Service tax on works contracts - Composition scheme
The Joint Secretary (TRU), Tax Research Unit, Department of Revenue, Ministry of Finance, Government of India has issued a letter F. No. B1/16/2007-TRU to all officers of the Central Excise, Customs and Service Tax on the new services proposed to be taxed by the Finance Act, 2007. The new services come under the service tax net from 1 June 2007.
One of the new services brought to tax is “service provided in relation to the execution of a works contract”.
Works Contracts attract Value Added Tax / Sales Tax levied by State Governments. The State laws provide for deduction of certain expenditure relating to labour and services, architect fees, planning and design charges, etc. Where the expenses under these heads cannot be arrived at from the books of accounts, the dealer can opt for a lumpsum deduction and pay VAT / ST on the balance.
The Service Tax will now be levied on the Labour / Service part of the contract, after deducting the value of property in goods transferred in the works contract and the VAT / ST paid on the contract from the gross amount of the contract.
The contractors also have the option under the VAT /ST laws to pay a percent of the gross value of the contract, called the compounded rate of tax. In such cases, the value of the property in goods transferred and the value of services are not segregated.
The Central Government has introduced the compounded rate of tax on works contracts by proving that the contractor can opt to pay a 2% service tax on the gross value of the contract. The gross value of the contract shall not include VAT / ST paid on the contract. The contractor opting for the composition scheme shall not be entitled to CENVAT credit of duties or cess paid on any inputs in relation to that contract.
Please refer Notification No 32/2007 dated 22 May 2007.
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Sir i want to know about the registration of service tax (composition scheme but i have already regd in service tax.
Composition scheme under service tax is avalable for Work Contract. the Service provider can opt the scheme in the begning of the year and will be continune to end of the Financial Year. the composition rate is 4.12% on gross receipts.
Kindly advice the rate of Service tax on Reinforcing steel fabrication works . Please also advice if WCT is applicable on these kind works?
Thanks
Work contract mean any work to be carryed with material on order. in the state of Rajasthan WCT is applicable on any kind of work contract at the following rates. Civil Work Contract-1.50%, Mechanical Work-2.25% and others 3% on Gross receipts. hence Reinforcing Steel Fabrication work carryied by any order wct will be applicable.
Service tax is 4.12% on this contract.
Sir
the enquiry petains to Gujarat state .
Kindly advice the rate of Service tax on Reinforcing steel fabrication works . Please also advice if WCT is applicable on these kind works?
Service tax should be 3.43 (1/3 of 10.3 ) % and not 4.12 ( 1/3 of 12.36) pl clarify
Thanks
Dear Mr. Atul,
As the Service tax is central tax not state tax hence applicable entire state. secondly, the service tax was earlier 2.06% on gross amount of work contract from April 01.04.2008 the Service tax composition rate increased to 4.12%. the Govt. reduced the basic rate from 12% to 10% whereas the Composition rate on work contract is not base on basic rate of service tax. the rate was through the notification hence there are no notification for reducing the rate. therefore the service tax composition rate on wct is 4.12% instead of 3.43%.
WCT is applicable on Reinforcing steel fabrication work in the state of Rajasthan I am not sure the provision of the Gujrat. whereas the basic law is that where any thing is to be done on behalf of the other WCT is applicable.
Thanks
Gajanand Verma
Advocate
Dear Sir
Can we accept the bills without reflecting Service tax ? M/s Metro vidyut has submitted quotation , in that he has shown composite vat 5 % on total of supply and installation but he has not shown service tax . he is saying that ST is included in installation part .
Dear Mr. Sunil,
The Service tax should be dully reflected in the invoice, do not accept the invoice without mention the service tax part separately.
Sir,
As you said in case of adopting the composition rule, the cenvat credit in relation to inputs is not available. My understanding is in case of service tax, service tax on input services can be set off.What is cenvat credit in relation to inputs. What we can avail and what we cannot?
Dear Sameena,
As per my previous comments, the Service tax is payable by the contractor on the gross receipts after segregating the Material and job work/service part seprately at the full rate of service tax on job work/service part and take CENVAT/INPUT benefit from the service tax liability. the Contractor have option to pay the full rate of service tax and availe the CENVAT or pay at composition rate declared by the Govt 2.06% on gross receipts presently the rate is 4.12% increased by the Govt from 2.06%. in the composit option the contractor shall not be entitled to take any CENVAT/INPUT.
