works contract tax issues-cma nswain)

1

14.5%

05/01/23 A presentation by Niranjan Swain

Tax Act / R

ules

Com

pliance by A

ssessee

Harm

onizing with G

ovt official

Support from Tax

experts & consultants

Clarity

05/01/23 A presentation by Niranjan Swain 2

.

Execution of Works ContractLevy of

VAT or Service Tax ?OR

VAT & Service Tax?


Taxability under State / Central Act

CommercialDealings

in “Goods”

Commercial Commercial dealings in dealings in ““Services”Services”

Vat / Sales Tax = On “Sale of goods”

Works Contract Tax = On “Deemed Sales”

Excise Duty =On “Manufacturing”

Customs Duty =“On Imports”

Entry Tax / Octroi =“On entry of goods to local Area”

+Service Tax= On “providing Services & receipt of Payment”

Proposed New Taxation >>>>>>”Goods & Service Tax” 05/01/23 A presentation by Niranjan Swain 4

Taxability on works contract

Business Activities

Vat / WC Tax

@13.5%

or

5%Service Tax

@14.50%


History of Works Contract Tax

What is a works contract:It is a composite contract involved in transfer of property of goods rendering of some services.

Principle of Works ContractAccretion: Movable Goods are imbedded in immovable property (Construction contract)Accession:Movable goods attached to movable property (spare parts fixed in a car)Blending:Movable goods mixing with goods of Contactee( printing, dying work)


Basic Sale of Goods vis-à-vis Works Contract

Sale of Goods Works Contract

Taxed as actual Sale : Seller & Buyer Taxed as Deemed Sale : Contractor & Contractee

Absolute property of the maker when produced / manufactured. Later on sold to buyer

In WC, it is never an absolute property of the maker. Materials used in WC – may be makers absolute property

The sale is ‘chattel as a chattel’ i.e. ‘goods’ are sold as ‘goods’

In WC, article produced becomes the property of buyer without first becoming property of the maker.

Primary function - supply of materials Incidental - work or service

Primary function - work and labour Incidental - materials are supplied

TDS provisions are not applicable TDS provisions are applicable



Builders Association of India v. Union of India .

1989 , 73 STC 370

“After 46th Amendment the works contract which was indivisible one , is by legal fiction altered into one for sale of goods and other for supply of labour and services.



State of Madras v. Gannon Dunkerley & Co. (Mad) Ltd.

AIR 1958 SC 560

“works contract was essentially a contract of service and no sales tax could be levied on goods transferred in the course of execution of works contract.


46th Constitutional Amendment- February 1983 Article 366(29A) – Constitutional Amendment

•Permitted the States to levy tax on the Sale of goods involved in execution of all work contract.

•States have been given power to separate the contract between work and the labour and services

•Identifying whether the goods retained their original identity after the work was executed or had been merged, integrated or becoming part and parcel of the works, buildings etc.States made amendments in their respective Sales Tax Law to levy

tax on such sale either by making separate legislation or by amendment in existing sales tax lawCentral Sales Tax Act amended from 20021005/01/23 A presentation by Niranjan Swain

Jurdicial Analysis after Constitutional amendment


Basis of taxation of Works Contract

Gannon Dunkerely & Co V. State of Rajsthan (1993)66 Taxman 229 / (1993) 88 STC 204 – Taxable event is the transfer of property. Works contract tax payable on value of goods

transferred. Charges for labour, services, consumables &

profit relatable to services etc. to be deducted. Tax cannot be levied when goods which are not

taxable under sec-,3,4 & 5 of CST Act. If no details produced by the contractor the

legislator can prescribe scales of permissible deduction.

There may be uniform rate for Works Contract & it can be different from individual rates.

Builders Association of India V. State of Karnataka (1993)88 STC 24805/01/23 A presentation by Niranjan Swain 12

Value taken for levy of Service tax on Works Contract = Net Service Method labour charges for execution of the works; amount paid to sub-contractor for labour &

services; charges for planning, designing and architect’s

fees; charges for obtaining on hire or otherwise,

machinery and tools used for the execution of the works contract;

Cost of consumables such as water, electricity, fuel, used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract;

cost of establishment of the contractor relatable to supply of labour and services;

other similar exp. relatable to supply of labour & services;

profit earned by the service provider relatable to supply of labour and services;

Gannon Dunkerely & Co V. State of Rajsthan / (1993) 88 STC 204,

14.50%


State of Andhra Pradesh v. Kone Elevators (India) Ltd.

