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Service tax liability

09 September 2014

What service tax rules would be applicable for a pvt ltd construction company, if the company constructs a Godown on self owned land for self consumption. What will be the service tax laibilities?

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2 Replies

Armaan Anwar (Article Assistant) (47 Points)
Replied 09 September 2014

No service tax as the definition of service under sec 65B (44) mandates transaction to be done between two distinct entities.In the above case, the pvt ltd company is constructing godown for self use, thereby two distinct entities do not exist. Hence outside the scope of definition of service under sec 65B (44) and thereby no service tax

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JSS (Practice) (58 Points)
Replied 09 September 2014

Dear Mangal,

If the Pvt Ltd Company constructs a godown, the transaction will fall under "Works Contract, as is seen from the definition as per Sec. 65(105)(zzzza) as given below.

Hence, if a company obtains services under the head "Works Contract Service" from a non-corporate entity, i.e., other than a company, the recipient of the service is liable to pay Service Tax under Reverse charge, as per Notn No. 30/2012 dated 20.06.2012.

The value of service taxable is given as per Notn No. 24/2012 dated 06.06.2012, wherein the taxable value for an "Original Works" is 40% and for finishing and maintenance works, it is 70%.

Out of the above 40%, 50% needs to be paid by Service Provider and 50% needs to be paid by the service receiver.

Hence, if the pvt ltd company receives services of construction from a service provider other than a company, then Service Tax needs to be paid under reverse charge @ 50% of 40% of 12.36%, if it is "Original Works".

With regard to CENVAT Credit of the above, since this is a new construction, it does not fall under "Renovation, Modernisation, etc" of a factory or business premises, as per Rule 2(l) of Cenvat Credit rules, Input Credit of Service Tax so paid to the service provider or to the government under reverse charge, CANNOT be AVAILED.

Please refer to the notifications mentioned above, for any clarification.

"Works contract" means a contract wherein,—

(i)		transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii)		such contract is for the purposes of carrying out,—

(a)		erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b)		construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c)		construction of a new residential complex or a part thereof; or
(d)		completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e)		turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;