Service tax on works contract (Pre-Negative List)

  • 18,512 views
Uploaded on

This ppt gives a glimpse of service tax payment in india as applicable to works contractors before the negative list. This is very relevant to builders and developers. Service Tax posers and …

This ppt gives a glimpse of service tax payment in india as applicable to works contractors before the negative list. This is very relevant to builders and developers. Service Tax posers and illustrations were also covered by the speaker during the presentation.

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
  • Please let me know whether TDS is applicable for School Excursion service from tour operator with personal PAN No
    Are you sure you want to
    Your message goes here
  • how to avoid the service tax collected and not paid due to closure of establishment
    Are you sure you want to
    Your message goes here
  • Thanks for the information
    Are you sure you want to
    Your message goes here
  • Please let me know the current rate of service tax for construction of residential building [contractor]
    Are you sure you want to
    Your message goes here
  • hi
    Are you sure you want to
    Your message goes here
No Downloads

Views

Total Views
18,512
On Slideshare
0
From Embeds
0
Number of Embeds
1

Actions

Shares
Downloads
247
Comments
5
Likes
3

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. [Service Tax]
    pptPlex Section Divider
    The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 2. Basics
    Service Tax Applies to whole of India except J&K.
    Normal rate of Service Tax is 10.3%
    Service Provider is normally the person liable to pay service tax upon crossing the turnover of Rs. 10 Lacs p.a.
    Service tax is to be deposited only when payment is received.
    Export of services is exempted for payment of service tax.
  • 3. Applicable rates
    Period Rate
    Upto 13.05.2003 5%
    14.05.2003 to 09.09.2004 8%
    10.09.2004 to 17.04.2006 10.20%
    18.04.2006 to 10.05.2007 12.24%
    11.05.2007 to 23.02.2009 12.36%
    24.02.2009 onwards 10.30%
  • 4. Centralised Registration
    Object – Several Premises for rendering services.
    Optional
    CCE grants the registration
    Centralised Billing / Centralised Accounting
    Zonal Centralised Registration
    Modification
    Concept of Input Service Distributor
    Advantages
    Time
    No information to any other jurisdiction
    Audit / Correspondence at one place
  • 5. Poser 1 - Break
  • 6. Classification of Service
    Section 65A
    Most specific description
    Composite services as per Essential character
    Sub clause which occurs first
    - Poser 2
  • 7. Valuation of service
    Rule 5 – Exclusion and Inclusion
    Exclusion of costs incurred as Pure Agent
    Rule 5(2) provides various conditions which need to be satisfied
    Whether services rendered free of cost, chargeable to service tax?
    Whether service tax to be paid on property tax paid for immovable property?
    How is valuation derived if consideration is received in kind?
  • 8. Initial Exemption
    Limit of Rs. 10 Lacs
    Registration at Rs. 9 Lacs
    Poser 3
  • 9. Option for Discharge of ST for construction sector
  • 10. Introduction of Works Contract service from 2007……
    Tax on service portion of works contract
    Specified work contracts covered
    Erection / commissioning / Installation
    Industrial / commercial construction
    New residential complex
    Completion, finishing services, repair, alteration, renovation in relation of (b) and ( c)
    Turnkey Projects including EPC
  • 11. Issues in Work Contract Service
    Contractors not paying service tax prior to 1-6-2007
    Daelim Industrial Co. Ltd – Tribunal ruled in the favour of the assessee, Dept appeal to SC was rejected by SC
    Diebold Systems (P) Ltd
    URC Construction (P) Ltd
    CCE vsShapoorjiPollamji & Co. Ltd.
    Petrofac International Ltd vs CCE
  • 12. vs
    B Rama Rao & Co. – Bang CESTAT
    CCE vs BSBK – Delhi CESTAT (overruled Daelim)
    Instrumentation Ltd – Delhi CESTAT
  • 13. Rate of service tax applicable under Work Contract service is always 4.12%.
    Is this statement correct?
  • 14. Rule 2A of the Valuation Rules under Work Contact Service
    As per Rule 2A(1) of Valuation Rules, the value of the works contract services is equivalent to the gross amount charged for works contract less the value of transfer of property in goods involved in the execution of works contract
    For this purpose Gross amount shall not include VAT or Sales Tax
    Value shall include the following:-
    Labour Charges for the execution of the works
    Amount paid to the sub contractors for labour and services
    Charges for planning designing and architect’s
    Charges for obtaining machinery, tools etc whether on hire or otherwise for the execution of the works contract
    Cost of consumables such water electricity fuel etc used in theexecution of works contract
    Cost of establishment of the contractor relatable to supply of labour and services
    Other similar expenses relatable to supply of labour and services and
    Profit earned by the service provider relatable to supply of labour and services
  • 15. Issues in Work Contract Service
    Ongoing Works Contract as on 01-06-2007
    Contract for construction entered prior to 01-06-2007 and service tax is already paid for the payments received till date
    Whether it is possible to change the classification to Works Contract service
  • 16. Availment of Cenvat Credit under different schemes
    10.3% on total value