[2005] 3 SCC 389, Entire transaction amounted to a 'sale' and not works

contract and was liable to sales-tax/VAT only. When the States started proceeding with assessment as

per judgment in Kone Elevators (supra) and started reopening concluded assessments based upon said judgment, assessees preferred petition under Article 32 challenging such actions.

Owing to a perceived contradiction between judgments in : (a) Kone Elevators (supra) and (b) State of Rajasthan v. Man Industrial Corpn. Ltd. [1969] 1 SCC 567, State of Rajasthan v. Nenu Ram [1970] 26 STC 288 (SC) and Vanuguard Rolling Shutters Steel Works v. Commissioner of Sales Tax [1977] 2 SCC 250 matter was referred to Constitution Bench of Hon'ble Five judges.


State of Andhra Pradesh vs. Kone Elevators ( India) Ltd. 2005 (140 STC 22) (SC)

Reversal of A.P. Vs. Kone Elevators (India) Ltd. (1999) 115 STC 96

‘’there is no standard formula by which one can distinguish a “Contract of sale” from a “Works Contact”. In a “Contract of Sale” the main object is the transfer of property and the delivery of possession of the property, where as the main object in a “contract for work“ is not the transfer of property but is one for work & labour. In Judging Whether the contract is for a “sale” or for “Work & Labour”, in the essence of the contractor the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of trade provides a guide in the deciding whether the transaction is a “sale” or “works contract”. Essentially, the question is of interpretation of the “Contract”


What Prompted Govt. to Levy Tax on WC Services

Delim Industrial co ltd. V. State of Assam(2003)130 STC53(Gau)

WC tax payable only on goods not on design & engineering.

CCE&C v. Larson & Toubro Ltd. 2004 (174) ELT 322 -Tri-Del lump sum works contract cannot be vivisected & part of

it can not be subjected to service tax

Daelim Industrial Co Ltd V. CCE Vadodora, 2003(155)ELT457-Tri-Del Turnkey contract can not be vivisected artificially No levy service tax on design,& detailed engineering,

commissioning of plant.


BSNL vs Union of India (2006) 2 STR 161(SC).

46th Amendment chose two specific situations, a works contract, and a catering contract to bring within the fiction of a deemed sale where involve a kind of service and sale at the same time. It will arise where splitting of the service and supply has been Constitutionally permitted in Clauses (b) and (g) of Clause 29A of Article 366,



Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases.



Entry 54 of List II - service is not taxable , the principles enunciated in Gannon Dunkerley’s

case, The test for composite contracts did the parties have in mind or intend separate

rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is as to what is the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test.”


L & T Ltd. v. State of Karnataka [2013] 41 STT 113/38

Following concepts are clearly emerged. They are :

(i)the works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; [para 63 & 101(viii)]

(ii)Works contract is a contract for undertaking or bringing into existence some works (para 76)

(iii)the concept of "dominant nature test" or, for that matter, the "degree of intention test" or "overwhelming component test" for treating a contract as a works contract is not applicable;


L & T Ltd. v. State of Karnataka [2013] 41 STT 113/38

Following concepts are clearly emerged. They are : (iv)Even of dominant intension of contract is not to transfer the

property in goods and rather it is rendering service, then also service tax cam be imposed on material used in such contract if such contract otherwise has elements of works contract [para 101(iv)]. Even if minor materials transferred it can be works contract.

