13_microsoft powerpoint - 20071229-servicetax-works contract

7/31/2019 13_Microsoft PowerPoint - 20071229-Servicetax-works Contract

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Taxation of CompositeContracts


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Basics of Service Tax..

Tax on Services provided or to be provided

Selective Services taxable

Taxable Services defined ; Service not defined Principles of Classification of Service important

Tax on the Value of Taxable ServicesProvided and Charged


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Types of Contracts Contracts

For Sale For Service

Of Service

Divisible vs. Indivisible Contracts A grocery store sells bread, butter & tomatoes

A eating house sells a sandwich

Can it be said that:

A grocery store sells a sandwich ?

A eating house sells bread, butter & tomatoes ?


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Composite Contracts: JudicialThinking A composite contract should not be vivisected to levy a tax on a

specific component of such a contract but should be analysed asa whole State of Madras vs. Gannon Dunkerley & Co 9 STC 353 (SC)

Even in cases where the agreements provide for progressivepayments based on individual milestones

Sentinel Rolling Shutters & Engg. Co. vs. CST 4 SCC 260 (SC) Even if specific price breakup is given for individual milestones

Daelim Industrial Co. Ltd. vs. CCE 155 ELT 457 (Tri) asapproved by SC

Even if there are separate agreements CIT vs. Sundwiger Empg & Co. 262 ITR 110 (AP)


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Composite Contracts: LegislativePerspective (VAT)

Gannon Dunkerleys case

46th Constitutional Amendment to deemcertain transactions to be sales

The deeming fiction valid only for the saidlists and not beyond that

Geo Miller & Co vs. State of MP 5 SCC 209 (SC)

BSNL vs. UOI 3 SCC 1 (SC)


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Works Contract: Deeming Fiction Transfer of Property by means of:

Accretion

Accession

Blending

Is Works Contract:

Sale + Service (V1) OR Service (with a Deemed Sale) (V2)


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Doubt is not a pleasant conditionbut certainty is absurd

Voltaire (1694 1778)


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Service Tax: Legislative Perspective

Gradual Expansion of the Scope of Taxable

Services: Consulting Limb [1997-1998]

Executionary Limb [2004-2005]

Works Contracts [2007]

Whether levy of tax on works contracts is

valid without a Constitutional Amendment?

If yes, from which period is the levy valid?


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Some Answers

Liable Mitigate doubletaxation (BSNL)

Not Liable ??2007

Liable Mitigate doubletaxation (BSNL)Not Liable ( BlueStar)2004-2005

Not LiableNot Liable1997-1998

View 2

Service

View 1

Sale + Service

Period


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Impact of Introduction of WorksContract Services

Lends a succinct support to View 1

Judicial Principle:

Now Said, Not Said Earlier ( L&T)

Implications on Non Specified WorksContracts

Implications on CENVAT Credit for the

Service Recipient


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Works Contracts Services Works Contracts (transfer of property

involved in the execution of works contract isleviable to tax as sale of goods)

Only Specified Works Contracts covered

Infrastructure related works contractsexcluded

An optional composition @ 2% of the grossvalue of the contract


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Specified Works Contracts Construction of Residential Complex

Construction of Commercial Complex

Erection, Commissioning & Installation

Turnkey Projects


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Valuation: Gross Contract Price (-) Value of transfer of

property Excludes VAT

Base Adopted for VAT purposes conclusive

Fall-out of BSNL.


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Those who cannot remember thepast are condemned to repeat it

George Santayana (1863 1952)


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Composition Scheme: RepeatMistakes from the Past?? What about non specified works contracts?

CENVAT Credit on Inputs Not Available

CENVAT Credit of Input Services & CapitalGoods Available

Whether to Include Free Issue Materials ?


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Existing Contracts: Post WCServices Impact on availability of Composition Scheme

For past activities Where the amounts are billed but not realized

Where the amounts are not billed

for future activities In normal course

Where advances were received prior to the notified date


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Existing Contracts Situations in thepast

View 1 : Not Liable

If not registered

If registered

View 2: Liable with effect from 2004-2005

If not registered

If registered


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Industrial Construction Services

Construction of New Building or Civil Structure or

part thereof Construction of Pipeline or Conduit

Completion and Finishing Services in relation tobuilding or civil structure Glazing, Plastering, Painting, Floor and Wall Tiling, Wall

Covering and Papering, Wood and Metal Joinery andCarpentry, Fencing and Railing, construction of swimmingpools, acoustic applications or fittings and other similar

services Repair, Alteration, Renovation or Restoration of

Building, Civil Structure, pipeline or conduit


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Industrial Construction Services(Contd.)

Building, Civil Structure or Pipeline:

Used or to be used

Occupied or to be occupied

Engaged or to be engaged

In commerce or industry

Excludes

Roads, Airports, Railways, Transport Terminals,Bridges, Tunnels & Dams


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Construction of Complex Services

Construction

Completion & Finishing Services

Repairs, etc.

Of Residential Complex


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Residential Complex

More than 12 residential units

Common Area

One or more common facilities

Layout Approved Not for Personal Use


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Erection, Commissioning & InstallationServices ECI of Plant, Machinery, Equipment or Structures

Installation of Electrical Devices & Wiring Plumbing, etc. Heating & Airconditioning, etc. Insulation & Waterproofing Escalator Related

No Exemption for Specific Projects


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Maintenance or Repairs

Management of Properties

Maintenance or Repairs of Properties

Maintenance or Repairs of Goods

Principles of Classification

No Exemption for Specific Projects


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Composite Contracts (Past) :Conservative View Service Tax on service component

abatement available Service Tax abatement not available for

completion and finishing services

No CENVAT Credit in case of abatement Gross Contract Value to be included

Whether Free Issue Material to be added? Construction Services Erection, Commissioning and Installation Services


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I was born not knowing and havehad only a little time to change that

here and thereRichard Feynman (1918-1988)


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Thank You for a patienthearing

13_microsoft powerpoint - 20071229-servicetax-works contract

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