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Reverse charge

raju Phatak (Accounts Officer) (31 Points)

14 December 2012

Sir/ Madam,

We are Pharma Manufacturing Co and we have done Contaract with Verious Contractors some are Registered under Service Tax and some are not registered pl sugest wether we have to Pay Service Tax on Unregistered Contractor this is one and another is we have given painting contract to painter he is not registered under service tax we have given him painting material only labour charges we are paying him this affects service tax service receiver share i.e. 60% pl Sugest

Thanks in advance

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2 Replies

Vikas (CA) (1135 Points)
Replied 14 December 2012

I presume that you are asking for service tax liability under reverse charge mechanism.

Hence, your answers are

1. If you, being a body corporate, receive a works contract (material + labour), then first you shall see whether the service provider is an Individual, proprietory concern, HUF, partnership firm, LLP. If yes, whether such service provider is registered or not, the 50% service tax liability on such contracts shall be borne by you.

For valuation (under Rule 2A of Valuation Rules, 2006) for such works contract under composition scheme is -

a) Original works (New construction, machinery or plant or structure making) - 40%;

b) Repairs, maintenance, etc. on plant, machienry, structure - 70%;

c) other - 60%

Hence, I believe you must be falling under (b) as repairs to machinery. Therefore, you will have to pay @ 4.326% (12.36% x 70% x 50%) on the total invoice value.

I again repeat, it does not matter for you being a body corporate whether the service provider is registered or not, you will have to discharge Service Tax liability on your own by your own calculations.

2) there is a specific defition of works contract has been given, which does not include the term painting, but it includes renovation. It is upto you to decide whether it falls under the works contract definition or not.

According to me, if it pertains to renovation then it shall be a works contract. But as you said that you are merely paying him for his labour services, then from where did he get the paint. If the paint is provided by you, then its a pure labour job, but if not then both material and labour services are being transferred to you.

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Mallikharjun (Deputy Manager) (304 Points)
Replied 14 December 2012

I agree with Mr. Vikas.....If you are providing him the material (paint), he does merely labour work, then there is no reverse charge mechanism. But If material is not provided by you, then you need to think whether it comes under RCM or not. According to me, if the paint is not provided by you, then it comes under RCM.