Work contract

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Yash Dave

Yash Dave (Querist)
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03 July 2012 HOW IS SERVICE TAX CHARGED FOR WORK CONTRACT WORK AND WHAT IS THE RATE OF TAX

RENGARAJ R.K

RENGARAJ R.K (Expert)
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03 July 2012 Kindly see the notification below. The service tax rate is 12.36 on taxable value (total value minus abatement)w.e.f 01.07.2012.

“2A. Determination of value of service portion in the execution of a works
contract.- Subject to the provisions of section 67, the value of service portion in
the execution of a works contract , referred to in clause (h) of section 66E of the
Act, shall be determined in the following manner, namely:-
(i) Value of service portion in the execution of a works contract shall be
equivalent to the gross amount charged for the works contract less the value of
property in goods transferred in the execution of the said works contract.
Explanation.- For the purposes of this clause,-
(a) gross amount charged for the works contract shall not include value added tax
or sales tax, as the case may be, paid or payable, if any, on transfer of property in
goods involved in the execution of the said works contract;
(b) value of works contract service shall include, -
(i) labour charges for execution of the works;
(ii) amount paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect’s fees;
(iv) charges for obtaining on hire or otherwise, machinery and tools used for
the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel used in the execution
of the works contract;
(vi) cost of establishment of the contractor relatable to supply of labour and
services;
(vii) other similar expenses relatable to supply of labour and services; and
(viii) profit earned by the service provider relatable to supply of labour and
services;
(c) Where value added tax or sales tax has been paid or payable on the actual
value of property in goods transferred in the execution of the works contract, then,
such value adopted for the purposes of payment of value added tax or sales tax,
shall be taken as the value of property in goods transferred in the execution of the
said works contract for determination of the value of service portion in the
execution of works contract under this clause.
(ii) Where the value has not been determined under clause (i), the person liable to
pay tax on the service portion involved in the execution of the works contract shall
determine the service tax payable in the following manner, namely:-
(A) in case of works contracts entered into for execution of original works,
service tax shall be payable on forty per cent. of the total amount charged for
the works contract;
(B) in case of works contract entered into for maintenance or repair or
reconditioning or restoration or servicing of any goods, service tax shall be
payable on seventy percent. of the total amount charged for the works
contract;
(C) in case of other works contracts, not covered under sub-clauses (A) and
(B), including maintenance, repair, completion and finishing services such as
glazing, plastering, floor and wall tiling, installation of electrical fittings of an
immovable property , service tax shall be payable on sixty per cent. of the total
amount charged for the works contract;
Explanation 1.- For the purposes of this rule,-
(a) “original works” means-
(i) all new constructions;
(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
structures, whether pre-fabricated or otherwise;
(d) “total amount” means the sum total of the gross amount charged for the works
contract and the fair market value of all goods and services supplied in or in
relation to the execution of the works contract, whether or not supplied under the
same contract or any other contract, after deducting-
(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon:
Provided that the fair market value of goods and services so supplied may
be determined in accordance with the generally accepted accounting principles.
Explanation 2.--For the removal of doubts, it is clarified that the provider of taxable
service shall not take CENVAT credit of duties or cess paid on any inputs, used in
or in relation to the said works contract, under the provisions of CENVAT Credit
Rules, 2004.”.

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