Works Contract

Circular No. 150/1/2012-ST Dated 8 February 2012 on Service Tax.

Circular No. 150/1/2012-ST Dated 8 February 2012 on Service Tax.

 Meaning ‘gross amount’ Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007,

A. For purpose of payment of service tax “gross amount’ does not include the value of free of cost supplies.

1. Where execution of works contract has commenced prior to 07/07/2009 or.

2. Where any payment(except payment through credit or debit)  has been made.

towards a works contract prior to 07/07/2009.

B. A quick  analysis on the  Provisions of Composition Scheme Rules of works contract:

1.     The person liable to pay service tax has an option to pay 4% of gross amount as Service Tax instead of rate specified U/s 66 (10.3%).

2.      Gross Amount shall be:

a.       Include-

1. Value of all goods used in the contract whether supplied under any contract or not (Eg: Goods provided by the service receiver).

2. Value of any services required to be provided.

b.      Excludes-

1.       Value of VAT or Sales Tax.

2.       Value of Machines and Tools used in the execution ( ie, Value of asset owned by service provider which is  used for the service).

3.  Cenvat Credit

a. No Cenvat credits on Inputs ( ie, on goods), but credits on capital goods can be taken.

b. Full Cenvat credit on Input services .

c. But Cenvat credit on Input services on following services only @40 % thereof ( Applicable only if the input service provider has paid tax on full value of service, ie , without availing abatement U/n no 1/2006 ST dt 1/3/2006).

1.Erection, commissioning & Installation Services (Sec 65(105)(zzd).

2.Commercial or Industrial construction Service (Sec 65(105)(zzq).

3.Construction of Complex Services (Sec 65(105)(zzzh).

4. Option once exercised cannot be withdrawn until completion of works contract.

5. Option permissible only when declared value of works contract is less than or equal to the gross amount charged (Actual bill).

6. Works contract on the following cases is exempt:

                1. In relation to port or other port ( Finishing and repairing services are not exempted).

2. Canals used primarily for other than commercial and industry.

3. Construction or finishing of residential complex under JNNURM & RAY (Even completion and finishing services is exempt).

4. Construction of Dams, Buildings, Infrastructure etc by Government.