(iii)the term "works contract" as used in Clause (29A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and service alone; and

(iv)once the characteristics of works contract are met with in a contract entered into between the parties, any additional obligation incorporated in the contract would not change the nature of the contract. [Para 42]


Tax implication on Works Contracts -

Kone Elevators India (P.) Ltd. v. State of Tamil Nadu [2014] 45 taxmann.com 150 (SC),:Issue: Whether the manufacture, supply and installation of lifts was in the

nature of a works contract. This question required judicial consideration to determine whether such

a transaction could be taxed by the State as a sale? Justice Dipak Misra & four Others: Contract was a works contract and

not a sale. Justice Ibrahim Kalifulla dissented: Contract was a sale. Judgments revisited the issue of the validity of the dominant nature test

in determining the legal nature of a contract05/01/23 A presentation by Niranjan Swain 22

Tax implication on Works Contracts Kone Elevators India (P.) Ltd. v. State of

Tamil Nadu [2014] 45 taxmann.com 150 (SC),:

Larsen & Toubro Ltd. v. State of Karnataka [2013] 41 STT 113/38 taxmann.com 98 (SC), "predominant intention test" is no longer relevant and, therefore, supply and installation of lift cannot be treated to be a contract for sale.

A lift comprises of components or parts [goods] like lift car, motors, ropes, rails, etc. and each of them has its own identity prior to installation and they are assembled/installed to create the working mechanism called lift. The installation of these components/parts with immense skill is rendition of service, for without installation in the building, there is no lift. Hence, it is a works contract.


Taxability of Supply of Stent and Valve for heart Surgery

International Hospital Private Ltd V. State of U.P. (2014) 48 Taxmann.com / 47 GST 335 Use of stent or valve during performance of heart

procedure on inplant at hospital is not a case of sale- not liable for VAT

Exempted from Service Tax Sl. 2 oF Notification 25/2012 dated.20.06.2012

Sanjos Parish Hospital v. CTO (2012) 55 VST 208 (Ker HC) If the contract is only for supply – Tax would be

attracted05/01/23 A presentation by Niranjan Swain 24

Road Open for Levy of Tax on Works Contract Services


Applicability of Works Contract Tax

Budget speech of Finance Minister. “State Governments levy a tax on the transfer of property in

goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 percent of the total value of the works contract”,

ST on Works Contract Services - June 1, 2007 vide Notification No.23/2007-ST/22.05.2007.


Relevant taxable services involved in the Works Contract

Description of Service Taxable w. e. fCommercial or Industrial Construction services 10/9/2004

Erection, Commissioning or Installation Services 1/7/2003

Construction of Complex Residential services 18/4/2005

05/01/23

Works Contract- Section 65B (54) – Finance Act 2012

“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 moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property”;


From July 2012 – Declared Services

Description of Service Taxable w. e. fConstruction of Complex Residential services From 2012 – included as

Declared Services

Works contract services From 2012 –Included

under Declared Services

05/01/23

Works Contract- Section 65B (54) – Analysis of Work Contract Service, (a)For execution of a contract (b)there should be transfer of Property in Goods, (c)such transfer of goods should be leviable to tax as Sale of

Goods. (d)such contract is for the purpose of carrying out Construction Installation Repair Maintenance Completion Erection Commissioning Fitting out Renovation & Alteration


Works Contract- Section 65B (54) – Analysis of Work Contract Service, (e) In Relation of : any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;


Material used in Works Contract

.


Valuation of Works Contract Service

Valuation of Works Contract Service: Provisions of Section 67 Service Tax (Determination of Value) Rules,

2006

Prior to July 2012:: (a)Works Contract Composition Scheme, 2007 –

where the service tax was payable @ 4.80% on gross amount charged.

(b)Rule 2A of Service Tax (Determination of Value) Rules, 2006 – where the service tax was payable at normal rate on the service portion of works contract.


Valuation of Taxable services

Section 67 and Section 66E of

The Finance Act,1994

Explanation I to Rule 6 (3D) of CENVAT Credit Rules, 2004

Rule 6 of

Service tax

Rule,1994

Service Tax (Determinat

ion of Value)

Rules,2006

Notification No. 26/2012

ST dated

20-06 -2012


Valuation of Service

Section 67(3):the gross amount charged includes any amount received towards the taxable service before during or after the provision of such service.

Gross amount charged’? Explanation (c)of Section 67‘Gross amount charged’ has been defined in to include payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.


Taxability of Advance Received

.

Taxable at the time of receipt

Not Taxable at the time of receipt

Service provided- taxable

No service provided ST paid refundable

Subsequently Taxable

Subsequently not taxable

No TaxProportionate

amount Charged to ST05/01/23 A presentation by Niranjan Swain 36

Valuation of taxable services. & Sec-67 / Valuation Rules

Service Tax is chargeable on any taxable services with reference to its value.

