payment of service tax

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p.e.rao

p.e.rao (Querist)
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08 April 2010 Sir, our company has awarded few contracts worth crores for excavation of earth. The rate awarded is inclusive of service tax @ 12.00% and education cess of 3% i.e. 12.36%. These contracts were awarded prior to Feb 2009 when this rate of service tax was applicable. In Feb 2009, the rate of service tax was reduced to 10.00%. The effective rate works out to 10.3%. In this regard please advice whether our company can reduce the effective service tax from 12.36% to 10.3% as the service tax is applicable post Feb 2009 work executed post Feb 2009. If not, please advice why not. Further, if the answer is negative, would it not amounting to making profits out of government taxes. Currently, no adjustment in the awarded rate is made. i.e. awarded rate is paid to contractors which includes 12.36% service tax. Thanks.

CMA.Palani Arumugam

CMA.Palani Arumugam (Expert)
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09 April 2010 Service tax rates are as follows

From 11.05.07 to 23.02.09 - 12.36% (12% service tax + 3% Cess on ServiceTax)

From 24.02.09 onwards - 10.30% (10% servuce tax + 3% cess on Service Tax)

Since the work is executed after Feb09, the service tax rate will be 10.3%. So you have to charge service tax @ 10.3%. Since the awarded rate is inclusive of service tax, there will be additional profit due to reduction in service tax rate.