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Work Contract Service

Sachin Jain CA, CS, CWA (Job) (240 Points)

11 February 2010

I HAVE 1 QUERY:

If i (a pvt. company in Maharashtra) issued a work order to a contractor for a project involving both labour+materialcosts & no identification of material & service portion is available . Then,

1. As far as I know, i have to 5% Vat (if building contract otherwise 8%) on basic amount, 4.12% S.Tax on same basic amount if I opts for consolidation scheme. Is the contractor is charging right tax amount from me?

2. If Yes, then what credit of VAT paid & Service Tax paid can be availed by me?

3. While payment what amount I have to deduct as TDS / Work Contract Tax? Tell me legal supportings also for your opinion.

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2 Replies

Sorabh Gupta (Manager ( Taxation )) (877 Points)
Replied 12 February 2010

Dear Sachin

As per work contrct service rules,,,,,,,,,if cost of material & labour has been seprately identified the contractor must issued a seprate bill for both . In that case contractor will charge VAT on material amount & service tax on labour amount. If material & labour is inseprable then contractor will issue a single bill of both & charge service tax @ 4% as per service tax rate on work contract service.

Hope you have no doubts...........

In both case you can take credit of VAT & service tax......At the time of payment , if contract amount is seprable then deduct TDS on service portion otherwise i.e. if not seprable dedcuct WCT on whole bill.............

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CA Pranjal Joshi (CA) (331 Points)
Replied 15 February 2010

Hi,

In my opinion, here Service Tax (Determination of Value) Rules, 2006 will become applicable. Attention is invited to Rule 2A which talks about valuation of works contract.

It states that Value of services = Value of Works Contract - Value of Materials (as accepted by state Vat Authorities)