What will be the implication of Service Tax on a developer ?
We will be awarding with material contracts to Main Contractors. We well be supplying Cement and Steel free of cost and the rest of the materials has to be supplied by the contractor. In that proposition, what is the service tax payable when 1) when the terms of contract says that the rates are inclusive of service tax? and 2) when the terms of contract says "Service Tax as applicable shall be paid extra" ?
Also, what is the liability of the developer to the government in the both the cases???
In this case, the liability to pay service tax is on the service provider. In the contract, the service is being provided by the contractor to the developer. Therefore, the contractor will have to pay the tax to the government. Off course, the contractor is entitled to recover the tax from the developer.
If the contractor fails to pay service tax, the government will take action against him. The government cannot recover tax from the developer - who happens to be the service receiver.
It is between the developer and the contractor to choose terms of the contract.
For example let's assume that the amount settled in the contract is Rs. 11224/-
Now, if it is specified as including service tax, the tax will be calculated as under:
Taxable value: Rs. 10,000/-
Service Tax : Rs. 1224/-
In this case, the contractor recovers Rs. 11224 from the developer and pays Rs. 1224/- to the government.
If the contract specified that tax would be extra, then
Taxable value: Rs. 11224/-
Service Tax : Rs. 1373/-
Total : Rs. 12597/-
Here the contractor recovers Rs. 12597/- from the developer and pays Rs. 1373 to the government.
Thanks,
Sanjay Dwivedi
CAclubindia
