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 [email protected]
2016,17 me road light ka work kiya tha ab service tex ke notice aaye hai kiya,road light ke work pe sirvic tex lage ga
Construction of Primary Health Center Hospital Building is it service tax taxable are not please clarify the matter
DEAR SIR .
Iam doing civil contract work in postal department civil wing like maintenance work only . i am exampted from the service tax till before 2017 . kindly tell me the quries
as soon as possible
I am doing painting works (labour only) of residential houses. My annual turnover exceeds Rs. 20 lakhs in an year. Is service tax is applicable to this kind of works. Please advise.
technical services (Survey ,Investigation and Designing)provided to the Government for irrigation works. The services involved purely service but not supply of goods etc. is our Technical service provided to the government is exempted from GST.
Sir, as iam a subcontractor for doing installation and erection works under principal contractor claiming exemption of service tax under notification no. 25/2012.since I was not collected service tax from the contractor and now I got notice from dept. Kindly advice
SIR,
WE ARE GTA AND DOING ROAD TRANSPORTATION ON PAN INDIA BASIS, WE GOT AN ORDER TO MAKE TRANSPORTATION OF SOIL UNDER POND CONSTRUCTION UNDER PANCHAYAT SCHEME OF JHARKHAND IRRIGATION DEPARTMENT AND WE RECEIVED PAYMENT FROM PANCHYAT SAMITI’S DIRECTLY. OUR QUESTION IS THAT IS THIS SERVICE IS EXEMPTED FROM GST OR NOT ? PLEASE GIVE YOUR SUGGESTION.
what is the GST rate for works contract for independent housing units.The works will carry in the owners plot and not in the contractors plot
We are doing works in port as sub contractor from 2010 to 2014, we constructed some buildings for various port activities for port development . All the materials supplied by the main contractor to us and after completion of the works we raised bills and taken exemption under notification 25/2012 . As our main contractor got the service tax exemption like this way we have also taken exemption . Is we are eligible to take exemption under 25/2012 if the main contractor having the exemption means we will also get that exemption or not please help regarding sir .
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
Sir I am a PARKING Contractor in Railways south western railways. for 2 years 3 moths railways instructed to pay service tax 111000/- suddenly on foreclosure 2y 3moths. for 820 days i collected 852415 did I am eligible for service tax sir please guide me
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
Sir, I am providing services of Construction of Raiway Staff Quarters;, Drainage System at Railway Station, Railway Colony; & Horticultural Work in Railway Colony/Railway Hospital. Is I am liable for Service Tax ?
Deptt says I need to pay Service Tax on above three works done by me for Indian Railways.
Sir, Tata Memorial Cancer Hospital is exempted from Service Tax. We have undertaken civil works for their centre at Visakhapatnam. In normal course the service tax is reimbursable by TATA memorial Cancer Hospital. But they are telling that it is exempted from payment of service tax. Kindly inform us whether they are exempted from payment of service tax.
Dear Sir,
I am Saravanakumar, Assistant Professor from Annamalai University, Tamilnadu. i would like to ask you that, we are working EIA (Environmental impact assessment) for any govt, non govt company for which thay are paying us some amount. i would like to ask here, we are applicable for service tax or exempted for service tax so, kindly inform us regarding this.
I am a civil govt contractor from karnataka & take govt. Department works.
wheather I am chargeable to service tax under section 66D in terms of provisions of 66B
How to pay the service tax as there is no provision for paying/reimbursement to the contractor by central/state govt. as the estimates are prepared on the basis of approved schedule of rates and the estimated amount can not revised again.
In the estimates only 10% of the total cost is being considered as contractor’s profit. In that case it is not possible for us to pay the service tax @15%.
How can I answer to the excise dept.
I am a civil contractor from Assam. The govt. Departments are not willing to pay the service tax as they say that there is no provision for paying/reimbursement of the service tax to the contractor in the estimates which gets approved and sanctioned by central/state govt. as the estimates are prepared on the basis of approved schedule of rates and the estimated amount can not revised again.
In the estimates only 10% of the total cost is being considered as contractor’s profit. In that case it is very difficult for us to pay the service tax since it is almost 15%.
Is there any exemption for that reason mentioned above.