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8/11/2019 Servicetax Postnegativelist 130430011129 Phpapp01

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Indirect Taxation of WorksContracts

Service Tax Aspects

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Service Tax -NEGATIVE LIST

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SECTIONS: OLD vis--vis NEW w.e.f. 01/07/2012

Sr. No. Content of Section OLD Section NEW Section

1 Section of Definition Section 65 Section 65B

2 Classification of Services Section 65A Section 66F

3 Charging Section Section 66 Section 66B

4 Place of Provision Section 66A Section 66C

5 Negative List (17 Services) - Section 66D

6 Declared Service(Positive List 9 Services)

- Section 66E

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SERVICE- DEFINED

Section 65B (44) defines Services as: any activity carried out by a person for another for consideration and includes a declared service .

not to include: Transfer in title of:

Goods (Kone Elevators Issue) Immovable Property ( Sale of Plots )By way of sale/gift or in any manner

Transaction in Money or Actionable Claim

Employment service provided by an employee to employer Fees payable to court/tribunal

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Negative List of Service

1.Services by Government or a local authority2.Trading of goods3.Any process amounting to manufacture or

production of goods4.Transmission of electricity by an electricity

transmission utility.5.Service by way of access to a road or a bridge on

payment of toll charges;8.Betting, gambling or lottery

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Definition

Prior to Negative list Regime i.e. 01-07-2012,service tax on construction industry wasapplicable on the basis of definition of

services as under:1) Commercial or Industrial Construction2) Construction of Residential Complex

3) Works Contract Service4) Preferential Location Charges5) Maintenance or Repair Service

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Service and Declared Ser vice

In Negative list Regime, definitions ofvarious services are done away with.

Instead, the term SERVICE and DECLARED SERVICE has been defined.

Construction activity is covered in thedefinition of Declared Service .

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Definition of Declared Ser viceWhy Services are Declared?

.The following activities have been specified in section 66E as declared service:

1. Construction of a complex, building, civil structure or a part thereof, including a complex or

building intended for sale to a buyer, wholly or partly, except where the entire considerationis received after issuance of certificate of completion by a competent authority;

2. Development, design, programming, customization, adaptation, up gradation, enhancement,implementation of information technology software;

3. Service portion in execution of a works contract;

4. Service portion in an activity wherein goods, being food or any other article of humanconsumption or any drink (whether or not intoxicating) is supplied in any manner as part ofthe activity.

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Mega Exemption

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EXEMPTED SERVICES VIDE NOTIFICATION NO 25/2012-ST (w.e.f. 01-07-2012)

Entry No. 12 - Services provided to the Government, a local authority or agovernmental authority by way of construction , erection, commissioning,installation, completion, fitting out, repair, maintenance, renovation, or alteration of-

(a) a civil structure or any other original works meant predominantly for useother 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 Ancient Monuments andArchaeological Sites and Remains Act, 1958 (24 of 1958); (c) a structure meant predominantly for use as (i) an educational, (ii) a clinical,

or (iii) an 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; or (f) a residential complex predominantly meant for self-use or the use of their

employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;

Poser 9 (i) 10


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Critical Issues

Exemption only if services are provided toGovt / LA / GA

Civil Structure for commercial use notcovered

Use of Term Pre -dominantly vs Exclusivelyor Solely

Absence of Term Pre -dominantly Canal, dam and Other Irrigation Works


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Contd Entry 13. Services provided by way of construction , erection, commissioning, installation, completion, fitting

out, repair, maintenance, renovation, or alteration of,- (a) a road, bridge, tunnel, or terminal for road transportation for use by general public; (Poser 10) (b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National

Urban Renewal Mission or Rajiv Awaas Yojana; (c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of

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; Entry 14. Services by way of construction, erection, commissioning, or installation of original works

pertaining to,- (a) an airport, port or railways, including monorail or metro; (b) a single residential unit otherwise than as a part of a residential complex; (c) low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by

competent authority empowered under the Scheme of Affordable Housing in Partnership framed by theMinistry of Housing and Urban Poverty Alleviation, Government of India;

(d) post- harvest storage infrastructure for agricultural produce including a cold storages for suchpurposes; or

(e) mechanised food grain handling system, machinery or equipment for units processing agriculturalproduce as food stuff excluding alcoholic beverages;