    4.12% on total value
    Abatement of 67%
    Concept of Sold vs Consumed
  • 17. Cenvat Credit - Budget Amendments 2011
    New Term “wasteful expenditure” as per the revised definition of input service
    Denial of Cenvat Credit for services related to
    Construction of Factory and office building
    Motor vehicle is a luxury even if used to transport employees or for business purposes [Sales and purchase people can either go by bus or by air since air travel can be allowable input service]
    All employee benefits line transport, canteen facility, health care, insurance, welfare expenditure is a pure waste [Company should employ only casual labour at minimum wages with no benefits].
  • 18. Cenvat Credit and Related Budget Amendments 2011
    Definition of Input Service
    “Input service” means any service, -
    Used for providing an output service / manufacture of final product
    and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service and ……….
    but excludes services, -
    used for- (a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or
    services are used primarily for personal use or consumption of any employee.
    Poser - 4
  • 19. 3.1 Services specifically excluded under clause (A)
    If used for construction of a building or a civil structure or a part thereof, or laying of foundation or making of structures for support of capital goods
    * Architect Services [Section 65(105)(p)]
    * Port Services [Section 65(105)(zn)]
    * Other Port Services [Section 65(105)(zzl)]
    * Airport Services [Section 65(105)(zzm)]
    * Commercial or Industrial Construction [Section 65(105)(zzq)]
    * Construction of Residential Complex [Section 65(105)(zzzh)]
    * Works Contract Service [Section 65(105)(zzzza)]
    These ‘specified services’ will be eligible for Cenvat credit only if used for any of these ‘Specified Services’. e.g. Architect Service will be eligible as input service if used for Port Service or Construction Service or Works Contract Service.
  • 20. 3.2 Services specifically excluded under clause only so far as they relate to a motor vehicle –
    * General Insurance Services [Section 65(105)(d)]
    * Renting of a cab [Section 65(105)(o)]
    * Motor vehicle related service (earlier termed as Authorised Service Station service) [Section 65(105)(zo)]
    * Supply of tangible goods [Section 65(105)(zzzzj)]
    Eligible if used for provision of taxable services for which Cenvat credit of motor vehicle is available as capital goods.
    Some vehicles (e.g. fork lift truck, excavators) require registration under Motor Vehicles Act, but insurance, repair services, renting etc. in respect of such vehicles should be eligible for Cenvat credit.
  • 21. 3.3 Services specifically excluded under clause (C)
    Certain services like outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession have been specifically excluded.
    Poser - 5
  • 22. However, this exclusion is only when such services are used primarily for personal use or consumption of any employee.
  • 23. Giving both taxable and exempt services –
    In such cases, the manufacturer/service provider has following four options w.e.f. 1-4-2011 –
    (a)    Maintain separate inventory and accounts of receipt and use of inputs and input services – Rule 6(2) of Cenvat Credit Rules .
    (b)    Pay amount equal to 5% of value of exempted goods/services – Rule 6(3)(i).
    (c)    Pay an ‘amount’ equal to proportionate Cenvat credit attributable to exempted goods / services as per Rule 6(3A) – Rule 6(3)(ii)
    (d)    Maintain separate accounts for inputs and pay ‘amount’ as determined under rule 6(3A) in respect of input services - – Rule 6(3)(iii)
  • 24. Option has to be exercised in respect of all exempted goods manufactured and all exempted output services provided. The option once exercised shall not be changed in remaining part of financial year – Explanation I to Rule 6(3) - reiterated in para 2 of CBE&C Circular No. 868/6/2008-CX dated 9-5-2008.
  • 25. Rule 6(5) that allowed full credit of 17 specified services has been deleted.
    These services were construction service, management service etc…
  • 26. Meaning of ‘exempted services’
    As per rule 2(e) of Cenvat Credit Rules, “exempted services” means
    taxable services which are exempt from the whole of the service tax leviable thereon, and
    includes services on which no service tax is leviable under section 66 of Finance Act and
    taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken.
    Explanation – For removal of doubts, it is hereby clarified that ‘exempted services’ includes trading [Words in italics inserted w.e.f. 1-4-2011]
    Services on which no tax is payable are also ‘exempt services’ unlike goods.
    It has been clarified that export of service will not be treated as exempted service - para 6 of CBE&C Circular No. 868/6/2008-CX dated 9-5-2008.  
  • 27. Calculation of 'value' for purposes of rule 6(3) and 6(3A)
    (a) in the case of a taxable service, when the option available under the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 has been availed, shall be the value ……………
    (b) in case of trading, shall be the difference between the sale price and the purchase price of the goods traded or 10% of CGOS which is higher.
  • 28. Total amount of Cenvat credit attributable to exempted goods and exempted services for the financial year
    Cenvat on Inputs used for exempted final products
    Cenvat Credit on Inputs used for exempted services (On proportionate basis, based on actual ratio of financial year)
     
