Levy of Services Tax on Works Contract Services
Levy of Services Tax on Works Contract Services :-
Now a days so many assesses are receiving notices from services tax department for FY 2015-16 and after. So many consultant are facing problems due to these notices because now they are working in GST regime and these matter are old so most of the consultant do not have enough knowledge of services tax.
After seeing such situation we think we should share and help our community with this knowledge so we are trying to release some posts on services tax matter. please tells us how it was helpful for you.
Today we will study for levy of services tax on works contract services:-
Meaning of Works
Contract:- Clause 44 of section 65B of Finance Act, 1994, defines
the Work-Contact as follows:
“works contract” means a contract wherein
transfer of property in goods involved in the execution of such contract is
leviable to tax as sale of goods and such contract is for the purpose of
carrying out construction, erection, commissioning, installation, completion,
fitting out, repair, maintenance, renovation, alteration of any movable or
immovable property or for carrying out any other similar activity or a part
thereof in relation to such property
Reverse Charge Mechanism for Works Contract:- Services provider is under obligation to discharge
the services tax liability on services
portion in execution of works contract . However, in few case this obligation
shifted to services recipient.
Notification no 30/2012-ST issued by CBEC on
20.06.2012 bring the concept of partially reverse charge on services portion in
execution of works contract as follow:-
|
If Service Provider is a |
If Service
Receiver is a |
Service tax is payable by |
|
|
Service Provider |
Service Receiver |
||
|
Individual, Proprietary Firm, Partnership
Firm including LLP |
Body Corporate |
50% |
50% |
|
Other than Body Corporate |
100% |
0% |
|
|
Government or Local Authority |
Any Person |
0% |
100% |
|
Body Corporate |
Any Person |
100% |
0% |
Taxable value of service portion in execution
of work contract:-
In general, the
provisions of valuation of service are governed by Section 67 of the Act read
with Service Tax (Determination of Value) Rules, 2006. As a general rule, value
of taxable service is gross amount charged for a service whether in the form of
money or otherwise.
Vide Notification
No. 24/2012 Dated 06.06.2012, CBEC provided a new Rule 2A {Service Tax (Determination
of Value) Rules, 2006}. According to new Rule 2A of Service Tax (Determination
of Value) Rules, 2006, subject to the provisions of section 67, the value of
service portion in the execution of a works contract, referred to in clause (h)
of section 66E of the Act, shall be determined in the following manner,
namely:-
(a) Regular Scheme
[Rule 2A(i)]
(b) Standard
Deduction Scheme [Rule 2A(ii)]
(A)
Regular Scheme:-
Rule 2A(i) of the said rules, provides that
value of service portion in the execution of a works contract shall be
equivalent to the gross amount charged for the works contract less the value of
property in goods transferred in the execution of the said works contract.
However, such gross amount charged shall not include VAT/Sale Tax.
However, there may be a case that the service
provider is paying VAT/Sales tax not on the actual value of respective State
VAT/sales tax law, then service element will consist of following components as
mentioned in Explanation (b) to the Rule 2A of said Valuation Rules:
(a) Labour charges for execution of the
works;
(b) Amount paid to a sub-contractor for
labour and services;
(c) Charges for planning, designing and
architect’s fees;
(d) Charges for obtaining on hire or
otherwise, machinery and tools used for the execution of the works contract;
(e) Cost of consumables such as water,
electricity, fuel used in the execution of the works contract;
(f) Cost of establishment of the contractor
relatable to supply of labour and services;
(g) Other similar expenses relatable to
supply of labour and services; and
(h) Profit earned by the service provider
relatable to supply of labour and services;
(B)
Standard Deduction Scheme:-
Rule 2A(ii) provides that where value has not
been determined under Rule 2A(i) as above, the person liable to pay tax on the
service portion involved in the execution of the works contract shall determine
the service tax payable in the following manner, namely:-
Upto 30th, October, 2014.:
|
S. No. |
In case of works contracts entered
into – |
ST shall be payable on ___ % of the
total amount charged for the works contract |
|
A |
For execution of Original Works |
40% |
|
B |
For maintenance or repair or reconditioning
or restoration or servicing of any goods |
70% |
|
C |
For any other purpose not covered under (A)
& (B) above, including maintenance, repair, completion and finishing
services such as glazing, plastering, floor and wall tiling, installation of
electrical fittings of an immovable property. |
60% |
With effect from 1st October, 2014
Notification No. 11/2014 Dated 11.07.2017.
