My Dear Friends,
I deal in Indirect Tax therefore I can tell you the Indirect Tax Implication. The construction industry attracts both Sales Tax/VAT and Service Tax. Actually in Construction there is transfer of property in goods involved which is liable to Sales Tax. Sales Tax varies from State to State. Generally three option available in Sales Tax. 1. Calculate the value of the goods involved in execution of works contract(construction contracts are regarded as works contract) and pay sales tax on that. If separate accounting of service and goods is not possible then you can opt for composition scheme whereby you have to pay VAT/Sales Tax on the gross amount of the contract. All the states have defined the composition scheme in their own way. The other method is proportionate deduction method. Such method is also specified in the States Laws and accordingly you have to deduct the specified % amount from the contract value and sales tax or VAT has to be paid on that. Some of the States do not have such option available. It is to be noted that if the contract is pure a service contract and there is no transfer of property involved, then there would not be any sales tax implications.
For Service Tax, you would be liable to pay service tax under works contract service and accordingly you have the option to pay service tax only on the value of service. In this regard, you can see rule 2A of the Service Tax (Determination of Value) Rules, 2006. Such facility is available if you can maintain separate account of goods and services involved in the contract. If separate accounts cannot be maintained, then you have to opt the composition scheme and would be liable to pay service tax @ 2% of the gross value of the contract. Composition Rules are also notified and are available on the net. For any other clarification in this regard, you can be in touch with me on my gmail mailing id. I hope I could clarify some of the aspects.
CAclubindia
