Servcie tax on works contract

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 November 2012 if a company is giving a work contract to a partnership firm (Non corporate) for renovation of office area.How the service tax liability for both the parties will be calculated.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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24 November 2012 Partial reverse charge is applicable in this case. 50% of the service tax is to be borne by the service provider and 50% by the service recipient.

CA SAYANTAN BASU

CA SAYANTAN BASU (Expert)
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24 November 2012 Dear sir ,

W.E.F 01.07.2012 , SERVICE TAX ON WORKS CONTRACT WILL BE CALCULATED AS FOLLOWS UNDER 2 METHODS -------
1. Pay service tax on Value of services after deducting value of goods from the gross value.
2 Pay service tax at composite rate----

In case of original work, pay service tax on 40% value,
In case of maintenance or repair or reconditioning or restoration or servicing of any goods, pay service tax on 70% value,
In case of all other works contract, pay service tax on 60% value
THE ORIGINAL WORK MEANS -----

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;

UNDER 1ST METHOD THE CALCULATION WILL BE ----gross amount charged for the works contract less the value of property in goods transferred

In the cases where VAT has been paid on ACTUAL value of transfer of property in goods, then this value will considered while calculating the value of Works Contract.
If the VAT is not paid on the ACTUAL value, the assessee will calculate the same for the purpose for service tax and it will be deductible from the gross value.

2. SECOND METHOD WILL GE USED WHEN THE TAXABLE VALUE ON WHICH SERVICE TAX IS TO BE CALCULATED IS NOT KNOWN ...
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;

he manner of arriving at the ‘total amount charged’ is explained with the help of the following example pertaining to works contract for execution of ‘original works’.

1 Gross amount received excluding taxes =95,00,000
2 Fair market value of goods supplied by the service receiver excluding taxes =10,00,000
3 Amount charged by service receiver for 2= 5,00,000
4 Total amount charged (1+2-3) =1,00,00,000
5 Value of service portion(40% of 4 in case of original works) 40,00,000

Note: When the service provider pays partially for the materials supplied by the service receiver, gross amount charged would inevitably go higher by that much amount.

REVERSE CHARGE MECHANISM IS APPLICABLE WHEN FOLLOWING CONDITIONS ARE SATISFIED ----
Service receiver must be a body corporate and
Service provider must be
Individual,
HUF,
Partnership firm (registered or unregistered ) ,
AOP.
Both service Provider and service receiver must be located in taxable territory.

If above Conditions are not fulfilled then reverse charge is not applicable.Means if service provider is other then four categories given above then reverse charge is not applicable. Further service receiver must be Body corporate.

SO IN YOUR CASE REVERSE CHARGE MECHANISM IS NOT APPLICABLE I.E. SERVICE TAX LIABILITY IS BEING ON SERVICE PROVIDER ONLY NOT ON SERVICE RECEIVER .... THE COMPANY HAS ONLY CALCULATE THE AMOUNT AND HAS TO INCLUDE THAT AMOUNT IN BILL TO THE CUSTOMER BY FOLLOWING EITHER OF THE 2 METHODS STATED ABOVE .....

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CA SAYANTAN BASU

CA SAYANTAN BASU (Expert)
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24 November 2012 DEAR BHARDWAJ SIR ,

REVERSE MECHANISM IS APPLICABLE ONLY WHEN FOLLOWING CONDITIONS ARE BEING SATISFIED ---

The condition under reverse charges are
1. Service receiver must be a body corporate and
2. Service provider must be
Individual,
HUF,
3. Partnership firm (registered or unregistered ) ,
4. AOP.
Both service Provider and service receiver must be located in taxable territory...

If above Conditions are not fulfilled then reverse charge is not applicable.Means if service provider is other then four categories given above then reverse charge is not applicable. Further service receiver must be Body corporate.

IN THIS SERVICE PROVIDER IS A CORPORATE AND SERVICE RECEIVER IS NON CORPORATE ..... SO REVERSE MECHANISM IS NOT APLLICABLE ......