Regarding works contracts

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Ravi Nallipogu (Querist)
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28 August 2012 As per service tax new regime works contracts has different rates for eg. original contracts is 40% repairs/renovations and other is 70% other than above is 60% is it correct.now my doubt is As per rule 2a thus above mentioned rates apply on gross amount charged on invoice less than value of the property involved in goods and vat/sales tax on above is it correct ok here party can claim cenvat credit on input services, capital goods not on input goods is it ok then fine if party his have to claim cenvat credit on input goods any other provision is there for claiming cenvat credit on input goods and one more thing is i had read it some where in case party have interested to claim all cenvat credit including input goods normal service tax rate is12.36% apply on entire gross amount including value of transfer of property involved in goods in thus case party can claim entire cenvat credit is it correct or not please clarify some one

CA Nikhil Jhanwar

CA Nikhil Jhanwar (Expert)
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28 August 2012 Your query is good.

Firstly let me clarify where you are valuing taxable service of works contract on the basis of percentage viz. 40%/70%/60% then instead of gross amount, the Total amount shall be considered including free of cost supply.

In my opinion, now this option of taking full credit of inputs and paying tax at 12.36% is not available. Because now what is taxable is 'Service portion in execution of works contract'. which means that sale or deemed sale is specifically kept out of tax net. Now for paying tax you cannot add the value of goods to the value of taxable service i.e. gross amount charged, because it is separately treated as deemed sale.

Accordingly you have two options.

1. Pay tax @ 12.36% on only service portion and do not take credit of inputs.

2. Pay tax on percentage basis as specified in Rule 2A.