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Tuesday, August 21, 2012

Service Tax on Works Contract - Post Negative List Regime


The Service Tax liability on Works Contract after July 1, 2012 is summarised as follows:

Value of Works contract for Service tax       = Gross amount received – Value of goods
     transferred in the execution of works contract

Condition
Value of Service Tax
Remarks
If Registered under VAT &  returns filed
·         Value of Service =  Gross amount received – Amount for which VAT is paid (amount declared in VAT return as turnover)
Easy way
Otherwise


a)      if value of materials & Value of service is separately identifiable
·         Value of Services = Labour charges + paid to sub-contractor for labour + charges for planning/ designing / architect fee + machinery /equipment hire + Cost of consumables (water, electricity, fuel etc) + Proportionate establishment expenses relating to service + proportionate profit relating to service
It is difficult to arrive at this value
b)      If value of materials are NOT separately known
·         In case of ORIGINAL WORKS* Value of Service = 40% of the Gross Amount received

·         In case of Repairs of any goods (movable) Value of Service = 70% of the Gross Amount received

·         In any other case Value of Service = 60% of the Gross Amount received


In any case, CENVAT Credit cannot be taken.

* Original work means
·         any new construction
·         any additions or alterations to abandoned or damaged structure for making them workable
·         Erection commissioning or installation of plant, machinery or equipment or structures

The Service Tax calculated above will be paid as follows:

If Service Provider is a
If Service Receiver is a
Service tax is payable by
Ratio
Individual, Proprietary Firm, Partnership Firm
Company
Service Provider
Service Receiver
50% : 50%
Other than Company
Service Provider

100%
Government or Local authority
Any person

Service Receiver
100%
Other than above
Any person
Service Provider

100%

Note: If Service tax liability is payable by both the parties, the amount payable by respective parties should be separately shown in the invoice.