ST payable on value of taxable services & not on entire value of contact.

The value is to be determined under Service Tax (Determination of Value ) Rules 2006 made effective from dt.19.04.2006.

Service Provided Free of Cost- No service Tax is charged Circular 62 /11/2003 dt.21.08.2003.


Valuation of taxable services. & Sec-67 / Valuation Rules

Ref.Sec.

Service Provide

d for a-

by serviceprovider for such service provided or to be provided.

Rule for Value of Taxable Service

Sec 67(1)

(i)

Consider-

ation in money

On the basis of

Consideration

Gross amount charged by

service provider for such

service provided or to be

provided. Amount Received from

the service receiver will be

considered as gross amount charged. 05/01/23 A presentation by Niranjan Swain 38

Notional Valuation as introduced by the Valuation Rules

. Consideration

Wholly Money Wholly or Partly not in Money

Not ascertainable

Gross Amount charged-even if the amount

charged is lowAs may be prescribed

Similar Services Provided to third party

Similar services not provided-Market value as determined by the assessee - Can not be

lower than the cost of provision of the services05/01/23 A presentation by Niranjan Swain 39

Valuation of Works Contract Service

From July 2012:

New Rule 2A by the Service Tax (Determination of Value) Second Amendment Rules, 2012 vide Notification No. 24/2012 Dated 06.06.2012 subject section 67

The value of service portion in the execution of a works contract Sec 66E (h) of the Act,

(a)Regular Scheme [Rule 2A(i)] (b)Standard Deduction Scheme [Rule 2A(ii)]


.

.Value of works contract service Gross amount charged for the works contract xxxxLess: Value of Transfer of Property in Goods xxx

Taxable Value x

Exclusion from Gross Amount Charged:- Value Added Tax or Sales Tax, paid or payable, if any.


Value taken for levy of Service tax on Works Contract Deduction Method

Gross Amount charged for the works contract excluding value added tax or sales tax, if any paid on transfer of property in goods involved in the said works contract.

Value of transfer of

property in goods involved in the

execution of the contract.

Rule 2A of Service Tax (Determination of Value) Rules, 2007,provides that value of works contract service shall be equivalent to above.

Less

14.50%


Determine Value of Transfer of Property in Goods

(for exclusion purpose)

Where VAT or sales tax has been paid/payable on the actual value of property in goods transferred in the execution of the works contract: -

Such value adopted for the purposes of payment of value added tax or sales tax,

Where the service provider is paying VAT/sales tax under the respective State VAT/sales tax law on the actual value of goods in such works contract:

such actual value of goods




Where service provider is paying VAT/Sales tax under a composition scheme:Service element Explanation (b) to the Rule 2A of Valuation Rules:(a)labour charges for execution of the works;(b)amount paid to a sub-contractor for labour and services;(c)charges for planning, designing and architect’s fees;(d)charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;




Where service provider is paying VAT/Sales tax under a composition scheme:Service element Explanation (b) to the Rule 2A of Valuation Rules:(e)cost of consumables such as water, electricity, fuel used in the execution of the works contract;(f)cost of establishment of the contractor relatable to supply of labour and services;(g)other similar expenses relatable to supply of labour and services; and(h)profit earned by the service provider relatable to supply of labour and services;05/01/23 A presentation by Niranjan Swain 45

Standard Deduction Scheme – Rule 2A(ii) - Composition Scheme

.Partial abatement/ Composition Scheme

Taxable Value Conditions

(A)Original Work - 40% of total amount.

40% of total value

Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on goods, the property of which is transferred is not available. Cenvat credit of other inputs (like consumables) is available

(B) (i)All works other than (A) above including works contract of Maintenance/ Repair/ Reconditioning/Restoration/ servicing of any goods (ii) maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property.

70% of total value (from 1st Oct 2014)


Standard Deduction Scheme – Rule 2A(ii) - Composition Scheme

.Description of taxable Service Value %ConditionsConstruction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority;- 25

(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(a) for a residential unit satisfying both the following conditions, namely:– (i) the carpet area of the unit is less than 2000 square feet; or (ii) the amount charged for the unit is less than rupees one crore;

(ii)The value of land is included in the amount charged from the service receiver.

