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Service tax on sub contractor

Sudalaimuthu.R (Articleship trainee) (45 Points)

06 August 2009

Dear Experts, one of our clients is a main contractor in a constructions field he obtained a contract for the value of Rs.1 corer, applicable service tax rate is 4.12% (WCT) . The main contractor gives 60% work to other sub contractors, purely service oriented ie. applicable service tax rate is 10.3%. Now the Main contractor received service tax amount Rs.4,12,000/- but he paid Rs.6,18,000/- to sub contractor. Finally the main contractor Paid excess amount of Rs.3,70,800/- out of his own packet (ie.40,00,000*4.12%=164800 + excess payment to sub contractor 2,06,000/- due to rate variation i.e input is 4.12% out put 10.3%). Is there any provision to avoid excess payment of Rs.3,70,800/-. Please reply with relevant section and/or case law.

Thanks in advance

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3 Replies

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 08 August 2009

Originally posted by :Sudalaimuthu.R
"	Dear Experts, one of our clients is a main contractor in a constructions field he obtained a contract for the value of Rs.1 corer, applicable service tax rate is 4.12% (WCT) . The main contractor gives 60% work to other sub contractors, purely service oriented ie. applicable service tax rate is 10.3%. Now the Main contractor received service tax amount Rs.4,12,000/- but he paid Rs.6,18,000/- to sub contractor. Finally the main contractor Paid excess amount of Rs.3,70,800/- out of his own packet (ie.40,00,000*4.12%=164800 + excess payment to sub contractor 2,06,000/- due to rate variation i.e input is 4.12% out put 10.3%). Is there any provision to avoid excess payment of Rs.3,70,800/-. Please reply with relevant section and/or case law. Thanks in advance	"

It isimprotant in this scheme whether the VAT is being paid and on what amount. In this example it appears that materials constitute only 10-20% of the cost as the labour cahregs to the SC ius 60%. IN such cases the ST should be paid after deducitn gthe value of materials under WC and not under compostion. Alterantively the SC also should be under compiste contract and charge the ST @ 4.12%..