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
construction of drainge is laible to pay service tax ?
m.7050906289
from, Ajay pawar,
Dear sir, I am civil contractor,i have received the construction work order from National consumer cooperative federation ltd, Nagpur.This originally order received from Govt. forest department,NCCF, said service tax is deduct from your bill/payment amount.I say No service tax is liable to us,because there is no transferred of property ,only construction building for govt.self used.and not other.please suggest the service tax is liable to us or not. My Mon.No ;- 9423123023.
Dear Sir,
Service tax is payable on Central government on building maintenance work
dear sir i am A class govt. electrical contractor. i am doing the local govt.department , pwd b&r department works for street light fittings.
is these works are exempted for service tax or not
If you have got something on the same matter please reply mr on abhishekjmb@gmail.com
what about the service tax liability if a bill is issued for carrying out operation and maintenance of transmission lines from one transmission utilty to other state transmission utility and the payment becomes disputed due to one or another reason. Please Comment
Can interior decorators fall under works contract service under service tax
We are registered mechanized cleaning contractor western Railway, whether we Are exempted from Service tax or not. Kindly send or give us clarification as we r doing works contracts under mechanized cleaning , maintenance and up keeping , sweeping , rag picking , public area cleaning in railway stations and if applicable how many percent service tax applicable? my mobile no. is 09974020586…. thanx
We are registered mechanized cleaning contractor western Railway, whether we Are exempted from Service tax or not. Kindly send or give us clarification as we r doing works contracts under mechanized cleaning , maintenance and up keeping , sweeping , rag picking , public area cleaning in railway stations and if applicable how many percent service tax applicable? my mobile no. is 09974020586…. thanx
Dear sir, My client is A class Electrical contractor and started Govt contracts with Local Authority like Muncipality, Other State Govt body like PWD etc. It takes all type electrical project work,electrical installation work ,electrical maint. and operation work,and main power supply work in rly department like (1)main work is operation & maintenance of street light (2) supply & erection of street light fittings (3) Distribution & transmission work.
Your earliest reply in this matter is highly appreciable. Thanking you in anticipation.
Whether Punjab State Power Corporation Ltd is a Govermental Authority under Sevice Tax Law and rules? and as such qualifies under mega exemption 25/12 upto 31/03/2015.Please respond.
Dear Amit Sir,
i am doing construction work in Border security force(BSF) for residential quarter so this works comes under exemption or not….again my question is that between BSF and my company,a consultant company NBCC(National Building Construction Company) a “Govt undertaking company” working as PMC (project Management Consultancy) then this works comes in exception or not…plz reply me as early as possible
Dear Sir I want to know on construction of BUILDING of ARMY PROJECTS is SERVICE TAX is liable Pl.let us know Thanks Regard!
Dear Sir,
We are registered under service tax rule under management, maintenance & repair services, we are charging 100% service tax even material involved in our services, because of we taking input credit of raw material. So can we charged 100% service tax under works contract?.
Our firm is providing services to Punjab State Power Corporation by way of labour for the execution of electrical nature works since 2012-2013. Kindly clarify whether service tax is playable by us. our annual turnover is more than 10.00 lac.
If a company is exempt under entry 29(h) and it is hiring machinery on rent and machine owner will charge service tax from the Company and services of company is exempt. How can company claim input of service tax paid for hiring machinery?
Dear sir, we are A class Electrical contractor and started Govt contracts can you clarify which Government department are exempt from service Tax . i take a all type electrical project work,electrical installation work ,electrical maint. and operation work,and main power supply work in rly department like (1)main work is operation & maintenance of street light (2) supply & erection of street light fittings (3) Distribution & transmission work. Pls kindly it is service tax applicable or not . If applicable Iam not continue electrical works because my margin of profit is 10-12 %
we are grateful if you clarified it
Respected sir,
I want to know about service tax liability on a contractor executing any govt building construction done on behalf of government/local authority for public utility such as liabrary, community hall, gym etc 1st june 2015, esspecially after amendment in negative list , which does not give clear picture on the above isuue
thanking you
yours sincearly
Government give services to industries that services is applicable for service tax
Dear Sir,
May i requested that, please clarification against Service Tax eligible or not in Tata Memorial Centre against Housekeeping and Catering Services to PG Hostel.
may please reply immediately
Dear Sir,
We are registered mechanised cleaning contractor for s.E.c. Railway and Central Railway , we Are exempted from Service tax as per kowledge . Kindly send or give us clarification as we r doing works contracts under mechanised cleaning , maintenance and upkeeping , sweeping , ragpicking , public area cleaning in railway stations and in highcourt also………. is really service tax exempted in this ares please kindly guide us sir????????
my mobile no. is 09823115295….
thanx
I have taken a Consultancy work on Back to Back basis which includes Architectural, Structural & Project Management Consultancy. The original work is for Residential Project for Ministry of Defense taken by main Consultant. This work is 100% subletted to me by keeping 10% out of 100% as margin.
