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Query from: Ajay Singam, INDIA, 12/26/08
Topic: INCOME TAX      Submitted on: Ammas.com
Subject: Service tax rules for Sub-Contractors

We are civil contractors. If our labour contractor does not have service tax registration then what are the clauses & whether MODVAT is applicable if main contractor pays the tax.

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Response from: Bond 007 James,   
Council Member on Ammas.com
Source: This information comes from my own knowledge.
Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 have been notified vide Notification No.32/2007-Service Tax. The person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to two per cent. of the gross amount charged for the works contract. Gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract.

Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract shall be determined by the service provider in the following manner vide Notification No.29/2007-Service Tax:

( i) Value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract.

Explanation.- For the purposes of this rule,-

(a) gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract;

(b) value of works contract service shall include,-

(i) labour charges for execution of the works;

(ii) amount paid to a sub-contractor for labour and services;

(iii) charges for planning, designing and architect’s fees;

(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract;

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

(vii) other similar expenses relatable to supply of labour and services; and

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

(ii) Where Value Added Tax or sales tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or sales tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under clause (i). Click on the link below for details http://www.allindiantaxes.com/ait-n…...

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Response from: AAA kumar,   
Registered Member on Ammas.com
Source: This information comes from my own knowledge.
Sub-contract is service tax-free

When a contractor of services subcontracts a portion of services, is it necessary for the sub-contractor to add the service tax in his bill raised against the contractor? As the contractor will raise his bill against the client, will it not be double taxation if the sub-contractor adds the service tax in his bill?

S. Krishnamoorthy

When a service is provided to a client by a person, in some cases it may happen that a portion or a part of the service is carried out by a sub-contractor engaged by that person. This situation arises in respect of services involving different types of work. One example is construction of commercial or residential complexes. In such cases, the services of independent sub-contractors such as carpenters and electricians may be used.

In such cases, it is not necessary that the sub-contractor should pay the service tax for his part of the work. A service is rendered by a person to his client. In respect of a sub-contract, the sub-contractor does not render any service to a client. He only undertakes a part of the job to be carried out by the contractor. Therefore, in such cases, it will be sufficient that the cost of such service provided by the sub-contractor is included in the bill that will be raised by the service provider on the client. As per Section 67 of the Finance Act 1994, the value of a taxable service is the gross amount charged by the service provider for such a service. This way, the cost of the entire service is taken into account and the main contractor or service provider pays the service tax only once. As a result, there will not be any double taxation.

In the context of Custom House Agent services, the CBEC issued an instruction letter dated June 6, 1997 referring to a situation where the agent sub-contracts a part of his work to another person and it was clarified in that letter that the sub-contracting agent is not required to pay any service tax on the bill raised by him on the main agent. It was further stated that the service tax will be payable by the main agent who provides actual service to the client and raises the bill on the client.

Property under construction

I heard from my friend that a recent rule says that Service Tax and Value Added Tax are not applicable for properties under construction. I booked a flat in March 2006 and the flat will be ready soon. How does this work out, if it is true?

Gandhi Gurunathan

There does not appear to be any rule that states that Service Tax and VAT are not applicable for all properties under construction. Probably, you would have heard that construction activities being undertaken in Special Economic Zones will not attract any Service Tax/VAT.

For these activities there is specific exemption. In other cases, construction activities will come under two categories of taxable services, one relating to commercial or industrial construction services and the other for residential complex construction services.

At the same time, it is to be noted that all construction activities relating to construction of residential flats will not come under taxable services. A residential complex is defined in Section 65(91a) of the Finance Act, 1994.

As per the definition, "Residential complex means any complex comprising,

(i) a building or buildings, having more than 12 residential units;

(ii) a common area; and

(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system... "

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Response from: MADANMOHAN RENUKUNTLA,   
Featured Member on Ammas.com
Source: Serviece Tax
The definition given to works contract is: AND (zzzza)6 to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation.—For the purposes of this sub-clause, "workscontract" means a contract wherein,— (i) 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 purposes of carrying out,— (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering Hence to attract service tax the sub contract given is subject to Sales tax/VAT, if at all your sub contractors attracts service tax, all provisions as contained in CENVAT Credit rules will applicable. any further information your your question needs clarity of subject

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Response from: V Dineshkumar,   
Registered Member on Ammas.com
Source: http://finance.indiamart.com/taxati…
Hi,

Modvat stands for "Modified Value Added Tax". It is a scheme for allowing relief to final manufacturers on the excise duty borne by their suppliers in respect of goods manufactured by them. eg ABC Ltd is a manufacturer and it purchases certain components from PQR Ltd for use in manufacture. POR Ltd would have paid excise duty on components manufactured by it and it would have recovered that excise duty in its sales price from ABC Ltd. Now, ABC Ltd has to pay excise duty on toys manufactured by it as well as bear the excise duty paid by its supplier, PQR Ltd. This amounts to multiple taxation. Modvat is a scheme where ABC Ltd can take credit for excise duty paid by PQR Ltd so that lower excise duty is payable by ABC Ltd.

The scheme was first introduced with effect from 1 March 1986. Under this scheme, a manufacturer can take credit of excise duty paid on raw materials and components used by him in his manufacture. Accordingly, every intermediate manufacturer can take credit for the excise element on raw materials and components used by him in his manufacture. Since it amounts to excise duty only on additions in value by each manufacturer at each stage, it is called value-added-tax (VAT)

The modvat credit can be utilized towards payment of excise duty on the final product

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Response from: PUNDALIK ADKAR,   
Registered Member on Ammas.com
Source: This information comes from my own knowledge.
Hi,

Sub-contractors are liable to pay Service Tax even though main contractor had paid service tax. Circular No. 96/7/2007 dtd. 23.08.2007

Hence MODVAT is applicable, even if the main contractor pays the tax.

Thanks & Regards,

ADKAR

Finance Bulletin.doc (99.84k)

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Thank this advisor   
 
Response from: sahil malik,   
Registered Member on Ammas.com
Source: This information comes from my own knowledge.
MODVAT refers to an excise duty scheme introduced in 1986 for allowing relief to final manufacturers on the excise duty borne by their suppliers for goods manufactured by them. It has now been replaced by the CENVAT scheme.It applies to certain specific items and is meant to limit the cascading effect of duty incidence on a number of goods where the MODVAT credit can be claimed on the purchase of raw materials on which excise has been paid. This MODVAT credit can be used to set off the excise duty payable on subsequent manufacture of goods.

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Response from: BRIJESH GADHIA,   
Featured Member on Ammas.com
Source: This information comes from my own knowledge.
first of all labour contractors are liable for service tax for services rendered above 1000000 /- and for service uptill 800000/- attracts for registration. if ypou meant cenvat , then yes contractor if pays service tax then cenvat is ofcourse applicable to him..

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Response from: KVK RAMACHANDHIRAN,   
Featured Member on Ask Agent
Source: This information comes from my own knowledge.
question not framed properly

any modvat is enjoyable if payee of the tax has paid the tax on input and the input firm should have the registration without which details of the input cannot be properly logged in.

KVK RAMACHANDHIRAN

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Response from: BRIJESH GADHIA,   
Registered Member on Ask Agent
Source: This information comes from my own knowledge.
service tax registration is applicable if amt of services rendered is rs. 8 lacs and above & modvat is applicable to every service tax provider.

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