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Contd Entry 14. Services by way of construction, erection, commissioning, or

installation of original works pertaining to,- (a) an airport, port or railways, including monorail or metro; (b) a single residential unit otherwise than as a part of a residential

complex; (c) low- cost houses up to a carpet area of 60 square metres per house in a

housing project approved by competent authority empowered under theScheme of Affordable Housing in Partnership framed by the Ministry ofHousing and Urban Poverty Alleviation, Government of India;

(d) post- harvest storage infrastructure for agricultural produce includinga cold storages for such purposes; or

(e) mechanised food grain handling system, machinery or equipment forunits processing agricultural produce as food stuff excluding alcoholicbeverages;

Poser 9 (ii) 13


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Critical Issues

General Public defined in Explanation Status of Service Recipient is immaterial

What are the activities that would fall underroad construction ? E.g. Soil Stabilisation Charitable Trust Religious Use

Pollution Control / Effluent Treatment Part of Factory


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Critical Issues

Only Original Works Completion, Fitting,Alteration, Renovation, Repair & MaintenanceNot covered.

Status of Service Recipient not material Specified Infra Projects covered

Port/Airport/Rail Single Residential Unit Carpet Area Non-Mechanised Food Grain Handling System


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Contd Entry 25. Services provided to Government, a local authority or a

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, sanitationconservancy, solid waste management or slum improvementand upgradation; or

(b) repair or maintenance of a vessel or an aircraft;

Entry 39. Services by a governmental authority by way of any activity inrelation to any function entrusted to a municipality under article 243 W ofthe Constitution.

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What is Governmental Authority set up by an act of the Parliament or a State Legislature; established with 90% or more participation by way of equity or control by Government; and carries out any of the functions entrusted to a municipality under article 243W of the Constitution.

1. Urban planning including town planning.2. Regulation of land-use and construction of buildings.3. Planning for economic and social development.4. Roads and bridges.5. Water supply for domestic, industrial and commercial purposes.6. Public health, sanitation conservancy and solid waste management.

7. Fire services.8. Urban forestry, protection of the environment and promotion of ecological aspects.9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally

retarded.10. Slum improvement and upgradation.11. Urban poverty alleviation.12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.15. Cattle pounds; prevention of cruelty to animals.16. Vital statistics including registration of births and deaths.17. Public amenities including street lighting, parking lots, bus stops and public conveniences.18. Regulation of slaughter houses and ta nneries.
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Contd

Clause 29 h Services by sub-contractor providing services by way of Works Contract to another contractor providing workscontract service which are exempt

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Taxability of Sub-contract ors

VAT Specific Provisions Excise Specific Provisions

Service Tax No specific provisions as such


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Subsequent view of department

In supercession of the earlier circulars, CBE&C,vide circular dated 23-8-2007 has clarified thata sub-contractor is also a taxable serviceprovider.

Builder engages a contractor for construction ,the contractor in his capacity as a taxable

service provider (to the builder / promoter /developer / any such person) shall be liable topay service tax.


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Circular in response to an application made by Jaiprak ash Associates issued in May, 2011 + Circular 147/16/2011

Issues :-a) Applicability of ST on sub-contracts of various nature , when maincontract is exempted /excluded from preview of services.b) Can a principal contractor take responsibility of tax payment and ask sub

contractors not to charge ST ?

Service tax is, therefore, leviable on any taxable services provided,whether or not the services are provided by a person in his capacity as asub-contractor and whether or not such services are used as inputservices.

The fact that a given taxable service is intended for use as an inputservice by another service provider does not alter the taxability of theservice provided.

Services to be independently classified


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Poser

M/s ABC has got a road contract of Rs. 100 Lacs from Govt of Goa. Thework is subletted to M/s CBA. M/s CBA does not charge service tax onthe presumption that work done by sub-contractor still continues to beroad or bridge construction service and hence should be outside theservice tax net.

Service Tax department has levied service tax demand stating that therelationship between the contractor and that of sub-contractor iscommercial in nature.

Will Service tax be levied on the same?


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Services provided in SEZ by sub-contractor to main contr actor

Issue relating to construction service provided sub-contractor in SEZ ismore complicated.

