Applicability of S. Tax on Construction Labour Contractor

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Hitesh Patel (Querist)
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30 April 2011 We are a private limited company engaged in constructing residential complex.

We are paying service tax @ 10.30% on 25% of gross value after availing abatement of 75%. Also we do not take CENVAT credit on input goods, capital goods or input services.

Now, our sub-contractor who does labour work for us and does not provide/use any material of his own is charging service tax on his bill.

Need to know whether this is valid if yes then under which clause?

Please reply its urgent.

Regards
Hitesh Patel

CA SAURABH GARG

CA SAURABH GARG (Expert)
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01 May 2011 Yes it is valid, please read below mentioned definition and clause:

69. MANPOWER RECRUITMENT OR SUPPLY AGENCY’S SERVICES
(A) Date of Introduction: w.e.f. 07.07.1997 (Notification No.23/97-S.T dated 02.07.1997)
(B) Definition and scope of service:
“Taxable Service” means any service provided or to be provided to any person, by a manpower
recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or
otherwise, in any manner;
[‘Explanation.—For the removal of doubts, it is hereby declared that for the
purposes of this sub-clause, recruitment or supply of manpower includes services in relation to
pre-recruitment screening, verification of the credentials and antecedents of the candidate and
authenticity of documents submitted by the candidate]*
[Section 65 (105) (k) of Finance Act, 1994 as amended]
“Manpower Recruitment or Supply Agency” means any person engaged in providing any
service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or
otherwise, [to any other person];]
[Section 65(68) of Finance Act, 1994 as amended]

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Hitesh Patel

Hitesh Patel (Querist)
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03 May 2011 Hi Saurabh,

Thanks for your prompt reply.

We are not directly handling/managaing labour/manpower supplied by the contractor. We just inform contractor the specification of work and they carry out the work. To be precise work is of RCC structure. Materials are issued by us. Also labourers/manpower is not permanent they keep on rotating.

Is service tax still applicable?

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Madhukar N Hiregange

Madhukar N Hiregange (Expert)
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03 May 2011 The sub contractor who uses your material is liable under commercial construction or residential complex services.

The option exercised by you bars availment of credit.
Other options of classification under works contract allow sub contractors credit for set off against own liability - composition scheme + when deduction under not. 12/2003 availed.

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Hitesh Patel

Hitesh Patel (Querist)
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04 May 2011 Dear Sir,
First, Thanks a lot for your reply. Please clarify, You are suggesting that

1.We pay service tax under "works contract" rather than "construction of complex".
2.We raise separate invoices for material and services.
3.We do not avail composition scheme.
4.We take credit on input services.

Secondly,
What is meaning of following Explanation that I find in section 65(105)(zzzh) which runs as below
"For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any
person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to
issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.]

Thanks