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Invoice by contractor for construction work

Rahul Jain (Accountant) (316 Points)

13 October 2013

A partnership firm involved in Construction of residential apartments has engaged a Contractor for Structure work.The work started in February 2013 but the Contractor has not given any Invoice till October, 2013.But as per Work Order, he need to raise invoices for partial work as the work gets done.

Can the contractor issue 1st Invoice in October or November for whole work from February to October while charging Service Tax.

What will be Service tax implication if he raise invoice now for services rendered from February?

Any other suggestions for Contractor?

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1 Replies

Veeresh Aggarwal (CA Final) (36 Points)
Replied 13 October 2013

Hi Rahul,

In response to your query firstly please clarify the nature of contract entered , whether it is a service oriented one or works contract, then only tax implications can be adjudged.

As per Rule 3 of Point of Taxation rules,2011 POT would be issuance of invoice or payment whichever is earlier,in case contractor fails to issue invoice within time limits specified in Rule 4-A POT shall be completion of service ( first event specified upon which payment becomes due from your end) or payment whichever is earlier.

However in your case it is a continuous supply of service contract and Rule 4-A of STR,1994 provides for issuance of invoice within 30 days of completion of event specified in contract,therefore contractor had to issue invoice within 30 days of completion of such event defaulting which full amount of ST would be payable on completion of first such event specified in contract upon which payment fell due.

Consider An Example

Contract Date 20 Feb 2013

1st Date of Completion of Event: 20thMarch

2nd Date : 20th May

3rd Date : 20th July

4th Date : 30th Sep

Now As per Rule 4-A invoices should be issued in following order

1st Invoice : Upto 19th April

2nd : Upto 19th June

3rd Upto 19th Aug

4th Upto 29th Oct

IF A CONTRACTOR FAILS TO ISSUE INVOICE IN ABOVE TIME LIMITS, POT SHALL BE 1ST DATE OF COMPLETION OF EVENT I.E 20TH MARCH OR PAYMENT WHICHEVER IS EARLIER.

Accordingly in your case contractor can issue full invoice in october including full amount of ST payable.

Interest and Penalties shall lie upon him.