(b) for other than the (a) above. 3005/01/23 A presentation by Niranjan Swain 47

Key Terms used in Valuation

(1)“original works” means-

(i)all new constructions;(ii)all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;(iii)erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;


Key Terms used in Valuation(2) “total amount” means –the sum total of the 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-(a)the amount charged for such goods or services, if any; (b)the value added tax or sales tax, if any, levied thereon.(3)“Fair Market Value” –the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.


Determination of Value of Works Contract-Where Value could not be determined – Prior to Oct 2014

.

Where works contract is for… Value of the service portion shall be…

(i ) execution of original works 40% of the total amount charged for the works contract

Mainenance or repair or reconditioning or restoration or servicing of any goods

70% of the total amount charged for the works contract

(iii ) works contracts, other than contracts for execution of original works, including contracts for completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings.

60% upto 30th Sept 2014 / 70% from 1st Oct 2014 of the total amount charged for the works contract

(ii )If construction contract includes Value of land and the carpet area is up to 2000 sq ft. Or amount charged is less than Rs. One crores

25% of the total amount charged including such gross amount

(ii )If construction contract includes Value of land and the carpet area is 2000 sq ft. Or more Or amount charged is Rs. One crores or more

30% of the total amount charged including such gross amount


Taxability in hands of Service Provider - Free Issue of Material by Service Receiver

Whether the contractor is liable to pay service tax on value of material supplied by the service receiver if he chooses the composition scheme for payment of service tax on such contracts.

Rule 2A(d) defines “total amount” as under: the sum total of the 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-

(a)the amount charged for such goods or services, if any; and

(b) the value added tax or sales tax, if any, levied thereon.


Taxability in hands of Service Provider - Free Issue of Material by Service Receiver

Nature & Quantum of Free Issue of Materials Requirement of Contract for Free Issue of

Materials Partial Use of Free Issue of Materials Service Tax on cancelled contract


Determination of the Value of service – Free Material issued

.1 Gross amount received excluding taxes XXXX

2 Add: Fair Market Value of Material supplied excluding taxes XX

3 Amount charged by service receiver for supplied Materials X

4 Total amount charged (1+2-3) XXXXX

5 Value of service portion (40% of 4, in case of original works) XX


Can Gross Value of Service includes – Free Supply of Materials

G.D.Builders vs. Uoi[2013]40 taxmann.com 415(Delhi)Bhayana Builders (P.)Ltd. v. CST [2013] 38 taxmann.com

221(New Delhi-CESTAT)(LB)

Value of Free of Cost Supplies provided by recipient not includible in value of services. is neither monetary nor non-monetary consideration paid

by or flowing from service recipient, accruing to benefit of service provider.

It is outside ‘gross amount charged’, as used in section 67 of Finance Act, 1994 and not includible in taxable value of services as such.


Reverse Mechanism of payment of Service Tax

.


Person liable to pay service tax under reverse charge or tax shift Notification No. 30/2012-ST, dated 20-6-2012 & Rule 2(d) of ST Rules

Description of service

Service Provider Service Receiver

Liability of service tax

Service portion in execution of Works Contract

Individual, HUF, proprietary Or partnership firm, AOP located in taxable territory

Business entity registered as body corporate located in the taxable territory

A)Tax on 50% of value - SR B) 50% by SP

Business Entity -65B (17) it means any person ordinarily carrying out any activity relating to industry, commerce or any other business.


“body corporate” - section 2 (7)of the Companies Act, 1956.

“body corporate” or “corporation” includes a company incorporated outside India but does not include –

(a) A corporation sole ; New Companies Act, 2013. Clause (11) of Section 2 of the Companies Act, 2013(b) A co-operative society registered under any law relating to co-operative societies ; and(c)any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf.


Reverse Charge Mechanism – 100%

(a) where service provider is located in non-taxable territory and place of provision is in taxable territory;

(b) where the service provider is the Government or Local Authority;

Where the works contract services are provided by the Government or Local Authority, such services are defined as ‘Support Services’ under Clause (49) of Section 65B of the Act.