OUR COMPANY AT MANESAR (HARYANA) AND IN ASSAM WE HAVE A CONTRACT FOR SUPPLY AND INSTALLATION. PLEASE ADVISE US WHAT IS RATE OF WCT AND SERVICE TAX IN ASSAM
we undertake the tenders & execute works contract of stat Gov. undertaking organization viz. MIDC. The rates quoted in the tender are including all taxes, and bill is also prepared & raised by the department only. No taxes are shown separately, please advise us :
1. The repairing works contract of public utility Gov. structures like water tanks, bridges on roads etc. are exempted from service tax?
2. How much shall we pay the service tax? In our case labour involved is about 22% only.
3. Is there any special provision for Govt. tender works in ST-act?
We will be highly obliged if you kindly advice us, we are please to pay your charges for the same.
sorry, asked the advice earlyar my mail addrs. is systems.india@rediffmail.com, & name is NITIN SARDESAI
Dear,
I want to know on which products VAt @5% is applicable & on which product 8% under composition scheme.
Regards,
Zahida.
Service tax is applicable on evry work contract where awarded by Govt. of Private sector, it is your option to adopt the composition scheme or pay at full rate. in case of composition scheme you have to pay 4.12% on gross receipt by reverse calculation on the amount received. no CENVAT will be available on composition. if you have like to pay full rate than you have paid service tax @ 10.30% on the gross amount received- material cost by reverse calculation if service tax not charges seprately.
Zahida- No 5% VAT rate are in the act and no 8% rates are on composition scheme under the Rajasthan VAT Act.
I have got doubht.
If I am having the company of ABC, constructing of warehouse.and i am tie up with DEF to supply of material and labour under works contract act, in future I am (ABC) going to letout the ware house.
Can u please tell me the impact of S.tax, Tds and vat.
Thanking you.
You are construction wharehouses and tie up with DEF of material suppliers and labour, Pl note work contract act will be attracted only when you awarded contract for construction with material, in case of WCT (Work Contract) Service tax @ 4.12% on gross receipt under composition scheme, WCT @ 1.50% on Gross receipts and TDS @ 2.06% on payment will be levied. if you awarded different contract for material and labour to different persons no work contract will be applicable. supply contract will attract VAT being sale of goods and TDS will be applicable on labour part.
i have a query. a vendor recently submitted his BOQ which was for carrying out civil, MEP and interior works for office site. in that he had given breakup of total amount as under
Sub total: X amount
S.T 10.3% on 33: Y amount
WCT @5.25% Z amount
Total (X+Y+Z)
I want to know on what bais WCT was calculated.
As far as I know, WCT is 4%. I asked the vendor and he gave me the breakup as 4+1+.25. i cud not get this either. My CA says this WCT is not possible.
Also, what are the ways of breaking up service tax. I know one is composition scheme. what is the other and how is s.t applicable in such cases. Also, how do we compute VAT based on various S.T schemes?
Could I get a book in order to have a better understanding of the subject?
your early response would be appreciated.
Tasneem
In case the Work has alloted with material ie composit work the WCT will be applicable at the rate of civil and interior work 1.5% on gross amount payable with material, if the work was alloted in two work order ie one of supply of material and another is labour no WCT is applicable only VAT is payable on supply of material at the rate of item basis no WCT is payable on labour contract only. it is clear that WCT is applicable only if work was carryied with material which is in civil work is 1.5%.
other espect of Service tax is if the work is with material there is option for the contractor to pay under the composition scheme at the rate of 4.12% if he is like to pay full rate of service tax at the rate of 10.30%, than he will pay tax on labour part and will get the benefit of CENVAT ie Service tax already paid to vendors.
There are two contracts, supply and erection. We have supplied the supplied the material under CST rules and done the erection work but the client is going to deduct the WCT on the supply portion only.
Is it possible that the cleint can deduct the WCT on both the supply and erection portion whereas the materials are electrical goods as Poles,Transformers and conductor.
