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Clarity about tax on building contracts

Suiryaprakash (HR Asst.) (30 Points)

30 January 2016

Dear Experts,

We are running a Hotel in tamilnadu. Now we are rennovating our hotel. My doubt is the contractor who carry out interior works supplying material along with labour billed today. We surprised to see he is charging14.5% of TNVAT on 70% of Totat Value and again Service Tax on 70% of Total Value i want to know is this correct. He is saying its right. we are charging the same everywhere.

How come they are charging like this? i dont know, they have to charge only for the labour thats my view.. Kindly explain.

Expecting a earliest reply.

Thanks & Regards,

Suriyaprakash

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3 Replies

CMA Poornima Madhava (CMA) (13112 Points)
Replied 30 January 2016

As already mentioned by you, he has supplied material as well as labour. So it is a works contract. Since, he has supplied material, he is obliged to charge VAT.
In this case, assuming that the bifurcation between material and labour is not done, VAT is applicable since material supply is involved. Since exact value of labour is not known, there is an option for deduction @ 30% and hence VAT applicable on 70% of the invoice value (to cover sale of materials)
Now coming to service tax, it is a works contract and ST is applicable as per rule 2A of ST (determination of value) Rules. Since it is renovation work, ST is applicable on 70% of the invoice value (if labour portion is separately known then 14.5% ST is applicable only on the labour portion)

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Suiryaprakash (HR Asst.) (30 Points)
Replied 30 January 2016

Dear Mam, Thanks for your quick reply. One more doubt If he know the labour portion seperatly, he can charge Less Service Tax is it right?

Thanks & Regards,

Suriyaprakash

CMA Poornima Madhava (CMA) (13112 Points)
Replied 30 January 2016

If labour is known separately, then ST is applicable only on that labour portion. Further VAT will be applicable only on the material cost (if material & labour are known separately)