2. Contract which involves work involving both transfer
of property in goods and also an element of work or
service rendered.
Therefore two conditions must be satisfied:
1) The contract must be such that wherein transfer of
property in goods in the execution of such contract
is “leviable to VAT or tax as sale of goods” and
2) The contract must be for the purpose of carrying
out construction, erection, commissioning,
installation, completion, fitting out, repair,
maintenance, renovation, alteration of any Movable
or Immovable property or for carrying out any other
similar activity or part thereof.
3. Two methods have been prescribed for
valuation of services involved in the execution
of works contract,
Valuation on Actual Basis: Payment of
service tax on actual value of services
involved in the works contract i.e. Service
Tax on,
Gross amount charged for works contract xx
Less: Value of property in goods transferred
in the execution of such contract xx
xx
4. Gross Amount charged : It shall not include Value Added Tax
(VAT) or Sales Tax, as the case may be, paid, if any, on the
transfer of property in goods involved in the execution of said
works 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 tools
used for the execution of works contract,
• Cost of consumables such as water, electricity, fuel, used in
execution 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,
• Profit earned by the service provider relatable to labour and
services.
5. Alternate Method (Work Contract Composition
Scheme has been scrapped) : to be adopted if
value of services has not been determined as per
first method.
Rule 2A(ii) :
A. Original Works - Works Contracts entered into
for the execution of original works, Service Tax
shall be payable on 40% of the amount charged for
works. Original works means -:
1. All new constructions,
2. All types of additions and alterations to abandoned
or damaged structures on land that are required to
make them workable,
3. Erections, Commissioning, installations of Plant,
Machinery or Equipments or Structures, whether
pre-fabricated or otherwise.
6. B. Maintenance and repair of goods : In case
of works contracts entered into for
maintenance or repairs or reconditioning or
restoration or servicing of any goods, Service
Tax shall be payable on 70% of the total
amount charged for works contract.
C. Other Works Contracts : Others not
covered in above two heads, including
maintenance, repair, completion & finishing
services such as glazing, plastering, floor and
wall tilling, installation of electrical fitting of
an immovable property, Service Tax shall be
payable on 60% of the total amount charged.
7. Meaning of Total Amount in a works contract –
The sum total of gross amount charged for the works
contract and the fair market value of all goods and
services supplied in or in relation to the execution of
the works contract whether or not supplied under the
same contract or any other contract after deducting
therefrom :
1. The amount charged for such goods or services, if
any, and
2. The value added tax or sales tax, if any, levied
thereon.
CENVAT credit of duties or cess paid on inputs is not
available. It can only be availed in respect of Input
Services and Capital Goods.
8. Exemptions: Following exemptions have been provided in respect of
works contract service vide Exemption Notification No. 25/2012, dated
20/06/2012-
1. Services provided to Government, a local authority or a governmental
authority by way of construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation, or alteration
of,-
1) A civil structure or any other original works meant predominantly for
use, other than for commerce, industry, or any other business or
profession,
2) A historical monument, archaeological site or remains of national
importance, archaeological excavation, or antiquity specified under
the Ancient Monuments & Archeological Sites and Remains Act, 1958
3) A structure meant predominantly for use as an educational, or a
clinic, or an art or cultural establishment,
4) Canal, dam or other irrigation works,
5) Pipeline, conduit or plant for water supply or water treatment or
sewerage treatment or disposal, or
6) A residential complex predominantly meant for self use or the use of
their employees or other persons specified in Explanation 1 of sec.
65B(44) of the Act.
9. 2. Services provided by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, or
alteration of –
a) A road, bridge, tunnel, or terminal for road transportation for use by
general public,
b) A civil structure or any other original works pertaining to a scheme
under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas
Yojana,
c) A building owned by an entity registered under section 12AA of the
Income Tax Act, 1961 and meant predominantly for religious use by
general public,
d) A pollution control or effluent treatment plant, except located as a
part of a factory, or
e) A structure meant for funeral, burial or cremation of deceased.
3. Services by way of construction, erection, commissioning or installation
of original works pertaining to,-
10. a) An airport, port or railways, including monorail or metro,
b) A single residential unit otherwise than as a part of residential
complex ; where -
Single residential unit means- a self contained residential unit
designed for use of, wholly or principally, for one family;
Residential complex means- building(s) comprising of more than one
single residential unit;
c) Low cost houses up to a carpet area of 60 square mtrs per house in a
housing project under the “ Scheme of affordable housing in
partnership” framed by Ministry of Housing & Urban Poverty
Alleviation, GOI.
d) Post harvest storage infrastructure for agriculture produce including
cold storages for such purposes, or
e) Mechanized food grain handling system, machinery or equipment for
units processing agriculture produce as food stuff excluding alcohol.
4. Sub contactor providing works contract services to main contractor
engaged in providing exempt works contract service, then the same
shall be exempt.
11. 1. Partial Reverse Charge Mechanism :
Services provided by any individual, HUF, AOP or Partnership
Firm located in the taxable territory to a business entity
registered as body corporate, located in taxable territory-
50% of service tax- payable by service provider &
50% of service tax- payable by service receiver
2. Works contract in the nature of support services provided by
govt. or local authority : Entire Service Tax payable by
recipient of service.
3. Other than (1) & (2) above, Service provider is liable to pay
Tax.
12. Pure Labour Contracts in relation to a building and
structure shall not be treated as works contract
because the essential condition of transfer of
property in goods will not be fulfilled.
Contracts for painting of building, repair of building,
renovation, wall tilling, flooring would be covered
under works contract if such contract involves
provision of materials as well.