Dear Sir,
I run a proprietorship company in Delhi. recently I have been awarded a sub-contract by a civil contracting company which involves cleaning of sewer lines and repair of manholes.
For cleaning purposes we are using our own plant equipment and labour and the only material purchased by us & consumed is fuel (diesel) for running the equipment.
For repair of manholes the material required is to be supplied by the client free of costs and we pay for the labour and supervision.
We submitted the bill to the main contractor charging 10.3% service tax but the they are not accepting the same. The main contractor insists that since they have opted the composite scheme we should submit bills charging 4% service tax.
Kindly advise.
No WCT is applicable where there are two separate contract of supply and erection work. only TDS will applicable on erection portion and VAT will applicable on supply portion.
Dear Sir,
Your reply is not clear to my earlier mail reproduced below.
Dear Sir,
I run a proprietorship company in Delhi. recently I have been awarded a sub-contract by a civil contracting company which involves cleaning of sewer lines and repair of manholes.
For cleaning purposes we are using our own plant equipment and labour and the only material purchased by us & consumed is fuel (diesel) for running the equipment.
For repair of manholes the material required is to be supplied by the client free of costs and we pay for the labour and supervision.
We submitted the bill to the main contractor charging 10.3% service tax but the they are not accepting the same. The main contractor insists that since they have opted the composite scheme we should submit bills charging 4% service tax.
Kindly advise.
Gajanand Verma on February 9th, 2010 at 12:33 pm
No WCT is applicable where there are two separate contract of supply and erection work. only TDS will applicable on erection portion and VAT will applicable on supply portion.
There is only one work order and not two separate contracts. within this order we are supposed to clean and de-silt the sewer lines and also repair the manholes for which (repair) the material is provided to us free of costs. The major work within the single work order is for cleaning which is done by suction & jetting machines which are run by diesel purchased by us. We have to raise only one invoice and not two separate invoices.
Kindly let us know what tax is to be levied on our invoice.
Mr.Gajanand Verma, Please give any reference or judgement of court regarding the WCT on work contracts where two contract exists,supply and erection.
Mr. Neeraj, the ACT is very clear. the meaning of Work Contract means any thing to be done according to the work order and specification given by the customers. where a manufacturer manufactured any items without any order for sale and any customer visit to the shop and buy the item it is sale not a work contract becouse the goods already manufactured for all not for one. where any goods manufactured according to the ordered for a particular buyer and that articles are not usefull for other like one person order to print letter head of his name that letter head is only useful for that person only the printing work of letterhead with material called work contract. the tax impact will be as under;
where only supply of goods - VAT will be applicable. No TDS and No Service tax on supply contract.
Where only Labour contract- TDS will be applicable and Service tax is also applicable, no VAT is applicable.
Where work awarded with material ie composit contract with material-WCT and Service tax will be applicable on gross receipt. it is option to pay full rate of tax or pay composition rate of tax as per law.
So in this contract which involves material which is being supplied by the client and labour plus equipment and fuel is being paid by us how do we raise a tax invoice. I repeat this is a single contract and one invoice is required to be raised. If Work done is Rs.100.00 which tax is to be charged. Are we supposed to levy service tax and value added tax both if so on what amount if the work done is Rs.100.00.
Mr.Gajanand Verma,
Please provide me any reference regarding the WCT on the given matter.
Dear Sir
I am confused. What reference do you want from me on WCT, and please be kind enough to reply to my queries addressed to you from Avinash Gupta.
I repeat my query here.
I run a proprietorship company in Delhi. recently I have been awarded a sub-contract by a civil contracting company which involves cleaning of sewer lines and repair of manholes.
For cleaning purposes we are using our own plant equipment and labour and the only material purchased by us & consumed is fuel (diesel) for running the equipment.
For repair of manholes the material required is to be supplied by the client free of costs and we pay for the labour and supervision.
We submitted the bill to the main contractor charging 10.3% service.
Is this legally correct or are we supposed to charge both sevice tax and Vat.
To clarify my query further, in this contract which involves material which is being supplied by the client and labour plus equipment and fuel is being paid by us how do we raise a tax invoice. I repeat this is a single contract and one invoice is required to be raised. If Work done is Rs.100.00 which tax is to be charged. Are we supposed to levy service tax and value added tax both if so on what amount if the work done is Rs.100.00.
