Work contract tax

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

14 August 2012 Our company issued a Work Order inclusive of service tax @ 12.36% with clause 3% WCT will be applicable and deducted from your every Bill.
(But material value is not identified while issuing the work order)

My question is that if I follow the valuation rules under the notification 11/2012 of Service Tax i.e 70 of the total amount of Gross amount then my liability for Service Tax will be after deducting WCT from Gross Work Done or simply I take 70% of service Tax which is inclusive in the bill value and deposit 50% of service tax. For Example

Ist Method:-

Work Done Value 1,20,000/-
Less WCT 3,600/-
Net value inclusive of Service Tax 116400/-
Service Tax inclusive in above 12804/-
My company Liability upto 70% 8963/- and then 50% 4482/- according to notification no 30/2012 of Service Tax.

IInd Method
Work Done Value 1,20,000/-
Service Tax inclusive 13200/-
70% of Service Tax 9240/-
50% Liability according to notification No 30/2012 i.e 4620/-.

My doubt if I'm taking a % value of the service Portion then I should not deduct the WCT.

Please Advice...

CA Suresh Jain

CA Suresh Jain (Expert)
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15 August 2012 The Valuation of service should be as per Service Tax ( Determination of Value) Rules. 2006 as amended by notification No. 24/2012 dated 6/6/2012 the relevant portion is reproduced

2A. Determination of value of service portion in the execution of a works contract. - Subject to the provisions of section 67, the value of service portion in the execution of a works contract, referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely :-

(i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.

Explanation. — For the purposes of this clause,-

(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;

(b) value of works contract service shall include, -

(i) labour charges for execution of the works;

(ii) amount paid to a 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; and

(viii) profit earned by the service provider relatable to supply of labour and services;

(c) Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.

(ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely :-

(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 per cent. 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, installation 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;

(b) “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.

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.”.

the service tax is to be paid by service provider and the receiver or the service as per notification 30/2012