- Meaning of works Contract.
- Valuation Method including abatement % / prescribed % valuation of works Contract.
- Provision of Reverse Charge applicable on Works contract
Meaning of Works Contract w e f 01.07.2012
works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is 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 a part thereof in relation to such property;
- Transfer of property in goods involved in the execution of such contract :First part of the definition is that there must be transfer of property in goods in the contract while executing the contract.If no transfer of property is involved then it is not covered under works contract.
- Transfer of Property in good is leviable to tax as sale of goods : Second important part is that Transfer of property in goods is taxable under sales tax. If such transfer is not taxable under sales tax then contract is not covered under works contract.
- such contract is for the purpose of carrying out
- fitting out,
Substituted Rule 2A(i) of Service Tax (Determination of Value) Rules, 2006, inter alia, provides the rules to value service portion in the execution of a works contract.Main two option are available under valuation.In our view both these scheme of valuation are option available to assesses.
- In case of original work, pay service tax on 40% value,
- In case of maintenance or repair or reconditioning or restoration or servicing of any goods, pay service tax on 70% value,
- In case of all other works contract, pay service tax on 60% value.
- In the cases where VAT has been paid on ACTUAL value of transfer of property in goods, then this value will considered while calculating the value of Works Contract.
- If the VAT is not paid on the ACTUAL value, the assessee will calculate the same for the purpose for service tax and it will be deductible from the gross value.
Explanation 2.--For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.”.
Reverse Charge applicable on Works contract wef 01.07.2012
- Service receiver must be a body corporate and
- Service provider must be
- Partnership firm (registered or unregistered ) ,
Thus the nature of the service(works contract) and the status of both the service provider and service receiver are important to determine the applicability of partial reverse charge provisions.