In Rule 2A of the Service Tax (Determination
of Value) Rules, 2006, category “B” and “C” of works contracts are merged into
one single category, with percentage of service portion as 70%; this change has
come into effect from 1st October, 2014. This rationalization
by way of merger of categories has been made to avoid disputes of
classification between these two categories. The new provisions are as under:
|
S. No. |
In case of works contracts entered
into – |
ST shall be payable on ___ % of the
total amount charged for the works contract |
|
A |
For execution of Original Works |
40% |
|
B |
in case of works contract, not covered
under sub-clause (A), including works contract entered into for,- (i) maintenance or repair or reconditioning
or restoration or servicing of any goods; or (ii) maintenance or repair or completion
and finishing services such as glazing or plastering or floor and wall tiling
or installation of electrical fittings of immovable property |
70% |
Explanation 1.
- For the purposes of this rule,-
(a)
“Original Works” means-
(i)
All new constructions;
(ii)
All types of additions and alterations to abandoned or damaged structures on
land
that
are required to make them workable;
(iii)
Erection, commissioning or installation of plant, machinery or equipment or
structures,
whether pre-fabricated or otherwise;
(d)
“Total amount” means the sum total of the gross amount charged for the works
Contract
and the fair market value of all goods and services supplied in or in relation
to
The
execution of the works contract, whether or not supplied under the same
contract or
Any
other contract, after deducting-
(i)
The amount charged for such goods or services, if any; and
(ii)
The value added tax or sales tax, if any, levied thereon:
Provided
that the fair market value of goods and services so supplied may be
determined
in accordance with the generally accepted accounting principles.
Explanation 2.--For
the removal of doubts, it is clarified that the provider of taxable services
shall not take CENVAT credit of duties or cess paid on any input, used in or in
relation to the said works contract, under the provision of CENVAT Credit
Rules, 2004.
Note: it is to be noted that
percentage scheme is not to be always referred. It is to be referred only where
value is not determinable as per the provisions of Rule 2A(i) of the said
Valuation Rule 2.
Cenvat Credit: –
1. As per
Explanation 2 to Rule 2A of said Valuation Rules, the provider of taxable
service i.e. the works contract service shall not take CENVAT credit of duties
or cess paid on any inputs, used in or in relation to the said works contract,
under the provisions of CENVAT Credit Rules, 2004.
2. According to
sub-rule (7) of Rule 4 of CENVAT Rules, the CENVAT credit in respect of input
service shall be allowed, on or after the day on which the invoice, bill or, as
the case may be, challan referred to in rule 9 of the said rules, is received.
3. First proviso
to Rule 4(7) provides that in case of an input service where the whole of the
service tax is paid on reverse charge by the recipient of the service (i.e. u/s
68(2) of Finance Act, 1994), the CENVAT credit in respect of such input service
shall be allowed after the service tax paid.
Availability of CENVAT Credit To Services
Provider Providing Specified Services:-
Services on which
Partial Reverse charge is applicable, Service provider can avail Cenvat credit
of Service tax paid on Input services obtained. Further since in case of these
service providers 100percent Input credit is available while service tax
liability is on less than 100percent hence central government has introduced
Rule 5B which allows service provider to claim refund.
Services on which
full reverse charge is applicable are not covered by the term “Output Services”
as per Rule 2(p) of CCR Rules, 2004. Hence no cenvat credit of Service tax paid
on Input services is available.
*******
Rule 5(B) introduced by notification no 12/2014-CE(NT) dated 03.03.20214.
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