    Cenvat Credit on input services used for exempted final products and exempted services (On proportionate basis based on actual ratio of financial year).
     
    Cenvat credit on services specified in rule 6(5), which are exclusively used for exempted goods or exempted services
     
    = Total amount attributable to exempted final products and exempted services
    - Poser 6
     
  • 29. Answer to Poser 6
  • 30. Answers – Poser 6
    Payment of ‘amount’ or reversal of Cenvat credit is not required in case the taxable service is provided to SEZ Unit or SEZ developer for their authorised operations. These are overriding provisions irrespective of any provision in rule 6(1), 6(2), 6(3) and 6(4) [Rule 6(6A) of Cenvat Credit Rules inserted w.e.f. 1-4-2011].
  • 31. Answers – Poser 6
    Cenvat credit on capital goods – If capital goods are partly used for exempted goods and party for dutiable final products, entire Cenvat credit of duty paid on capital goods is available. Cenvat credit of duty on capital goods is not allowable only when it is exclusively used for manufacture of final products [rule 6(4)]
  • 32. Exceptions to Rule of Proportionate Disallowance :-
    Dis-allowance of Cenvat of capital goods only if used exclusively for exempted final product/services.
    Some manufacturers are entitled to exemption based on turnover or quantity (e.g. SSI units). They will be entitled to Cenvat on capital goods. They can take Cenvat on capital goods and utilise it for payment of duty when their exemption limit is crossed.
    Supply to EOU/SEZ, export of goods, deemed exports or gold manufacture
  • 33. Budget Amendments 2011
    The Works Contract Rules, 2007 have been amended
    To provide for restriction in availment of CENVAT credit to 40% of service tax paid on services relating to erection, commissioning and installation services, commercial or industrial construction services and construction of residential complex services in case service tax has been paid, without availing the abatement benefit under notification 1/2006.
  • 34. 38.1 A tariff rate of 5% excise duty is being prescribed on Ready-mix concrete (RMC). However these goods would attract the concessional 1% duty without CENVAT credit facility.
    Budget Amendments 2011
  • 35. Point of Taxation
    Background
    Currently payment of service tax is linked to receipt of money from the service receiver which is odds with regime in force in Central Excise and VAT laws prevailing in the state. In both these laws payment is required to be paid on accrual basis. The GST regime is also likely to follow the same practise and it is thus felt necessary to align the service tax regime with the same rule so that transition to GST is smooth. The change shall simplify the accounting for the taxpayers.
    Also to give proper clarity in situations where there is
    a) Change of rate of service tax
    b) Imposition of service tax on new services
  • 36. Point of Taxation
    Can issue of invoice be a taxable event? – Really, issue of invoice is only a procedural aspect. Not issuing invoice in time can at the most be a procedural lapse.
    Relevant date for rate of tax - As per rule 5B of Service Tax Rules (as inserted w.e.f. 1-4-2011), the rate of tax in case of service provided or to be provided shall be the rate prevailing at the time when the service is deemed to have been provided.
    Due date for payment of service tax - Rule 6(1) of Service Tax Rules (as amended w.e.f. 1-4-2011) states that service tax shall be paid to the credit of Government by 5th /6th of the month/quarter immediately following the month/quarter in which service is deemed to be provided (except in month of March) as per rules framed in this regard.
    Rules to determine ‘date when service is deemed to be provided’ - ‘Point of Taxation Rules, 2011’ have been issued (which are effective from 1-4-2011) to make provisions in respect of date when a service shall be ‘deemed to provided’. These rules will be applicable for purposes of rule 5B and 6(1) of Service Tax Rules.
  • 37. Meaning of ‘point of taxation’ – ‘Point of taxation’ means the point in time when a service shall be ‘deemed to have been provided’ [Rule 2(e) of Point of Taxation Rules, 2011]. This point will determine rate of service tax and due date of payment of service tax.
