Service Tax

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Ratnamala (Querist)
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10 April 2008 In case of civil repairs & maintenance if the contractor provides only the labour are we suppose to pay service tax on the invoice amount charge to us on labour rate? whether the concept of 67% abatement on service tax is applicable here or not?

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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10 April 2008 As civil repairs falls within the ambit of commercial or industrial construction service, abatement is available.

R.V.RAO

R.V.RAO (Expert)
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10 April 2008 1. CONSTRUCTION ACTIVITY OF RES/COMMERCIAL COMPLEXES:

in june 05,The GOVT. has decided to extend the abatement of 67 per cent for services provided in the construction of residential complexes. So far, this was only available for commercial complexes. An abatement of 67 per cent means that service tax will be payable only on 33 per cent of the gross amount.

2.Labour contract :

In the case of labour contract, the service tax would be on the entire contract rendered by the builder as the owner bears the input material costs.

IF YOU ARE IN CONSTRUCTION OF RES./COMMERCIAL BUILDING COMPLEXES, WE CAN TALK OF ABATEMENT.
IF ONE IS ONLY A LABOUR CONTRACTOR ITEM 2 ABOVE APPLIES.

TO CLARIFY THE ISSUE RAISED IN THE QUERY FURTHE ,I REPRODUCE BELOW FAQ APPEARED IN http://www.capitalmarket.com

QUESTION:Do I pay service tax only on labour or on raw materials too?

ANS:As you will be providing only completion and finishing services for the residential complex you cannot claim abatement of 67%

QUESTION:We are in the business of decorating residential premises. Recently, we received a contract from Hiranandani Builders to fix floor marbles and acoustic applications in each of their 50 flats for Rs 50 lakh. Our chartered accountant has advised us that such type of activity will attract service tax from 16 June 2005 at 10.2%. However, we feel service tax has to be paid only on labour charges and not on the material components as only the service component attracts service tax. What is your advice? Will we get any abatement or deduction for the use of material in carrying out the above mentioned contract?

— Question asked at a service tax seminar

ANSWER:Construction of complex services has been brought under the service tax net from16 June 2005. As per sec 65 (30a) a construction of complex services means:

a) Construction of a new residential complex or a part thereof, or

b) Completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, or

c) Repair, alteration, renovation or restoration of, or similar services in relation to residential complex

You have received contract to fix floor marble and acoustic applications in 50 flats. This type of contract falls under completion and finishing services under ‘Construction of complex services’ as evident from sub-clause (b) of clause 30 (a) of sec 65. So you will be liable to pay service tax.

Now, let’s move to the question whether the service tax will be leviable on the entire consideration of Rs 50 lakh inclusive of materials or only on the labour charges involved in it. To sort out this dilemma, we can make reference to notification no 18/2005-Service Tax, dated 7 June 2005.

The said notification provides that a service provider can avail 67% abatement of the gross amount charged to the customer for providing taxable service, i.e., service tax at 10.2% is to be paid only on 33% of the gross amount charged and explanation to the notification provides that gross amount shall include the value of goods and materials supplied or provided.

To avail the abatement, certain conditions are to be satisfied. One of which is that taxable services provided should not be exclusively for completion and finishing services in residential complexes.

As you will be providing only completion and finishing services for the residential complex, you will not be able to claim abatement of 67% as per this notification and will have to pay service tax on the entire Rs 50 lakh.

However, you may claim exemption from service tax on the value of goods and materials sold (as per notification no. 12/2003), provided the sale of such goods is evidenced, the sale value is quantified and shown separately in the invoice and there is documentary proof indicating the value of such goods, and no cenvat credit is claimed on such goods.

SOURCE:
http://www.capitalmarket.com/Cmedit/story1

R.V.RAO

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