Cenvat effect as per not. no. 29/2012-s.t. dtd. 20/6/2012

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Nikunj Agarwal

Director & CEO

27 Points Joined August 2012

My company is doing turnkey projects for industries. Earlier we used to charge 12.36% as Service Tax for the erection and commissioning etc. portion of the work. We used to claim and get CENVAT for the Service Tax we used to pay to our sub-contractors as well. W simply used to state to our clients that Service Tax is payable extra at 12.36% Now, the new notification states that "In respect of services provided or agreed to be provided in service portion in execution of works contract" - percentage of service tax payable by the person providing the service is 50% and the percentage of service tax payable by the person receiving the service is 50%. Does this mean the following: - 1. Our offer will henceforth state that Service tax is payable @ 6.18% on the quoted prices? 2. Balance 6.18% will be paid by us? 3. Will we get CENVAT on the amount received from the client or on the total amount? This is very vital for all Project execution companies wince if the portion being paid by the service provider becomes a direct cost, then the cost of project increases by 6.18%. I seek your kind guidance.

Replies (9)

Guest

In this case, You have to charge ST @ 6.18 % from your corporate clients.

The service provider shall issue an invoice complying with Rule 4A of the Service Tax Rules 1994. Thus the invoice shall indicate the name, address and the registration number of the service provider; the name and address of the person receiving taxable service; the descripttion and value of taxable service provided or agreed to be provided; and the service tax payable thereon.

As per clause (iv) of sub-rule (1) of the said rule 4A ‘’the service tax payable thereon’ has to be indicated. The service tax payable would include service tax payable by the service provider.

Guest

Balance 6.18% will be paid by SERVICE RECEIVER (corporate only)

Nikunj Agarwal

Director & CEO

27 Points Joined August 2012

Dear Ms. Jain,

Thank you very much for your kind response. The issue is that earlier i was charging 12.36% from my client and receiving 12.36% and I was getting CENVAT for whatever ST I have paid to my sub-contractors etc. and then the balance I was paying to the Authorities.

The New rule states that 50% is now payable by the receiver of the service and 50% by the provider. So now my confusion is what happens to the CENVAT calculation. If the service provider has to pay 50% to the authorities then what happens to the CENVAT. Does that actually lead to increase in cost calculation for the service provider?

Guest

Dear Mr. Nikunj,

If service provider is Individual (prop ) /Partnership firm (registered or unregistered) /HUF and sevice receipient is any company formed or registered under the Companies Act, 1956 then only reverse charge is appliable.

But in your case service provider is a company, hence it is not applicable. In your case service provider has to charge and pay service tax on full amount of service.

With Regards

Nikunj Agarwal

Director & CEO

27 Points Joined August 2012

That means I am supposed to follow the normal pratice that I was following previously, i.e. charge 12.36% from the client and pay the due amount to the Government after deducting the CENVAT available in my books for the Service Tax paid by me to my sub contractors for the services I have availed from them.