Service Tax On Work Contract

SERVICE TAX ON WORK CONTRACT

 Works contract in itself is a very lengthy subject and law relating to Works Contract in Service Tax is available in a very scattered way. 

Important part in the defination of Work Contract:

  1.     A contract where transfer of property in goods involved is leviable to tax as sale of goods, AND
  2.    Such contract is for carrying out certain specified activities in relation to Movable Or Immovable property.

Section 66E : Declared Services
“The following shall constitute declared services, namely ………
(h) Service portion in the execution of a works contract.”
By this inclusion, the service portion in a works contract has become taxable under the Service Tax provisions
“WORKS CONTRACT” IN NEGATIVE LIST OF SERVICES
Though, “Works Contract” is not expressly found in Section 66D “Negative List of Services” but there is one indirect reference to “Works Contract”.
Following is the sub clause (a) of Section 66D.
(a)    Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere-
(i)……. (ii)……. (iii) ……….
(iv)       Support services, other than services covered under clauses (i) to (iii) above, provided to business entities.
Here services provided by Government or a Local Authority is included in negative list but there is exclusion related to Support Services.
Support Service is provided by Government or a Local authority to any Business Entity, then only it will be taxable.

“ WORKS CONTRACT” IN EXEMPTION NOTIFICATIONS

POINT NO. 12 OF MEGA EXEMPTION NOTIFICATION

Services Provided TO
Government – Local Authority or Governmental Authority
By Way of
Construction – Erection – Commissioning – Installation – Completion – Fitting out – Repairs – Maintenance – Renovation – Alteration
OF
(a)                A Civil Structure or other original works, meant 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 Archaeological Act, 1958.
(c)                A structure meant predominantly for use as Educational, clinical, 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
(f)                A residential complex meant for self use or for use of their employees or other persons specified in explanation 1 of section 65B(44)*.
*Explanation to clause 44 of section 65B of the finance act.1.      Members of parliament, members of state legislative assembly, members of panchayats, members of municipalities and members of other local authorities
2.      Any person who holds any post in pursuance of the provisions of the constitution in that capacity
3. Any person as a chairperson or a member or a director in a body established by the central government or state governments or local authority and who is not deemed as an employee before commencement of this section. 

This exemption is based on service receiver i.e.  Service receiver must be Government, 
  Local Authority or Governmental Authority


POINT NO. 13 OF MEGA EXEMPTION NOTIFICATION

Services Provided
By Way of
Construction – Erection – Commissioning – Installation – Completion – Fitting out – Repairs – Maintenance – Renovation – 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 Awaaas Yojna.
(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 a structure meant for funeral, burial or cremation of deceased;
   Under this point, the status of Service receiver is not important. Only the specified
   services are eligible for exemption.
 POINT NO. 14 OF MEGA EXEMPTION NOTIFICATION

Services Provided
By Way of
Construction – Erection – Commissioning – Installation –
of
Original works**
Pertaining To
(a)                Airport, port or railways, including monorail or metro,
(b)               Single residential unit* otherwise 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; or
(e)                Mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages
*Single  Residential Unit: As per Notification no. 12/2012 dated 17.03.2012 “Single Residential Unit” means; An independent residential unit with specific facilities for living, cooking and sanitary requirements.
**Original Work: As per definition given in “Service Tax(Determination of Value) Rules 2006, “Original Works” means;                    i.  All new constructions; or                                                                                                                                                                                   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 structure, whether pre-fabricated or otherwise.
  Under this point, the status of Service receiver is not important. Only the specified services are eligible for exemption.
 In these point activities of Completion – Fitting out – Repairs – Maintenance – Renovation – Alteration has been omitted as compared to point no. 12 & 13. This omission is worth giving attention.
 POINT NO. 25 OF MEGA EXEMPTION NOTIFICATION
Services Provided TO
Government – Local Authority or Governmental Authority
By Way of
(a)                Carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up gradation; or
(b)               Repair or maintenance of a vessel or an aircraft.
  For claiming exemption under this point, Service receiver must be Government, Local
  Authority or Governmental Authority.
POINT NO. 29(h) OF MEGA EXEMPTION NOTIFICATION
Sub Contractor
Providing Services
By Way of
Works contract to another contractor providing works contract services which are exempt. 

   For claiming exemption under this point, Sub Contractor providing services by way of Works
  contract is exempt.

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