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Service Tax on Work Contract

ramoliya vipul (student) (59 Points)

13 November 2008

IS it service tax applicable on Work contract tax ? if yes then At what rate?

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4 Replies

CA Chaitanya (PRACTISING CA) (4283 Points)
Replied 13 November 2008

Ya its applicable. But abatement is available.

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CA. C V SURYAM (Practising Chartered Accountant) (865 Points)
Replied 13 November 2008

No, Mr.Chaitanya, abatement is not applicable for this category of service.

Works Contract services have been brought into service tax net w.e.f 01.06.2008 by introducing section 65(105)(zzzza) in the Finance Act, 1994. Under this category, there are two options available.

(1) Composition Scheme by Notificatin No.32/2007-ST and the applicable rate of tax is 4% plus EC and SHE Cess; and
(2) Value of transfer property involved in execution of works contract (Non-composition scheme) vide notification no.29/2007-ST and the appicable rate of tax is 12% plus EC and SHE Cess.

Under both the options, CENVAT credit on input services and excise duty paid on capital goods used in execution of works contract service is available for set off against output service tax.

But, there is no abatement method applicable under this service and this abatement is applicable for other category of services like industrial and commercial construciton, construction of residential complexes, GTA services etc.,

ramoliya vipul (student) (59 Points)
Replied 13 November 2008

Can You explain the mening of abatement

CA. C V SURYAM (Practising Chartered Accountant) (865 Points)
Replied 14 November 2008

Mr.Ramoliya Vipul, abatement means it is a kind of deduction being given at a certain percentage calculated on gross amount charged from such amount to arrive at the value of taxable service. There are different rates of abatement are given depending upon the nature/category of service. For eg. in the case of construction services, the rate of abatement is 67% and service tax is payable on the balance amount i.e., 37%.

Actually, service tax is leviable on the taxable value of service. Since the total service value will be combination of both value of materials and services, there is need to be excluded value of materials from the gross amount charged. Abatement is one of the options given by the Statue to exclude the value of materials so as to arrive at the value of taxable service.

Another method of arriving value of taxable service is reckoning of Notification No.12/2003-ST under which actual value of materials will be excluded from the gross amount charged.

Of course, under both the options, service provider is not eligible to avail Cenvat credit on materials since deduction is given. Hope, I am clear to you.