  • 38. Pain of Taxation Rules
    Rule 3 , POT Rules says, Point of Taxation shall be as follows:
    (a) Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service.
    (b) Date of completion of the provision of service or payment, if the invoice is not issued within the prescribed period as above.
  • 39.
  • 40. Change in Rate of Tax
  • 41. New Service
  • 42. Continous Supply of Service
    Continuous supply of service’ means any service provided or to be provided for a period exceeding three months
    [Rule 2(c) of Point of Taxation Rules, 2011].
    Following services have been notified as “continuous supply of services” in terms of clause 2(c) of the rules vide notification No. 28/ST-2011 dated 01.04.2011:
    (a) Telecommunication service [65(105)(zzzx)]
     (b) Commercial or industrial construction [65(105)(zzq)]
     (c) Construction of residential complex [65(105)(zzzh)]
     (d) Internet Telecommunication Service [65(105)(zzzu)]
     (e) Works contract service [65(105)(zzzza)]
  • 43. Comparison Rule 3 vs Rule 6
  • 44. For e.g. As per the contract the milestone for payment is 30th of every month provided 5 slabs are completed. The work was allotted on 1st April and only two slabs were completed by 30th April. Will the POT arise for work done till 30th April, 2011.
  • 45. Suggested Milestone:-
    90% of the Contract Price along with Service Tax shall be paid on pro-rata basis against monthly progressive Quantity Abstract within 21 days after receipt of certified Qty Abstract from the company’s engineer subject to the following:-
    The abstract shall be prepared on the basis of the cumulative Works/ Facilities completed till the end of the particular month (on 100% Contract Value basis).
    Payment shall be made after certification of abstract upon submission of the following documents:
    i) Invoice (clearly indicating cross referencing the Contract Item no.).
    Invoice should contain the Service Tax Number
    and Income Tax PAN number.
    ii) Inspection release note.
    iii) Measurement sheets duly certified by Employer's Project Manager.
    iv) Free issue material reconciliation statement.
  • 46. Circular Dated 18th July, 2011
    Clarification on “Completion of service”-
    Service is complete not only upon providing the same but also the completion of all other auxiliary activities that enable the service provider to be in a position to issue the invoice.
    Such auxiliary activities could include activities like measurement,
    quality testing etc
    which may be essential pre-requisites for identification of completion of service.
    However such activities do not include flimsy or irrelevant grounds for delay in issuance of invoice.
  • 47. What will happen to Retention Monies?
    Is there any way out to prevent payment of service tax on the same?
  • 48. Non-receipt of Payment
    X Pvt Ltd completed the services to the client on 30th Sept, 2011. Final RA bill of Rs.50 Lacs has been raised. Due to some dispute, payment of only Rs. 10 Lacs was made. The chances of getting the balance amount is very less.
  • 49. Bad Debts
    Letter No. 341/34/2011 dt. 31st March, 2011 categorically states that bad debts can-not be claimed as adjustments.
    “If the invoice is renegotiated due to deficient provision or as per change in terms, the tax will be payable on revised amount. However no concession is available for bad debts”
    Rule 6(3) of Service Tax Rules.
  • 50. Pain of Taxation Rules
    Cenvat Credit shall be allowed on booking basis, provided payment is made in 90 days.
    Associated Enterprise – Date of Credit in books of service receiver / Date of Payment, whichever is earlier.
    Existing contracts to be covered under POT Rules from 1st July, 2011.
  • 51. Poser - 7
  • 52. Construction of complex services
  • 53. Chronology of Judgements
    Karnataka High Court - K Raheja - 2006
    Allahabad HC - Assotech Reality – 2008 (Set Aside by SC)
    Advance Ruling – Hare Krishna - 2008
    Guwahati HC – Magus Construction Pvt Ltd – 2008
    CBEC Circular Dated 29.1.2009
  • 54. Well, it all began with verdict of Hon' Karnataka High Court in the matter of K Raheja Corporation wherein the facts were as follows:-
     
