Work contract billing

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ACS Gaurav Jain (Querist)
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09 July 2014 ABC Ltd a pvt co. doing some work contarct work for other company XYZ.

There is total 30 work on site to do. for bill ABC ltd will make monthly running bill.

1)In 30 Work, for 26 work xyz ltd will provide materiel and for other 4 work ABC Ltd will purchase materiel from market. How to make invoice in this case

2 ) In 2nd Bill there is work of only that 4 activity ?

3 ) In first Bill there is mixture of both type of activity ?

CA Pradeep Sharma

CA Pradeep Sharma (Expert)
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09 July 2014 Here is question of valuation for service tax which is deal as under.

Value of material provided by XYZ limited will be included in value of contract according to Section 67(1)(ii) Amount charged and equivalent money value of consideration in kind with the addition of service tax charged ( Where consideration not only in money)

Rule 2A of Service Tax Determination Rules also tells us

Value of works contract service shall include-

i. labour charges for execution of the works;

ii. amount paid to sub-contractor for labour and services;

iii. charges for planning, designing and architect’s fees;

iv. charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

v. cost of consumables such as water, electricity, fuel used in the execution of the works contract;

vi. cost of establishment of the contractor relatable to supply of labour and services.

vii. other similar expenses relatable to supply of labour and services;
viii. profit earned by the service provider relatable to supply of labour and services;

(These are the same expenses which have been specified in landmark judgment of Hon’ble Apex Court in the case of Builders Associates [1989] 73 STC 370 which are to be excluded from of gross amount charged for the purpose of determining the value of goods on which State Government can levy the tax. Government, in order to avoid the litigation in this regard has specified that these expenses shall be included for the purpose of calculating the service portion in the execution of work contract)

Also Rule 2A states that in case of property in goods transfer then value work contract amount deducted by value of property (like 4 work done by material purchased by ABC Limited itself)

Rule 2A also provide the notional amount for valuation of service (like 40%, 60% and 75%)

ACS Gaurav Jain

ACS Gaurav Jain (Querist)
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09 July 2014 IF I GO FOR COMPOSTION SCHEME THAN VALE OF MATERIEL PROVIDED BY XYZ LTD WILL INCLUDE OTHERWISE NOT ?

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CA Pradeep Sharma

CA Pradeep Sharma (Expert)
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09 July 2014 In case of composition A. 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;
B. In case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent of the total amount charged for the works contract;
C. In case of other works contracts, not covered under sub-clauses (a) and (b), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installing of electrical fittings of an immovable property, service tax shall be payable on sixty per cent of the total amount charged for the works contract;

Explanation 1.- For the purposes of this rule,-
(a) “original works” means-
(i) 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;

(d) “total amount” means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-
(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

(In the opinion of the author, the term “total amount” means the gross amount charged for the works contract. However, many times in practical situations, some of the materials (particularly power, steel and cement) and some of the services (like security, specified labour etc) are supplied by the contractee either free of cost or at nominal rates. In such cases of free or concessional supply of materials and services the “ the amount” shall be determined as under.
Gross Amount charged by the contractor for the works contract
Add: Fair Market value of goods/services supplied by (Contractee)
Less: the value of VAT or sale tax, if any levied on such nominal supply of materials)

Explanation 2.--For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.”.