No Thresh Hold exemption to Service Receiver


CENVAT Credit on work contract

(a) Input No input tax credit of excise duty paid on goods,

property transferred in execution of works contract.

(b)Capital goods Taxes paid on capital goods will be available. (c) Input Service Taxes paid on capital goods and input services

will be available. However, No credit if this service is used for construction of building/laying foundation or making structure for support of capital goods.


Restriction on Availment of Cenvat Credit - Rule 2(k) and Rule 2(l) of CENVAT Credit

Rules: CENVAT Credit would not be available in respect of

input/input services used for – (a)Construction or execution of works contract of a

building or a civil structure or part thereof; or (b)Laying of foundation or making of structures for

support of capital goods, except for providing construction or works contract services.

In other words, as per abovementioned rules, credit would be available in the following cases:

(a)where the contract amounts to ‘works contract’ and contract is otherwise than for building or civil structure;

(b)where input/input services are used for providing works contract services or construction services.


CENVAT Credit on work contract

Explanation 2 to Rule 2A of said Valuation Rules, the provider of taxable service i.e. the works contract service shall not take CENVAT credit of duties or cess paid on any inputs ( not Capital Goods), used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.


Credit in case of Reverse Charge – [First Proviso to Rule 4(7) of CENVAT Credit

Rules, 2004

Whole of the service tax is paid on inputs on reverse charge (i.e. u/s 68(2) of Finance Act, 1994), the CENVAT credit in respect of such input service shall be allowed after the service tax paid by the recipient. Payment to Service Provider is not relevant. ( 1.3.2015)

Service tax charged by the service provider in the Invoice , the credit will be taken immediately on receipt of Invoice.

Recipient of Service can take CENVAT credit whether or not he makes payment of value of input service to the service provider. Notification No. 21/2014 Dated 11.07.2014 w.e.f. 01.09.2014]


Credit in case of Reverse Charge – [First Proviso to Rule 4(7) of CENVAT Credit

Rules, 2004

The credit should be taken within one year ( up to 1.9.2014 to 28.03.2014 six months) from date of issue of any of the documents specified in sub-rule (1) of rule 9 i.e. one year months from the date of payment/GAR-7 Challan.

If the payment is not made to service provider within three months the CENVAT Credit taken shall be reversed. On payment the cenvat credit shall be taken back which was reversed earlier


Credit in case of Reverse Charge

No Eligible of Cenvat Credit if Service Provider claiming exemption up to rupees ten lakhs as per Notification No. 33/2012 .

However, as and when, he pays service tax, he is eligible for CENVAT Credit for services or inputs or capital goods received on or after that day.

CENVAT Credit would be applicable for both methods of valuation as prescribed under Rule 2A of Service Tax (Determination of Value) Rules, 2006.


INVOICES- Rule 4A & 4B

Every person providing taxable service shall


POT for Service Receiver – Rule 7 of POT Rules

Notification No. 13/2014-ST Dated 11.07.2014POT in relation to service receiver would be the date of payment to service provider subject to the condition that where the payment is not made within a period of three months of the date of invoice, the point of taxation shall be the date immediately following the said period of three months.


Provided in the taxable territory

“India” includes not only the land mass but its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976(- of 1976); the sea-bed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.


.TAXABLE TERRITORY Following illustration will make this clear:- Illustration


Exemption from Service Tax in execution of work contract?

(i)As per Mega Exemption: Entry No. 12Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;(b)a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);



(i)As per Mega Exemption: Entry No. 12(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;(d) canal, dam or other irrigation works;(e)pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or(f)a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;



(ii)As per Mega Exemption: Entry No. 13Service 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.



(ii)As per Mega Exemption: Entry No. 13(d) A pollution control or effluent treatment plant, except located as a part of a factory.(e) A structure meant for funeral, burial or cremation of deceased.



(iii) As per Mega Exemption: Entry No. 14Service by way of Construction, Erection, Commissioning, or Installation of Original Works pertaining to –(a)An airport/port or railways, including monorail or metro.(b) A ‘single residential unit’ otherwise than as a part of a ‘residential complex’.(c) Low-cost houses up to a carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the ‘scheme of affordable housing in partnership’ framed by the ministry of housing and urban poverty alleviation, government of India.(d) Post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes.(e)Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.


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