Reverse charge under service tax

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Querist : Anonymous (Querist)

10 August 2012 What is the mechanism in charging the ST in the bills for services under Works Contract.

RENGARAJ R.K

RENGARAJ R.K (Expert)
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10 August 2012 It is a big subject. There is a valuation rules viz., Rule 2A,which helps to arrive at the total turnover of the bill for works contractors. After arriving the valuation, 50% of the turnover is taxable for contractor (Service provider) and equal 50% of the turnover is taxable for service receiver under works contract.

Then, if it is original works (new construction), out of 50%, 40% of the taxable turnover is liable to be taxed @12.36% for both SR and SP.

Since works contract is a composite of both labour and material, the taxable turnover of the works contract can be arrived at after deducting the material cost shown by the SP in his VAT return. If this is not possible, 40% as explained above is applicable.

This is a reverse charge mechanism for works contract.

The percentage of abatement will vary for maintenance and repairs WC and other than original works contract.

Kindly refer Notn No.24/2012 & 30/2012 for better clarity.