    Builder entered into two separate agreements with the customers, one for construction and the other for sale of undivided share of land.
    The words used in the Agreement for Construction were that the agreement is for construction as a developer on behalf of the allottee.
    Section 2(1)(v-i) of Karnataka Sales Tax Act stated that 'works contract' includes any agreement for ………….carrying out the building, construction……of any movable or immovable property.
    It was thus interpreted by court that the property in the goods passed by accession during the construction. Hence it was held as "Works Contract" and not a contract of sale. It may be noted that under a Contract of sale the property is transferred after the construction.
  • 55.
  • 56. Service tax levied on consideration earned by developer
    • Prior to amendment in 2010, concept of ‘self-service’ existed
    “construction of a complex (a new building) - intended for sale, -before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder before the grant of completion certificate by the competetent authority) shall be deemed to be service provided by the builder to the buyer”
    Abatement scheme for builders also introduced.
    Option to pay Service tax at the applicable rate on 25% of the Agreement value, provided no deduction of land is availed and no CENVAT credit is claimed
  • 57.  
    IV – Transitional Provisions on 1-7-2010
     
    Date of booking is not relevant. Date of provision of service is relevant as provision of service is the taxable event. Hence, if construction service is provided after 1-7-2010, service tax will be payable.
    If construction is complete before 1-7-2010 even if completion certificate is not received, no tax is payable, as service tax is on provision of service, provided the facts can be made clear from books of accounts.
    In case of payments received prior to 1-7-2010, as per Notification No. 36/2010-ST dated 28-6-2010, if any advance payment was received prior to 1-7-2010, for service to be provided after 1-7-2010, service tax was made fully exempt.
     
  • 58.  
    IX – Challenging the constitutional Validity
     
    The amendment in Finance Act, 2010 which brought the deeming fiction with regard to service tax on construction of residential complex was stayed by the high court of Mumbai in case of Maharashtra Chamber of Housing Industry. An interim stay was granted on the grounds of constitutional validity. The judges ruled that “ No coercive steps will be taken against the developers for recovery of service tax in relation to the provisions in question”.
    Similar order were passed in writ petetions filed by DB Reality Ltd vs UOI (2011) 30 STT 110 (Bom HC DB) / Mighty Construction vs UOI and May fair Housing. It may be noted that the stay is limited only for the coercive action for recovery.
    However in GS Promoters v. UOI (2011) 8 taxmann.com 271 = 30 STT 268 = 37 VST 272 (P&H HC DB), validity of the amendment has been upheld.
  • 59.
  • 60.
  • 61. Other points – Con. Of Complex
    Parking Slots  or Garage of Properties - Along with the apartment or flat, builders also sell parking slots to buyers. No service tax would be applicable for the amount paid for such parking slots.
     