Dear Sir,
We, ABC & Co., have given contract to XYZ & Co., Maharashta for construction related work which involve erection contract i.e. material as well as labour portion involved in erection contract.
We have branch in Maharashra & Gujarat. Let’s assume gross value erection contract is Rs.100 out of which Rs.80 belongs to Labour portion and Rs. 20 belongs to Material.
Now Guide me how much VAT, Service TAX, TDS & WCT is applicable to us i.e. ABC & Co. for MAharashra & Gujarat. Whether I can get the credit of Service Tax or VAT as well as WCT???
Dear Sir,
We are turnkey interior contractors executing electrical, furniture, ac, workstations, small civil works, painting works and tiles granite works. We charge our clients 4% WCT only.
Do we have to get registered under service tax and which one will be better composite scheme or full scheme and after registering how much tax i should charge my clients. is it 4% + 4% = 8% on bill amount.
Please Please Help!
RATE OF SERVICE TAX ON COMPOSITION SCHEME Today ie 4.12% OR 1/3 ie 3.43%. PLEASE CONFIRM. THANKS
4.12% on gross receipt from work contract no cenvat will allow.
My quary is i got an order in which price is inclusive of supply & supervision of E&C , then what will be the WCT implementation,
as there is no bifurcation of supply & Supervision value is mention
Kindly suggest.
Sir, we are Govt contract. we purchase material 25% of contract cost for our work completion.How much service tax we should deposit. we are registered in composit scheme and our rates for doing work are including of service tax.
Dear Ajay, as per your querry, total receipt 100.00 cost of material 25.00 labour and margine 75%, it shows that it is labour oriented work otherwise material cost should be 60% of total receipt in general. now, if you opt composition scheme you have to pay 4.12% on gross receipt against work done no input will be available from 4.12%. secondly if you wants to pay full tax rate then you have to calculate value of service as per rule 2A of service tax (determination of value) Rule 2006 and pay service tax at normal rate 10.30%(inclusive of cess and HEC) and avail the input tax.
Value of service as per rule 2A of service tax (determination of value) Rule 2006 - Gross charges for the works contract less the value of transfer of property in goods involved in execution of the work contract, in your case you have to pay tax as per your option given under,
Composition fees 4.12% of Rs. 100.00
Service tax @ 10.30% on Rs. 75.00 (100-25)- any input if you have
Dear Sir,
my company does metal coating(anodising & Powder Coating) activity wherein our clients give their material (aluminium )to us and do metal coating and return the same to our clients.
We use our chemicals, powder as raw material (25-30%)to get the desired result on the materials(aluminium) . Labour work inculding use of electricity , water forms the major part (70-75%) in our Sales bill.
My question is what are the tax option available to us . We were earlier registered under WCT which was changed to MVAT and also we had to register under service tax . We now charge 4% vat on 80% of the basic charge and 10.3% as service tax on 100% of basic charge.
Please guide us if we are wrong and the options .
Thanking you
Harish Salian
We are a manufacturer of prfabricated structure/pre-engg. building/telecom shelter in haryana and we also registered in Sales tax,Kullu, Himachal pradesh, we have received a work contract to execute in himachal pradesh, now we want to send through stock transfer the material in himachal pradesh is entry tax applicable if we are registered in himachal pradesh
Dear Sir,
If we received Gross amount rs. 383863 including rs. 7677 as tds, rs. 119000 Retention money & Rs. 257186 in bank accont what is the amount of service tax in under composit scheme of contracotr
Rs.383863.00 @4.12%
Service tax applicable on money received, you have received net amount of Rs. 257186.00+tds Rs. 7677.00, service tax applicable on Rs. 264863.00 @4.12%, service tax will be applicable on retention money when received.
