service tax _works contract

Constitutional amendments

Constitutional Amendments

Related to Taxation

WORKS CONTRACT

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)

Chargeability under service tax

• Declared Service

• Definition– Transfer of property

– Chargeability to VAT/Sales Tax

– Must be for Specified activities

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

-

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

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.

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

TOTAL AMOUNT 15480000

Valuation (contd…)

• Works contract under CST - State rules to apply

• Works contract under VAT - Regular method - Standard deduction - Composition method

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