    Preferential Location Services - Builders many times will build internal roads, pavements, or maintain gardens for the development of the property complex. Such services would attract a service tax. Also any additional amount paid for a floor rise, an apartment with a specific number or a specific direction, apartment facing either a park, pool or sea , would cost the buyer a service tax.
    Poser No. 8
  • 62. Exemptions under Service tax for the construction sector
    SEZ
    Export of services
    Road (Repair?)
    Airport
    Port
    Bridges, Tunnels, Railways
    Services to government
  • 63. Exemptions…
    Construction service is taxable only if it is ‘commercial or industrial’. Non-commercial construction like construction for Government, non-profit organisations like Educational Institutions, religious places etc. is not taxable.
    Construction services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams have been excluded from definition of construction service itself.
    Construction services provided within SEZ to SEZ unit or SEZ developer are exempt vide Notification No. 17/2011-ST dated 1-3-2011 (Earlier Notification No. 9/2009-ST dated 3-3-2009).
    Construction of residential complex service provided to Jawaharlal Nehru National Urban Renewal Mission and Rajiv AwaasYojana is fully exempt from service tax [Notification No. 28/2010-ST dated 22-6-2010].
  • 64. Construction vs Repair of Road
    16/6/2005 - Services relating to maintenance or management of immovable property have also been covered under the purview of service tax.
    Several demands were raised on contractors involved in road repair work.
    In the latest Circular - No. 110/4/2009-ST Dated: February 23, 2009, the Board had clarified that repair of roads' is taxable.
  • 65. Judgement from Vizag
    APPEAL NO.5/2008(V-I) S.Tax Dated: 16.03.2009
    ORDER-IN-APPEAL NO.27/2009(V- I) ST
    PASSED BY Shri P.J.R. SEKHAR, I.R.S., COMMISSIONER (Appeals), VISAKHAPATNAM ]
    Construction vs Repair of Road
  • 66. Construction vs Repair of Road
    Commercial and Industrial construction -
    includes
    a)construction, b) completion and c) finishing and
    d) repair, alteration, renovation or restoration
    The definition itself specifically excludes such services provided in respect of roads.
    From the above it is evident that not only construction services but also repair services provided in respect of roads are exempted from tax.
    Though the same may also fall under management, maintenance or repair service in terms of Section 65(64) of the Finance Act, 1994,
    In view of specific exclusion of repair services provided in respect of roads under Section 65(25b) of the Finance Act, 1994 the same can not be subjected to any tax.
  • 67. Construction vs Repair of Road
    EXEMPTION TO MAINTENANCE OF ROADS
    NOTIFICATION NO. 24/2009 - SERVICE TAX, DATED 27-7-2009
    Exemption of taxable services provided to any person by any other person in relation to management, maintenance or repair of roads
    However from 2005 – 2009 the disputes are still going on?
  • 68. Poser - 9
  • 69. Whether Sub-Contractors are liable to service tax?
  • 70. Earlier, Department had clarified that a service provided to person in same category is not taxable e.g. service provided by architect to another architect, as the principal person providing service is liable to pay tax.
    However, service tax would be required to be paid in case of sub-contracting to a different service category e.g. architect providing service to consulting engineer.
    These circulars have been withdrawn vide Para 6 of CBE&C Circular No. 96/7/2007-ST dated 23-8-2007.
  • 71. Subsequent view of department
    In supercession of the earlier circulars, CBE&C, vide circular dated 23-8-2007 has clarified that a sub-contractor is also a taxable service provider.
    Circular dated 23-8-2007 stated as follows - In a case where the builder engages a contractor for construction , the contractor in his capacity as a taxable service provider (to the builder / promoter / developer / any such person) shall be liable to pay service tax on the gross amount charged for the construction services under ‘construction of complex’ service [section 65(105)(zzzh)].
  • 72. Also recent circular in response to an application made by Jaiprakash Associates issued in May, 2011
    Issues :-
    a) Applicability of ST on sub-contracts of various nature , when main contract is exempted /excluded from preview of services.
    b) Can a principal contractor take responsibility of tax payment and ask sub contractors not to charge ST ?
    Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services.
    The fact that a given taxable service is intended for use as an input
    service by another service provider does not alter the taxability of the
    service provided.
  • 73. No clarification about situation where sub-contractor providing construction service itself –