However the Main Consultant has shown as Sub contractor in his records and deducting 2% TDS. Also no Service Tax was paid to me being Project work belongs to Defense Ministry.
In this regards, I would like to request to guide me on following points:
1. Whether the Main Consultant is exempted from Service Tax for this Project work?
2. If so, whether I, the sub Consultant, is also exempted from ST?
3. In case the main consultant is not exempted and liable for ST, then what will be liability of sub consultant? Is he applicable for ST for same project? Will it not be a duplicate taxation as it is 100% subcontract on back to back basis?
Sir,I am a contractor, I provide service to Railways, am I liable to pay service tax?
in railway works contract has two parts sch A material supply sch B installation, commissioning with the material sullied in sch A and also some of the material supplied by railway plz advice whether it comes in service tax and if yes then what will be tax ratio
RESPECTED SIR ,
can the construction of school building is covered in auxiliary education services . according to the circular no. 172/7/2013 st dated 19-09-2013
it is also clarifed that in addittion to the services mentioned in the definition of “auxiliary educational services ” other examples would be hostels , housekeeping security services , canteen etc.
can it means construction of school building covered in auxiliary service from 01-07-2012 to 10.07.2014
clarification start words in addition to and use the words other examples —-and etc. its means illustartion may be more please advice me
I am poverding security service in ceritable truest run by education collage. I am get the payment incleciv of all lum sum no bill on tax prient what exelary education examtet please adwaij me
Dear sir
I am gvt. Contractor having an enlistment from HARYANA URBAN DEVELOPMENT AUTHORITY
Now i would like to ask am i liable to pay service tax to government on constructing roads….
Your reply will helps me alot to pay service tax on time sir
If psbl rply me at my mail choudharytarun@outlook.com
sir, we have receiving the outsource services of sanitation in govt,/autonomous bodies of govt. of nct of delhi through contractor. Is contractor exempted from service tax. If he exempted he charge the service tax in other way i.e. lumpsump amount shown in the contract including service tax @ 12.36%. Pl reply
I had entered into a contract with a builder to build a 2300 sq duplex for me. The contract was made for a lumpsum amount for construction. The house has been constructed and handed over .Now i have been told by the builder that i need to pay WCT and Service tax on the overall agreed amount. I have paid up the total agreed amount. Do I need to pay the builder the WCT and service tax amount for this construction? Please suggest
dear sir,
we are a civil contractor, doing various civil construction work in and around east india. please guide me that under the following circumstances our works contract is coming under service tax:
1. the work is of constructing additional area of CFS at kolkata under central warehousing corporation.
2. the work is of new construction
3. the CFS(cotainer frieght station) is the additional facility to port
with regards
dipak sarda
s. r. associated construction co. (p) ltd.
Dear Sir,
we are doing coating on cutting tools. For doing coating we are using materil and labour both. Shall we come under WCT in Service Tax? How to implement?
Regards
Dilip Choudhary
Jamshedpur
Dear sir,
I am electrical contractor working in S.C. Railway. Please confirm me are Service Tax are exempted in railway work or not on my email as arfaelect@gmail.com .
Thanks
sir.
I ame a goverment electrical contractor. i take a all type electrical project work,electrical installation work ,electrical maint. and operation work,and main power supply work in rly department ,gujarat meritime bord,esi depart.,bsnl electric wing. i ame paid service tex only which we are receved from goverement dept. but service tex deparement clame on us 10 to 12 percent on turn over last five years.i have service no on (1)main work (2)main power supply work.in five years i have income filing 2 years audit filing,and 3 years is 8% in lum sum base. sir how we can release from service tex clame notice
Dear sir,
we are A class Electrical contractor ans started Govt contracts, can you clarify which Government department are exempt from service Tax ? can you provide a list or detail available on some site. we have consulted 3-4 advocates but every one has his own view, some one says that PWD is exempt ,electricity Dept is not exempt .
other says that commercial activities are not exempt ,Hospital, colleges by PWD are exempted, Boards are not exempt ,Central Govt are exempt.
kindly provide the right solution.
