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097.02 / 04.01.08
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Services provided in relation to execution of a works
contract is leviable to service tax [section 65(105)(zzzza)].
VAT / sales tax is payable on the transfer of property in
goods involved in the execution of a works contract.
Service tax is leviable on the
value equivalent to the gross amount charged for the works contract less
value of the transfer of property in goods involved in the execution of the
works contract which is leviable to VAT / sales tax
[Rule 2A of the Service Tax (Determination of Value) Rules, 2006].
Whether or not, excise duty paid on goods, subjected to
levy of VAT / sales tax under works contract service, can be taken as credit
under the CENVAT Credit Rules, 2004?
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Value for the purposes of levy of service tax under works
contract service does not include the value pertaining to transfer of
property in goods involved in the execution of a works contract leviable to VAT / sales tax. Works contract service
provider is, therefore, not eligible to take credit of excise duty paid on
such goods involved in the execution of works contract.
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097.03 / 04.01.08
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Services provided in relation to execution of works
contract is leviable to service tax w.e.f. 01.06.07 [section 65(105)(zzzza)].
Works Contract (Composition Scheme for Payment of Service
Tax) Rules, 2007 provides option to pay service tax @ 2% of the gross amount
charged for the works contract. However, the service provider opting for
composition scheme for payment of service tax should exercise the option
prior to payment of service tax.
The issue pertains to,-
(i) contracts entered into prior
to 01.06.07 for providing erection, commissioning or installation and
commercial or residential construction service, and
(ii) service tax has already been
paid for part of the payment received under the respective taxable service.
Whether in such cases, the service provider can revise the
classification to works contract service from the respective classification
and pay service tax for the amount received on or after 01.06.07 under the
Composition Scheme?
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Prior to 01.06.07, service provider classified the taxable
service under erection, commissioning or installation service [section 65(105)(zzd)], commercial or
industrial construction service [section 65(105)(zzq)]
or construction of complex service [section 65(105)(zzzh)],
as the case may be, and paid service tax accordingly. The contract for the
service was a single composite contract. Part of service tax liability
corresponding to payment received was discharged and the balance amount of
service tax is required to be paid on or after 01.06.07 depending upon
receipt of payment.
Classification of a taxable service is determined based on
the nature of service provided whereas liability to pay service tax is
related to receipt of consideration. Vivisecting a single composite service
and classifying the same under two different taxable services depending upon
the time of receipt of the consideration is not legally sustainable.
In view of the above, a service provider who paid service
tax prior to 01.06.07 for the taxable service, namely, erection,
commissioning or installation service, commercial or industrial construction
service or construction of complex service, as the case may be, is not
entitled to change the classification of the single composite service for the
purpose of payment of service tax on or after 01.06.07 and hence, is not entitled
to avail the Composition Scheme.
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