Exemption Notification No. 17/2011-ST dated 1-3-2011 (relating toSEZ) reads as follows

In exercise of the powers the Central Government, - - , herebyexempts the taxable services specified in clause ( 105 ) of section 65 ofthe Finance Act, chargeable to tax under section 66 or section 66A ofthe Finance Act, received by a Unit located in a Special Economic Zone (hereinafter referred to as SEZ) or Developer of SEZ for theauthorised operations, from the whole of the service tax, educationcess and secondary and higher education cess leviable thereon.


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As per second proviso to rule 10 of SEZ Rules amendedw.e.f. 3-2-2009, the exemptions allowed to developer orco-developer will also be available to contractor or sub-contractor appointed by such developer or co-developer.

Thus, services provided to contractors for ultimate useof developer should also be exempt.

However, this proviso applies only in respect of SEZDeveloper and co-developer and not in respect of SEZunits manufacturing or providing services.


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Meaning of received by SEZ Unit or SEZ Developer The notification does not use the words directly

received by SEZ Unit or SEZ Developer. Thus, even ifthe service is provided by sub-contractor, ultimatelyit is received by SEZ Unit or SEZ Developer.

Only one deemed sale and one taxable event evenwhen work is done by sub-contractor

In Larsen & Toubro Ltd. v. State of Andhra Pradesh (2006) 148 STC 616 (AP HC DB)


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Exemptions under the current regime sought to be withdrawn

- Negative Impact on existing exemptions

Sr. No. Pre Negative List Post Negative List

1 Site formation and clearance services were exemptunder Notification 17/2005 on service provided in the

course of construction of roads, airports, railways,transport terminals, bridges, tunnels, dams, ports and

other ports.

All these services henceforth, except when provided to or byGovernment or local authority shall become taxable under service

tax regulations.

2 Services in relation to Construction of Roads not liableto tax.

Construction of private road for factory, residential complex andother private premises is taxable now.

3 Under Airport services exemption was available to allworks contract services performed within airport

premises.

All services provided in the airport which are not for or in relationto the original erection or construction of such airport will

henceforth be taxable.4 Construction of Residential Complex services provided

for "personal use" is presently exempt from Service Taxas exempted in the definition of residential complex.

Under the new regulations, construction of residential complexservices for personal use shall be taxable other than for

government or local authority for its personal use and for MPs,MLAs, constitutional authorities etc.

5 Services in relation to construction of less than 12Residential units are specifically exempt from Tax as

per the definition of residential complex.

It appears that even construction of less than 12 residential unitswill also get covered under the service tax ambit. Regardingexemption for single residential unit otherwise as a part of a

residential complex, no clarity is presently available, asconstruction of residential unit for self use also seems to becoming

taxable.


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6 Under works contract provisionsconstruction in respect of Dam is generally

exempt. Construction of Canal is exemptexcept for the ones primarily used in thecommerce or industry.

Henceforth, construction for or by any non-government entity / person of any Dam or canal

irrespective of its end use would be a taxable event.This may likely to impact industrial townships andlarge plants where canals are required to transport

fresh water, liquids or sewage to and from thefactory / township premises.

7 Notification No. 11/2011 & 10/2011 providesfor exemption of works contract specific

services provided within the port & allservices in airport.

All works which are non-original in nature performedwithin the airport or port shall henceforth become

taxable.

8 Presently Works contract ser vices receiverwas not required to pay service tax under

the reverse charge mechanism

The new regulations would have a major implicationon business entities which engage contract services

from individuals, firms, HUF etc as now suchbusiness entities would also be liable for service tax

compliance.

9 Construction of Non commercial BuildingsHospitals and Educational Institutes for any

one whether government or private wasexempt from service tax

If the construction of such structures if for personsother than for the government or local authority, then

service tax shall be levied irrespective of the enduse of the structure


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Existing Abatements Scheme as per Notification no 01/2006-ST

TAXABLE SERVICES Abatement Taxable

Erection, Commissioning and Installation 67%

33%

Commercial or Industrial Services 67% 33%

Commercial or Industrial Services (incl. Land Cost) 75% 25%

Outdoor Catering Services 50% 50%

Construction of Residential Complex Service 67% 33%

Construction of Residential Complex Service (incl. Land Cost) 75% 25%

Construction of Complex Service (incl. Land Cost) Carpet Area 2000 sq ft and 1 cr 70% 30%

Poser - 8

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Reverse Charge Mechanism ExpandedNature of Service Liability of

ServiceProvider

Liabili ty ofServiceReceiver

Renting or hiring any motor vehicle for passengers 60% 40%

(for Non-abated value)Supply of manpower for any service 25% 75%

Works contract service by an individual/HUF/ proprietary firm/partnershipfirm/association of persons (whether registered or not) to company or

body corporate located in the taxable territory.

