Composition Scheme for on-going works contract prior & post 1st July, 2012

Composition Scheme for on-going works contract prior and post 1^st July, 2012

We are sharing with you FAQ on Works Contract Composition scheme w.e.f 1^st July, 2012 and analysis of an important recent judgment  of  the Hon’ble  Supreme Court in the case of  M/s Nagarjuna Construction Company Ltd. Versus Government of India & ANR  on the following issue:-

Issue: Whether benefit of composition under Works Contract is admissible to on-going contracts as on 01.06.2007?

Background & Facts: AFTER introduction of service tax on Works Contract service with effect from 01.06.2007 and notifying the Works Contracts (Composition Scheme for Payment of Service Tax) Rules, 2007 [hereinafter referred to Composition Rules], many assessees who were paying service tax under various taxable services like Erection, Commissioning or Installation, commercial or industrial construction service or construction of complex service, etc., by availing the abatement of 67% as per Notification No. 1/2006 –ST dated 01.03.2006 and paying effectively at the rate of 3.96% (33% on 12%), opted to pay service tax on on-going contract at the rate of 2% under erstwhile Rule 3(1) of Composition Rules.

Rule 3(1) of the Composition Rules states that “Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 2% {changed to 4% w.e.f 1-3-2008 & thereafter 4.8% w.e.f 1-4-2012) of the gross amount charged for the works contract.”

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