Service tax liability on work contract under reverse charge

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Querist : Anonymous

Querist : Anonymous (Querist)

06 January 2015 My client(Limited Company) contracted with a builder to rehabilitation work of basement slab & related drains & floor works for cabinet dyeing machines in dyeing shed.
For this purpose, steel, cement, water & electricity provided by company to contractor. All other material & labour expenses borne by builder. Company will pay a lump sum amount for this.
My question is whether value of cement, steel, water & electricity expenses are to be included for the purpose of calculation of service tax under reverse charge mechanism & what is the rate of service tax for this(40% or 70%)

CA Sheetal Wadhwa

CA Sheetal Wadhwa (Expert)
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06 January 2015 The valuation of service portion in Works Contract is governed by Rule 2A of Service Tax (Determination of Value) Rules, 2006 which provides two options for the same.

OPTION I: Value of service portion in execution of work contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in execution of said works contract.

Option II: There were three categories. The categories and there valuation of service portion is tabulated as under -

a. Orignal Works - 40% of value of Amount Charged for Service tax

b.Works contract entered for maintenance or repair or reconditioning or restoration or servicing of any goods ( Movable Property) - 70% of value of Amount Charged for Service tax

c.Other work contracts including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical
fittings of an immovable property -60% of the total amount charged for works contract

So in your case.
Step -1 First value the amount of Service = 60% of Lumpsum Amount paid to the contractor ( assuming above is not an original work)

Step 2 -then, As per Reverse Charge -50% of the above value ( Step -1 value) is Taxable portion

Step-3 Service tax amount = 12.36% * Step 2 Value

PS value of Steel cement water steel and electricity will not be included in calculation of service tax.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2015 Mam, according to my client, service tax under reverse charge on the contract will be payable on Rs.38.00 lacs(Invoice of builder of labour with material purchased by builder) & on Rs.59.36 lacs of steel, cement, electricity & water charges.
Thus service tax @40% on total amount Rs. 97.36 lacs (Rs.38.00 lacs + Rs.59.36 lacs) is payable.
As per company the above contract is original contract.
please guide me

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CA Sheetal Wadhwa

CA Sheetal Wadhwa (Expert)
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07 January 2015 Service tax on reverse charge is only payable on works contract . 38 lacs .

Goods have been excluded from definition of Service

Thereby Assuming it to be original work.

Service tax will be on 38 lacs * 40 % * 50% * 12.36% =74,160

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Querist : Anonymous

Querist : Anonymous (Querist)

08 January 2015 Mam, as per notification no.24/2012 of Service Tax, Service Tax payable on Rs.97.36 lacs @ 40%

CA Sheetal Wadhwa

CA Sheetal Wadhwa (Expert)
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08 January 2015 Refer
https://www.caclubindia.com/articles/applicability-procedure-of-service-tax-under-reverse-charge-21184.asp#.VK4uudKUdg8