50% 50%

Issues :-If the service provider does not charge any service tax in his invoice ashe is unregistered although he is required to under the turnover criteria.

Even if he is registered what if Service Tax is not reimbursible as per thecontract. The question is in a single works contract if the contractee andcontractor choose different schemes for payment of service tax then how

the ratio of 50% will be determined?

What about 10 Lacs exemption limit?

Photocopying and Printing Contracts?

Pure Labour services not covered

Transitional Issues? Advisable to book before 30-06-2012


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Works Contracts Redefined


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Work Contract Composition Scheme

A new valuation rule is being introduced :-

As at present, first determination will be the value of service being thetotal amount charged for the contract reduced by the value of propertytransferred in goods for State VAT purpose;

If value of goods is not intimated to State VAT, the assessees can stillcalculate the actual value of goods and the same will be relevant todeduce the value of the service involved in the works contract;

If the value is not so deduced as per above, the value shall be specified

percentage of the total value as follows:

Poser 2


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Debatable

Actually rule 2A(ii) uses the words 'wherethe value has not been determined' and notwhere value cannot be determined


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Issue

If the declaration give by the dealer is notaccepted by the VAT department in thecourse of assessment proceedings anddepartment asks the dealer to pay VAT on ahigher value, will he be allowed to claimrefund of excess service tax paid on the

contract?


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If my value of Works Contract is Rs.1000 (Material 400 + Labour600). Can we pay service tax on total Rs.1000 and claim excisecredit of input goods or is it compulsory to follow valuationrules - 2a


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Valuation of WCS w.e.f. 01-07- 2012

Where works contract is for Value of the service portion shall be

A) Execution of Original Works 40% of the total amount charged forthe works contract.

B) Maintenance or repair or reconditioning orrestoration or servicing of any goods

70% of the total amountcharged including such gross amount.

C) In case of other works contract notcovered by (A) and (B), including

maintenance, repair, completion and finishingservices such as glazing, plastering, floor andwall tiling, installation of electrical fittings ofan immovable property

60% the total amount charged for theworks contract.

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Valuation of WCS w.e.f. 01-07-2012

"Original works" meansi. all new constructionsii. all types of additions and alternations to abandoned

or damaged structures on land that are required tomake them workable

iii. erection, commissioning or installation of plant,machinery or equipment or structures, whether pre-fabricated or otherwise.

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Valuation of WCS w.e.f. 01-07-2012

Where the value of goods or services supplied free of costis not ascertainable, the same shall be determined on thebasis of fair market value of the goods or services thathave closely available resemblance. Format of Invoice

No CENVAT Credit in respect of duties or cess paid oninputs used in or in relation to the works contract shall beavailed.

In other words, Cenvat Credit of Duty paid on Capitalgoods and Service tax paid on Input services is eligible.

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Sr.

No

Content of Section Taxable

%

Up to 30-06-

2012Effectiverate

w.e.f 01-07-

2012Effectiverate

1 Only Labour NIL 12.36% 12.36%

2 Works Contract 40% 4.944% 4.944%

3 Maintenance Service withoutmaterial

NIL 12.36% 12.36%

4 Maintenance Service with material 70% 12.36% 8.65%

5 Completion and finishing services 60% 12.36% 7.42%

6 Preferential Location Charges, Legalcharges and other charges

NIL 12.36% 3.09% (ifbundled)

Rate Difference w.e.f. 01-07-2012

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Structuring of Contracts

Supply & Installation Supply, Erection & Commissioning

What is the best way to go ?

Notification 12/2003 ST


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Notification 12/2003-STis proposed for deletion

Under the negative list scheme, transactions that involvetransfer of title in goods are excluded. If goods are beingsold by a service provider under a separate contract thensale of such goods is excluded from the definition of

service.

If it is a composite contract and dominant nature of thecontract is that of provision of service then value of goods

cannot be excluded and if the dominant nature is sale ofgoods then the contract is not taxable as service.