Hey admin Good Evening.I am agree with your blog opinion about that but i found something ridiculous that i felt you did not know the main problem before you posting this so i want to ask :where do you know about this dude ? Regards owner of worldscheaper.com Good bye
Service Tax is applicable only amount received in any manner the TDS amount has also being received and retention amount has not yut received it will be taxed as and when received. therefore the retention money Rs. 119000.00 has not received thus balance Rs. 264863.00 inclusive of tds will be taxed @ 4.12%
Our business income as sales and services. The said sales & services figures comes with raw materials cost and labour charges which has not shown seperatly in the Invoice and in that case as nature of business of us as a “Civil Contractor and Interior Decorator” we desire to pay as composition tax under sub rule -(4) of rule (38A/38B/39) of the West Bengal Value Added Tax Rules, 206 in that case what would the Tax on total 100% goods value this information is in need to pay the proper tax and to avoid any further tax on the the same invoice.
Pls. read as The West Bengal Value Added Tax Rules, 2005 instead of 206
sir
we have incorporated a pvt ltd company, we are constructed model flats/site office in the year 2009-10, we are ropen bookings also in the month of may’2010 and now i.e june’2010 started the actual constructions i.f construction of flats. now we are applied for service tax registration. in this instance we are eligible for avail the input credit of preliminary work service tax input credit or we are fall under the works contract or construction of complex services.
requrest you to suggest whether we avail input credit prior to service tax registration now?
We are undertaking a works contract work in the state of harayana. we would like to know what is the rate of tax under compostion schme and also tax under non- compostion. and also whether our princple empolyer liability on deduction of works contract tax and if so at what Percentage.
We have taken service from Interior designer, my question is should we pay interior desisgner charges for the material which we have purchased including or excluding the taxes.
We normally stock and supply interior materials and pay 13.5% Vat. For the first time we are going to undertake one Work contract of worth Rs.12,00,000. It includes labour component also but not seggregated. Labour involvement in actual is even less than 20% of total value.
As we are not required to be registered under Service Tax act being below the taxable limit, We are confused whether we should pay 13.5% Vat on total amount of 12 lakh or what you suggest us so that there is no violation of any rule.
Further will you please clarify whether the Taxable Services includes the material cost also in the services. As in our case
approx 10 lakh is material and 2 lakh is labour, in this case Value of Service Taxable aggregate is 12 lakh or 2 lakh.
We will be highly obliged to have guidance soon.
I have doubt regarding VAT-composition of TAX(4%) levied on contract receipts and Service TAX(4%) on Contract receipts put together 8% is supposed to pay in the Compositionn scheme of both Taxes.
Please let us know whether I have to pay 8% if in case of Composition scheme.
Sir,
We undertake civil construction works for a PSU which is a Min. of Defence undertaking . The nature of work includes residential and industrial constructions ( mostly repairs/renovation/modification ).
My questions are ,
1. Is there any exemption from service tax for works executed in Min.of Defence undertakings ?
2.Will the works executed in residential buidings for dept. officials attract service tax ? ( being a non-commercial activity )
3.Are work contracts executed to provide civic amenities-like maintenance of sewage lines,maintenance of jogging tracks or gardens come under purview of service tax ? (for same organisation)
Respected Sir,
I would like to inform you that I have charged service tax @ 10.30% on gross bill amount which includes Labour + Material.
Further to be inform you that I have registered under Gujarat Value Added Tax as a Lumsum Dealer & pay a 0.60 % VAT on Total Bill amount
Now, I want to know that if i pay a Service Tax on Bill of Labour & Material than VAT will payable !
I am looking for your valuable reply in this matter.
Sir,
We are regtd. in the state of West Bengal. Our contract with the customer is all inclusive. We are making local supplies as well as doing civil jobs also thru our sub - contractor.
Pls. advise as to how to book libility towards WCT in the books of accounts. Since VAT is direct , with reverse calculation we can create, the problem is with Civil jobs.
Secobly, for the state of Gujarat, what is the guidelines for creatinf WCT liability for Civi jobs , the rate of tax etc. and the the exclusions allowed.
We are regtd. in West BWngal, Tamil NAdu, gujarat , U.P ..Sir, what is the best way of understanding the provisions of VAT under the diff. states for filing VAT returns.
Dear Sir ,
Can I Know what is rate vat in Maharashtra for civil work under composition scheme & what is the rate of service tax under the same .
Also know is there set off avaliable in Vat in Mahrashtra