Contract which involves work involving both transferof property in goods and also an element of work orservice rendered. Therefore two conditions must be satisfied:1) The contract must be such that wherein transfer ofproperty in goods in the execution of such contractis “leviable to VAT or tax as sale of goods” and2) The contract must be for the purpose of carryingout construction, erection, commissioning,installation, completion, fitting out, repair,maintenance, renovation, alteration of any Movableor Immovable property or for carrying out any othersimilar activity or part thereof.
Two methods have been prescribed forvaluation of services involved in the executionof works contract, Valuation on Actual Basis: Payment ofservice tax on actual value of servicesinvolved in the works contract i.e. ServiceTax on,Gross amount charged for works contract xxLess: Value of property in goods transferredin the execution of such contract xxxx
Gross Amount charged : It shall not include Value Added Tax(VAT) or Sales Tax, as the case may be, paid, if any, on thetransfer of property in goods involved in the execution of saidworks contract. Value of Works Contract Service : It shall include –• Labour charges for execution of works contract,• Amount paid to a sub contractor for labour and services,• Charges for planning, designing and architect’s fees,• Charges for obtaining on hire or otherwise, machinery and toolsused for the execution of works contract,• Cost of consumables such as water, electricity, fuel, used inexecution of works contract,• Cost of establishment of the contractor relatable to supply oflabour and services,• Other similar expenses relatable to supply of labour andservices,• Profit earned by the service provider relatable to labour andservices.
Alternate Method (Work Contract CompositionScheme has been scrapped) : to be adopted ifvalue of services has not been determined as perfirst method.Rule 2A(ii) :A. Original Works - Works Contracts entered intofor the execution of original works, Service Taxshall be payable on 40% of the amount charged forworks. Original works means -:1. All new constructions,2. All types of additions and alterations to abandonedor damaged structures on land that are required tomake them workable,3. Erections, Commissioning, installations of Plant,Machinery or Equipments or Structures, whetherpre-fabricated or otherwise.
B. Maintenance and repair of goods : In caseof works contracts entered into formaintenance or repairs or reconditioning orrestoration or servicing of any goods, ServiceTax shall be payable on 70% of the totalamount charged for works contract.C. Other Works Contracts : Others notcovered in above two heads, includingmaintenance, repair, completion & finishingservices such as glazing, plastering, floor andwall tilling, installation of electrical fitting ofan immovable property, Service Tax shall bepayable on 60% of the total amount charged.
Meaning of Total Amount in a works contract –The sum total of gross amount charged for the workscontract and the fair market value of all goods andservices supplied in or in relation to the execution ofthe works contract whether or not supplied under thesame contract or any other contract after deductingtherefrom :1. The amount charged for such goods or services, ifany, and2. The value added tax or sales tax, if any, leviedthereon.CENVAT credit of duties or cess paid on inputs is notavailable. It can only be availed in respect of InputServices and Capital Goods.
Exemptions: Following exemptions have been provided in respect ofworks contract service vide Exemption Notification No. 25/2012, dated20/06/2012-1. Services provided to Government, a local authority or a governmentalauthority by way of construction, erection, commissioning, installation,completion, fitting out, repair, maintenance, renovation, or alterationof,-1) A civil structure or any other original works meant predominantly foruse, other than for commerce, industry, or any other business orprofession,2) A historical monument, archaeological site or remains of nationalimportance, archaeological excavation, or antiquity specified underthe Ancient Monuments & Archeological Sites and Remains Act, 19583) A structure meant predominantly for use as an educational, or aclinic, or an art or cultural establishment,4) Canal, dam or other irrigation works,5) Pipeline, conduit or plant for water supply or water treatment orsewerage treatment or disposal, or6) A residential complex predominantly meant for self use or the use oftheir employees or other persons specified in Explanation 1 of sec.65B(44) of the Act.
2. Services provided by way of construction, erection, commissioning,installation, completion, fitting out, repair, maintenance, renovation, oralteration of –a) A road, bridge, tunnel, or terminal for road transportation for use bygeneral public,b) A civil structure or any other original works pertaining to a schemeunder Jawaharlal Nehru National Urban Renewal Mission or Rajiv AwaasYojana,c) A building owned by an entity registered under section 12AA of theIncome Tax Act, 1961 and meant predominantly for religious use bygeneral public,d) A pollution control or effluent treatment plant, except located as apart of a factory, ore) A structure meant for funeral, burial or cremation of deceased.3. Services by way of construction, erection, commissioning or installationof original works pertaining to,-
a) An airport, port or railways, including monorail or metro,b) A single residential unit otherwise than as a part of residentialcomplex ; where - Single residential unit means- a self contained residential unitdesigned for use of, wholly or principally, for one family; Residential complex means- building(s) comprising of more than onesingle residential unit;c) Low cost houses up to a carpet area of 60 square mtrs per house in ahousing project under the “ Scheme of affordable housing inpartnership” framed by Ministry of Housing & Urban PovertyAlleviation, GOI.d) Post harvest storage infrastructure for agriculture produce includingcold storages for such purposes, ore) Mechanized food grain handling system, machinery or equipment forunits processing agriculture produce as food stuff excluding alcohol.4. Sub contactor providing works contract services to main contractorengaged in providing exempt works contract service, then the sameshall be exempt.
1. Partial Reverse Charge Mechanism :Services provided by any individual, HUF, AOP or PartnershipFirm located in the taxable territory to a business entityregistered as body corporate, located in taxable territory-50% of service tax- payable by service provider &50% of service tax- payable by service receiver2. Works contract in the nature of support services provided bygovt. or local authority : Entire Service Tax payable byrecipient of service.3. Other than (1) & (2) above, Service provider is liable to payTax.
Pure Labour Contracts in relation to a building andstructure shall not be treated as works contractbecause the essential condition of transfer ofproperty in goods will not be fulfilled. Contracts for painting of building, repair of building,renovation, wall tilling, flooring would be coveredunder works contract if such contract involvesprovision of materials as well.