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Transfer of Right to use

Transfer of good without transfer of right touse Whether Mutual exclusivity would be possible

AP High Court GS Lamba


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Retrospective Amendmen ts

Rule 6(6A) of the Cenvat Credit rules, introduced last year isbeing given effect from February 10, 2006. This will neutralizethe investigations or demands for reversal of credits in respectof services provided to SEZs for the past.

Repair of roads had been exempted from service tax by Notification24/2009-ST dated 27th July, 2009 . By section 97, exemption relating toroads is extended for the earlier period commencing from June16, 2005;

Service tax exemption has also been granted with retrospectiveeffect on management, maintenance or repair service in relationto non-commercial Government buildings from 16th June, 2005.


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8/20/2014 50

Service tax onBuilders

Construction of complex services


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Construction of complex services


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Chronology of Happenings before the leviabil ity

Karnataka High Court - K Raheja - 2006 Allahabad HC - Assotech Reality 2008 (Set Aside by SC) Advance Ruling Hare Krishna - 2008

Guwahati HC Magus Construction Pvt Ltd 2008 CBEC Circular Dated 29.1.2009


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Construction of Complex

There is no bifurcation between residential orcommercial complex.

Non-taxability for 12 or less than 12 residentialunits is done away with.

Non-taxability for residential units for personaluse is done away with. Police Hsg Case

Hence, construction of each and every unit whether

residential or commercial is taxable.

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Recent Circular No. 151/2/2012 Dt 10-2-2012

Two broad business models in the construction ofresidential complex :-

The undivided share of land (UDS) or the UDS along with a semi finished

structure would first be sold to the flat buyer, which is a transaction ofsale of immovable property. Further, a construction agreement would beentered to construct the flat of specified description between the builderand purchaser.

An agreement to sell the flat will be entered into and the considerationwould be received in instalments. After completion of construction, the flat would be sold and registered in the name of the purchaser.


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Redevelopment Projects

Transaction Issue AnalysisThe builder/developermakes new flats with sameor different carpet area fororiginal owners of flatsand additionally may alsobe involved in one or moreof the following:(i) construct someadditional flats for sale toothers;(ii) arrange for rentalaccommodation or rentpayments for societymembers/original ownersfor stay during the periodof re-construction;

Under this model,thebuilder/developerreceivesconsideration Firstfrom society, whotransferdevelopment rightsover the land Thesecond categoryconsist of buyers offlats other than thesociety/members.Generally, they payby cash.

For the period after01/07/2012, constructionservice provided by thebuilder/developer to both firstsecond category of servicereceivers is taxable in case anypayment is made to the builder/developer before the issuance ofcompletion certificate.


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Investment Model

Transaction Issue AnalysisBefore commencement ofthe project, the same is onoffer to investors. Either aspecified area ofconstruction is earmarkedor a flat of a specified areais allotted to the investors.After a specified period theinvestor has an option toexit with specified interestincome or he can resell thesaid allottment to anotherbuyer or retain flat for ownuse.

What is the nature ofreceipt?

Investment shall be treated as anadvance on which service tax ispayable . If investor exits thanthe builer would be entitled totake credit under rule 6(3) ofservice tax rules. If builder sellsthe flat before issuance ofcompletion certificate, again taxliability would arise.


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Service Tax on GEB, Legal & Other charges:

Transaction Issue AnalysisGEB, legal and othercharges are collected fromcustomers. These arementioned in the saledeed. Legal work is done

by in house team oflawyers. Further, GEB andLegal charges arerecognized as revenue inthe books.

Whether service tax isapplicable on these items?

Liable to tax if notcollected on actual basis

P i f T i f b ild


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Point of Taxation for builders

Deemed service of Sale of Flat

agreement to sale paymentdefined based upon constructionactivity

Would qualify as CSS. Date of advancereceived or date of invoice (demand letter)from date of event specified e.g.completion of first slab..

Issuance of Invoice mandatory

Deemed service of sale of flat payment defined based uponfixed dates

Would qualify as CSS. Date of advance or dateof payment milestone in agreement inabsence of invoice raised in 30 days.

Construction Contract Would qualify as CSS. Date of RA bill if issuedwithin 30 days from date of completion ofservices.

Poser 7a

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Allowability of Cenvat Cr edit

As per new abatement scheme, unlike theerstwhile notification no. 01/2006-ST, CenvatCredit of input services is allowed in most ofthe output services covered in the abatementnotification.

