The Ministry of Finance vide its Notification No 24/2012 dtd 6th June 2012 has notified the rules for Determination of Value of Service Portion in the execution of the Works Contract.
These rules are notified through Service Tax (Determination of Value) Second Amendment Rules, 2012 which will be applicable from 1st July 2012.
According to this new rule 2A , the value of service portion in the execution of a works contract will be determined as under :-
Option 1 :-
The Value of the service portion in a works contract shall be the Gross amount charged for the contract after deducting the value of the property in goods transferred in the execution of the said works contract.
Other related Points :-
a) The Gross amount charged shall not include the taxes
b) Value of Services will include :-
i) Labour Charges for execution of the works contract,
ii) Sub-contract payment for labour & services,
iii) Plan,Design and architecht fees,
iv) Hire charges in respect of tools/machinery used in the contract
v) Cost of water,fuel,electricity in the execution of the contract
vi) Cost of establishment of the contractor for supply of labour and services
vii) Other similar expenses relating to the supply of labour and services
viii) Profit earned by the service provider relating to the supply of labour and services.
c) Where VAT/Sales tax has been paid for the goods/property relating to the works contract, the value adopted for such purpose shall be deemed to be the value of goods/property for determination of the value of the Service portion of the service being rendered.
Option 2 :-
Where the value could not be determined under option 1, the value of service portion in a works contract shall be determined and the service tax shall be payable as under :-
A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;
(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract;
(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract;
Other related Points :-
a) 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;
b) 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-
(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon:
Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.
The service provider will not be eligible to take CENVAT credit of duties or cess paid on any inputs , used in the said works contract.
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