case of repair, reconditioning or restoration or servicing of any goods……..
here the word used “any goods” – does it mean works contract relating to building or structure or plant in associated land , structure etc as per definition of works contract OR
does it mean now in any type of work contract like repair of motor, or repair of furniture where transfer of property in goods are also involved will be covered?
So far as definition is concerned it still appear that it’s ambit is within building / structure ot plant attached with land etc. Kindly looking forward your views please.
its really nice and educative….we need this kind of inforation and updates for ready referecne of the subject
Can it be put in tabular form for easy understanding to all the assessees.