Sir
We are the Govt. Contractor , We want to know that, We appointed the sub contractor for our work only labour and supplied the material for the work . we wants to clarify is the labour sub contractor is exempted for the service tax
Dear Amit
Would like to know what is the impact if indian contractor constructs in india on behalf of the Overseas customer and bill to him? Is it necessary that overseas customer should have the indian company by obtaining service tax registration.
Is this reverse charge mechanism apply for the indian contractor?
Sir,
I purchased a villa and got agreement on 25th April 2012 by paying almost 30% money and remaining was paid later as the project progress.
Now Builder is demanding to pay 45000 as Service tax, is this really correct?
When my registration was done on April-2012, how this is applicable to me?
Please clarify.
Subbu
I have requested for suggestion on 13th oct, please reply on Bhatia@aardee.net
thanks
Dear Sir,
Please clarify – wheather WCT applicable for construction of compound wall.
I have to know about Service tax Work contract.
from 2006 to 2014 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,
We have taken up construction of civil works of residential complex and paying service tax on full value of contract @4.499%.
Is service tax is exempted for our sub/labour contractors!
If we pay service tax and excise duty for executing works contract, such amount is refunded/adjusted from our service tax payment.
Thanks and regards
Sir,
we are real estate builder of residential complex , we are giving contracts to contractor only for the work , materials is being supplied by us , in this case who is liable for serrvice tax, moreover we are private limited company.
Recently we have done a boring wherein the contractor has done deep tube well boring but pipes are supplied by us can u plz explain we should deduct the service tax from the contractor or not if we deduct than we have to pay under reverse input theory scheme ornot. sir do help us in this regards
plz mail us on babluagrwl@gmail.com
If a govt agency supplies water to RBI quarters, than the Service tax is applicable on that bill or not?
Hello Sir,
We receive work/purchase order from USA for Commissioning, installing, implementation job for a USA based company. We have provided those services in India.
The company which provides Work/Purchase order do not have a branch in India.
Do i have to pay SERVICE TAX for the same?Work order exceeds
Rs 1000000/-.
One of my clients, a recognised school, has outsourced software development services eg. Student record management, examination management, fee management, payroll management, etc. as Secured Access Cloud Based Automation Software.
Pl confirm whether Service Tax is payable on this assignment by the School.
Mahendra Dadu
Dear Amit,
weare consucted jimkhanna club for haryana urban development authrity(HUDA)is laible to pay service tax . huda is govt body and huda devlop sector for residence purpose and conscted all amanties for facilted to the public i.e school, hospital road, sewerage treetment plant water works club etc jimkhanna club constucted not commercial purpose .huda constucted club and hand over to management on fee of cost to run the same for public .please advise us
Respected Sir,
I’m a Goverment Electrical Contractor working for PWD RES. Uttrakhand Jal Sansthan. Goverment does not pay any Service tax to me for their services in this case I hav to pay Service tax or not. The Goverment Electrical fitting works are exempted in Service Tax department in work contact service. Please tel me as soon as possible with notification number.
Regards,
Basant Bhatt
Respected Sir,
I am working in Rajiv Gandhi National University of Law, Punjab at Patiala. Some buildings are under construction and work stands allotted to different agencies. Some petty works are being got done from the local market which includes supply and erection/fixing etc. I shall be obliged if you could let me know : Is service tax is to be deducted from the contractors and other parties who is constructing building and doing finishing works such as wall panelling, etc. ? If yes at what rate? Thanking you
Dear sir
I am electrical contractor in APMC in mp &carry out the work of road lighting
shed lighting and other related electric work like pole erracion cable laying fitting etc in mandi yard. Weather this work covered in mega exempion of service tax . APMC also registered in 12A.
dear sir, I am govt contractor and empanelled to carry out electrical works on otsourcing on labour rate basis by state electricity board. Please tell me if service tax applicable .if applicable on which basis
thanks.
Dear Sir,
We are Works Contractors, awarded building up of a school project for which our clients are duly registered under Section 12 AA of the IT Act. Under the prevailing provisions of ST, shall we be exempted from payment of ST ???
Looking forward for ur timely advice & guidance,
Regards,
Mr. Suman,
sumanofs@yahoo.co.in