Service tax -works contract

2. Constitutional amendments

3. Constitutional Amendments
Related to Taxation

4. WORKS CONTRACT

5. Background
• State of Madras Vs. Gannon Dunkley & co (Madras)
Ltd.(1958)
• 46th Constitutional amendment
• Deemed Sale
• Builder Association of India V. Union of India
• 46th constitutional amendment and Interstate sale
– Gannon Dunkerley. & Co. vs. State of Rajasthan
(1993)

6. Chargeability under
service tax
• Declared Service
• Definition
– Transfer of property
– Chargeability to VAT/Sales Tax
– Must be for Specified activities

7. RULE 2A (i)
“Gross amount” charged for the works
contract
-
Less: - the value of transfer of property in goods
involved in the execution of works contract.
-
Taxable value
-

8. Rule 2A (ii)
Works pertaining to Value of services
Original works 40% of the “Total amount” charged
Maintenance, repair, reconditioning or
restoration or servicing of any goods.
70% of the “Total amount” charged
In case of other contracts not included
above
60% of the “Total amount” charged

9. Illustration
• Mr. B entered into an agreement with Mr. A to
construct a building for Rs. 1 Cr. As per the agreement
Mr. B will supply 1000MT cement to Mr. A @
Rs.1000/MT. Sales tax @5% is chargeable on the
amount recovered on account of charges for cement
supplied. The Fair market value of cement is Rs.
6500/MT. Furthermore Mr. B will also provide a Crane
for 30 days to be used in the construction without
charging any amount. Mr. B recovers Rs.1000 per day
for such crane from others.

10. Total amount
Particulars Amount(Rs.)
Gross Amount 10000000.00
(+) Fair market value of Goods and services
supplied in or relation to the execution of
works contract
6500000.00(cement)+
30000.00(Crane hire)
(-) Amount charged for such goods and service 1000000.00(cement)
(-) Value added Tax levied on the transfer of
such goods (if any)
50000.00
TOTALAMOUNT 15480000

11. Valuation
(contd…)
• Works contract under CST
- State rules to apply
• Works contract under VAT
- Regular method
- Standard deduction
- Composition method

12. Thank You