Accordingly, if abatement of 75% is fixed forconstruction of complex, previously no cenvat

credit was allowed; however, now input isbeing allowed against the abated value ofconstruction of complex.

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Illustration

Mr. C is purchaser of a Residential unit worth Rs.1.25 Crore.

Mr. B is Builder/Developer providing Construction

services to Mr. C and charges service tax @ 3.09%on Rs. 1.25 Cr. Mr. A is Contractor providing original works

contract service to Mr. B worth Rs. 75 Lacs andcharge service tax @ 4.944% on Rs. 75 Lacs.

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Contd

Sr.No.

Situation Before 01-07-2012 W.E.F 01-07-2012

1 Mr. A chargingservice tax @4.944% on Rs. 75

Lacs from Mr. B i.e.Rs. 3,70,800

Mr. A will collect Rs.3,70,800 of service tax,utilize cenvat credit of

tax and duties paid oninput services andcapital goods

Mr. A will collect Rs.3,70,800 of service tax,utilize cenvat credit of

tax and duties paid oninput services andcapital goods

2 Mr. B will chargeservice tax @ 3.09%on Rs. 1.25 Cr fromMr. C i.e. Rs. 3,86,250

Mr. B will payRs. 3,86,250/- S. Tax

(-) --- CreditRs. 3,86,250/- pay in

cash

Mr. B will payRs. 3,86,250/- S. Tax

(-) Rs. 3,70,800/- CreditRs. 15,450/- pay in

cash

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IX Challenging the constitutional Validity

Bombay HC in the case of Maharashtra Chamber ofHousing Industry and Punjab & Haryana HC in GSPromoters v. UOI have upheld the validity of theExplanation

Why no service tax to be i

mposed on


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Why no service tax to be i mposed onsale of complex

In BSNL v. UOI [2006] 3 STT 245- SC noted that the sellerand buyer have to be ad idem as to subject matter of saleand purchase

Court need to see what was the intention of the parties If the contract is for sale of immovable property then how

activity to build the same can take a different colour fromthat of the end product

In majority of the cases the buyer has no role in decidingthe design / structure / other parameters related to house

Lets wait and watch the judicial scrutiny by the apex court.

d l d


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Cenvat Credit Related Issues

Definition of Input Service

Input service means any service, - Used for providing an output service / manufacture of final product

and includes services used in relation to modernisation, renovationor repairs of a factory, premises of provider of output service and.

but excludes services, - used for- (a) construction of a building or a civil structure or a part thereof; or (b)

laying of foundation or making of structures for support of capital goods, except forthe provision of one or more of the specified services; or

services are used primarily for personal use or consumption of any employee.

Poser 5


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3.1 Services specifically excluded under clause (A)

If used for construction of a building or a civil structure or a part thereof, or

laying of foundation or making of structures for support of capital goods

* Architect Services [Section 65(105)(p)] * Port Services [Section 65(105)(zn)] * Other Port Services [Section 65(105)(zzl)] * Airport Services [Section 65(105)(zzm)]

* Commercial or Industrial Construction [Section 65(105)(zzq)] * Construction of Residential Complex [Section 65(105)(zzzh)] * Works Contract Service [Section 65(105)(zzzza)]

These specified services will be eligible for Cenvat credit only if used for anyof these Specified Services. e.g. Architect Service will be eligible as input

service if used for Port Service or Construction Service or Works ContractService.

Poser 4


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In such cases, the manufacturer/service provider has following four optionsw.e.f. 1-4-2011

(a) Maintain separate inventory and accounts of receipt and use of inputs andinput services Rule 6(2) of Cenvat Credit Rules .

(b) Pay amount equal to 6% of value of exempted goods/services Rule6(3)(i).

(c) Pay an amount equal to proportionate Cenvat credit attributable toexempted goods / services as per Rule 6(3A) Rule 6(3)(ii)

(d) Maintain separate accounts for inputs and pay amount as determinedunder rule 6(3A) in respect of input services - Rule 6(3)(iii) -

Giving both taxable and exempt services


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Option has to be exercised in respect of all exempted goodsmanufactured and all exempted output services provided.The option once exercised shall not be changed inremaining part of financial year Explanation I to Rule 6(3)

- reiterated in para 2 of CBE&C Circular No. 868/6/2008-CX dated 9-5-2008.


