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Composition Scheme and abatement in service tax

Ajay s (Accounts Officer) (243 Points)

11 February 2011

Dear All

We have two contracts both are inclusive of service tax and VAT is applicable. The First client is giving service tax @ 3.43% and deducting WCT @ 4%. The second client is giving service tax @ 4.12% and deducting WCT @ 4%.

May anyone explain the difference in the rates and any notification nos pls

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6 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 11 February 2011

rate is now 4.12% perhaps the one dealer is not updated and charging 10.3% minus 66%

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Ajay s (Accounts Officer) (243 Points)
Replied 11 February 2011

Mr.Sharma I think one is in abatement and another in works contract, do u have any eplanation

Ganesh (CA) (111 Points)
Replied 11 February 2011

Dear Ajith,

I guess your understanding is right. One could be Abatement and the other is Works Contract. However, I am not sure how 3.43% is arrived at. Pls refere to notification 1/2006 for details of Abatement.

Thanks,

Ganesh

Ajay s (Accounts Officer) (243 Points)
Replied 11 February 2011

Thanks Ganesh then pls explain What is 4.12% and what is the Rate for abatement

Ganesh (CA) (111 Points)
Replied 11 February 2011

Dear Ajith,

For Abatement, as requested by you, the notification number is given. For 4.12% composition rate, pls go through this.

WORKS CONTRACT (COMPOSITION SCHEME FOR PAYMENT OF SERVICE TAX) RULES, 2007

[Notification No. 32/2007-S.T., dated 22-5-2007 as amended]

In exercise of the powers conferred by sections 93 and 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely :-

RULE 1. Short title and commencement. — (1) These rules may be called the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

(2) They shall come into force with effect from the 1st day of June, 2007.

RULE 2. Definitions. — In these rules, unless the context otherwise requires, -

(a) “Act” means the Finance Act, 1994 (32 of 1994);

(b) “section” means the section of the Act;

(c) “works contract service” means services provided in relation to the execution of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act;

(d) words and expressions used in these rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act.

RULE 3. — (1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to [four per cent.] of the gross amount charged for the works contract.

[Explanation. - For the purposes of this sub-rule, gross amount charged for the works contract shall be the sum, -

(a) including -

(i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and

(ii) the value of all the services that are required to be provided for the execution of the works contract;

(b) excluding -

(i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and

(ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire:

Provided that nothing contained in this Explanation shall apply to a works contract, where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009.]

(2) 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.

(3) The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract.

[(4) The option under sub-rule (3) shall be permissible only where the declared value of the works contract is not less than the gross amount charged for such works contract.]