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Service tax valuation

Rahul Verma (CA-Final) (484 Points)

05 February 2016

A persona providing services along with material which falls under Work Contract Services and attaching seperate sheet against labour but on the face of bill he does not mentioned amount of labour although mentioned gross amount. Company is depositing ESI on labour portion which was mentioned on a paper attached with that but when they are calculating Service tax they did not considered amount of labour as shown rather calculation made on gross amount with 70% service. So kindly suggest they are doing right calculation also if yes then why not considering amount of labour as we have.

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21 Replies

Govind Shah (CA Final) (75 Points)
Replied 05 February 2016

May i know what type of contract it was.??

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Rahul Verma (CA-Final) (484 Points)
Replied 05 February 2016

Construction services along with material

Govind Shah (CA Final) (75 Points)
Replied 05 February 2016

If it is a maintanence or repair work or any finishing work like painting etc., Service tax is applicable at 70% and the Vendor is charging right. In case, it is a complete new construction or addition or alteration of any structure or land then it is a original work and service tax is payable at 40%.

Rahul Verma (CA-Final) (484 Points)
Replied 05 February 2016

Dear it's clear for me.

i just want to ask under normal situation. this is the situation under composite. In normal situtaion if he mentioned labour part in his invoice then we should charge STax on labour portion. Kindly correct if i am wrong.

Govind Shah (CA Final) (75 Points)
Replied 05 February 2016

No Service Tax is applicable on whole gross amount and not only on labour portion.

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Ajay Chandramouli (Article Assistant ) (334 Points)
Replied 05 February 2016

Dear Rahul verma

If bifurication of Labour amount is available service tax need to be charged only on labour

If there is no bifurication service tax need to be charged on whole amount applying appropiate abatement

Aman (In practice) (31 Points)
Replied 05 February 2016

Mr Ajay Chandramouli is correct

CA Robin Bhasin (Service Sector) (22 Points)
Replied 05 February 2016

Hi Rahul First of all let me correct u it's not abatement under Notification 26/2012 .70% is the service portion of Gross amount charged for the works contract. And second it is the discretion of Service provider to go with Actual Method or Notional method. Generally all service provider adopts Rule2A (ii) of STVR2006 Ii.e 40% or70% as the case may be. Note: also check wether partial reverse charge also applicable in this case. If yes Service receiver is also liable to pay ST.

Rahul Verma (CA-Final) (484 Points)
Replied 05 February 2016

Thanks guyz..

As i said he is mentioning amount of labour in seprate sheet attached along with invoice. It was said to us that following amount is for the calcuation of ESI amount. But i am saying if he is bifurcating amount of labour then why not considering for Service Tax purpose.

Kindly confirm.

Ajay Chandramouli (Article Assistant ) (334 Points)
Replied 05 February 2016

Dear Rahul Verma

That is the service provider's discretion how to value a service. He might be unaware of various options. Just explain him that he have two options and follow which is beneficail so that even cash outflow to your clients will decrease.

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Rahul Verma (CA-Final) (484 Points)
Replied 05 February 2016

Thanks guys

Afiz Maknojia (Account Executive) (21 Points)
Replied 05 February 2016

Hi rahul, which tds rate calulated for internet services provider?

Rahul Verma (CA-Final) (484 Points)
Replied 05 February 2016

Look if he is providing service in relation to professional then you should deduct TDS @ 10% u/s 194J ohterwise u r liable for deduct TDS @ 2% or 1% as the case may be.

CA Robin Bhasin (Service Sector) (22 Points)
Replied 05 February 2016

Bifurcation does not mean that value is adopted for the purpose of service tax. Under service tax, the value of labour is determined as per the Explanation to rule 2A(i) or if service provider has calculated VAT on the actual value of property in goods transferred then deduct such value from Gros amount and paid Service tax on the remaining value. Please refer Rule 2(A) of STVR2006 . All these things are written there.