    The aforesaid circular does not talk about a situation where the sub-contractor provides construction service itself. However, it is possible that at lower level, over zealous officers may take a stand (by misinterpreting the circular), that sub-contractor is liable to service tax even in cases where he provides construction service.
    This will indeed open a Pandora’s box.
  • 74. Poser
    M/s ABC has got a road contract of Rs. 100 Lacs from Govt of Goa. The work is subletted to M/s CBA. M/s CBA does not charge service tax on the presumption that work done by sub-contractor still continues to be ‘road or bridge construction service’ and hence should be outside the service tax net.
    Service Tax department has levied service tax demand stating that the relationship between the contractor and that of sub-contractor is commercial in nature.
    Will Service tax be levied on the same?
  • 75. Construction of Government or educational building continues to be construction of Government or educational building whether done by contractor or sub-contractor.
    In fact, para 4 of the CBE&C circular No. 138/7/2011-ST dated 6-5-2011 specifically states that service provided by the sub-contractors/consultants and other service providers are classifiable as per section 65A of the Finance Act under respective clause of sub-clause (105) of section 65 of Finance Act, 1994.
  • 76. Services provided in SEZ by sub-contractor to main contractor
    Issue relating to construction service provided sub-contractor in SEZ is more complicated.
    Exemption Notification No. 17/2011-ST dated 1-3-2011 (relating to SEZ) reads as follows –
    In exercise of the powers – the Central Government,  - - , hereby exempts the taxable services specified in clause (105) of section 65 of the Finance Act, chargeable to tax under section 66 or section 66A of the Finance Act, received by a Unit located in a Special Economic Zone (hereinafter referred to as SEZ) or Developer of SEZ for the authorised operations, from the whole of the service tax, education cess and secondary and higher education cessleviable thereon.
  • 77. As per second proviso to rule 10 of SEZ Rules amended w.e.f. 3-2-2009, the exemptions, drawbacks and concessions on goods and services allowed to developer or co-developer will also be available to contractor or sub-contractor appointed by such developer or co-developer. All documents shall bear name of developer or co-developer along with contractor or sub-contractor and shall be filed jointly.
    Thus, services provided to contractors for ultimate use of developer should also be exempt.
    However, this proviso applies only in respect of SEZ Developer and co-developer and not in respect of SEZ units manufacturing or providing services.
  • 78. Meaning of ‘received by SEZ Unit or SEZ Developer’
    The SEZ Exemption notification uses the term ‘received by SEZ Unit or SEZ Developer’. The notification does not use the words ‘directly received by SEZ Unit or SEZ Developer’. Thus, even if the service is provided by sub-contractor, ultimately it is ‘received by SEZ Unit or SEZ Developer’.
    4.3 Only one deemed sale and one taxable event even when work is done by sub-contractor
    In Larsen & Toubro Ltd. v. State of Andhra Pradesh (2006) 148 STC 616 (AP HC DB),  L&T were main contractors. L&T had given various work to others on sub-contract basis. Contractee (Principal) had no agreement with sub-contractors and there was no legal relationship between contractee (Principal) and sub
  • 79. Conclusion
    If the main contractor providing construction service which is not subject to service tax (as construction is non commercial or is relating to roads, bridges etc.) the sub-contractor providing construction service itself would not be liable but other service providers would be liable.
    If main contractor is providing construction service within SEZ, sub-contractor can claim exemption on the basis that (a) service is eventually received by SEZ Unit or Developer (b) SEZ Rules have overriding effect (c) Rule of purposive construction.
    If the construction service is a taxable service, sub-contractor is liable to service tax even if service tax has been paid on entire contract value by main contractor.
    If contract is given on sub-contract basis, and the service is taxable, it is not advisable for main contractor to pay service tax under 33% abatement scheme, as he cannot avail any Cenvat credit.
    It is advisable to make disclosure to department to avoid charge of suppression of facts and wilfulmis-statement.
  • 80. At this Point in time, the question is whether the charge of VAT and service tax shall be overlapping.
    The matter to a certain extent has been settled by the SC Judgement in IMAGIC CREATIVE PVT LTD Vs COMMISSIONER OF COMMERCIAL TAXES Appeal (civil) 252 of 2008 wherein it has been held
    “28. Payments of service tax as also the VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract; irrespective of the element of service provided.“
    Poser No. 10
  • 81. “They are deciding, what to pay – VAT or Service Tax”
  • 82. Any Queries on Service Tax