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Meaning of exempted services As per rule 2(e) of Cenvat Credit Rules, exempted services means

taxable services which are exempt from the whole of the service tax leviable

thereon, and includes services on which no service tax is leviable under section 66 of Finance Act

and taxable services whose part of value is exempted on the condition that no credit of

inputs and input services, used for providing such taxable service, shall be taken.

Explanation For removal of doubts, it is hereby clarified that exempted servicesincludes trading [Words in italics inserted w.e.f. 1-4-2011]

Services on which no tax is payable are also exempt services unlike goods.

It has been clarified that export of service will not be treated asexempted service - para 6 of CBE&C Circular No. 868/6/2008-CX dated9-5-2008.


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Calculation of 'value' for purposes of rule 6(3) and 6(3A)

(a) in the case of a taxable service, when the option available under theWorks Contract (Composition Scheme for payment of Service Tax)Rules, 2007 has been availed, shall be the value

(b) in case of trading, shall be the difference between the sale price andthe purchase price of the goods traded or 10% of CGOS which is higher.


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Total amount of Cenvat credit attributable to exempted goods and exemptedservices for the financial year

Cenvat on Inputs used for exempted final products

Cenvat Credit on Inputs used for exempted services (On proportionate basis, based onactual ratio of financial year)

Cenvat Credit on input services used for exempted final products and exempted services(On proportionate basis based on actual ratio of financial year).

Cenvat credit on services specified in rule 6(5), which are exclusively used for exemptedgoods or exempted services

= Total amount attributable to exempted final products and exempted services

Poser 6a


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Payment of amount or reversal of Cenvat credit is not requiredin case the taxable service is provided to SEZ Unit or SEZdeveloper for their authorised operations. These are overridingprovisions irrespective of any provision in rule 6(1), 6(2), 6(3)and 6(4) [Rule 6(6A) of Cenvat Credit Rules inserted w.e.f. 1-4-

2011].


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Cenvat credit on capital goods If capital goods are partlyused for exempted goods and party for dutiable final products,entire Cenvat credit of duty paid on capital goods is available.Cenvat credit of duty on capital goods is not allowable onlywhen it is exclusively used for manufacture of final products[rule 6(4)]


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Computation of additional liability ifabatement is rejected Contract Value

Lets say is Rs. 10 Lacs Out of which Value of own Material used is Rs. 5 Lacs Value of FOC is Rs. 10 Lacs

Can 12/2003 be resorted to in such a case if it isfavourable?


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In following cases CESTAT has allowed benefit ofNotification 12/2003 when abatement was denied Intertouch Metal v. CST Chennai CESTAT

Sobha Developers Ltd v. CCE 5 ST Bangalore CESTAT


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Reverse Effect 12/2003

M/s VPR Mining Infrastructure Pvt Ltd Vs CCE, Hyderabad(Dated: March 29, 2011) :BANGALORE CESTAT.

Service Tax Value of diesel and explosives supplied free ofcost to service provider is includible in taxable value forpayment of service tax.

Benefit of Notification No. 12/2003-ST also not available asthere is no ingredient of sale of goods by service provider

to service recipient Pre-deposit of Rs. 10 crores


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If abatement is taken under Notifications 1/2006, whetherthe assessee is required to adopt the same formula in allthe contracts?

Whether in case of contract where abatement is taken,whether Cenvat credit from services availed in othercontract where abatement is not taken can be utilised?


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Held Yes, in favour of assessee In the case of Mumbai CESTAT BHEL v.

CCE, Nagpur 2012 35 STT 137


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To claim deduction under 12/2003 is itnecessary to indicate the material portionon the face of invoice?


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To claim deduction under 12/2003, the requirement is that invoiceshould indicate value of material. However, even if not shown, stillservice tax is not payable on value of material

In Bharat Sanchar Nigam Ltd . v. UOI (2006) it has been clearly held thatprice of goods cannot be included in value of services.

The aspect theory would not apply to enable the value of service to beincluded in the sale of goods or the price of goods in the value ofservice.

In Imagic Creative Pvt. Ltd v. CCT (2008) 2 SCC 614 = 12 STT 392 = 12VST 371 (SC), it has been held that service tax and Vat (sales tax) aremutually exclusive. In case of a composite contract, Vat cannot beimposed on portion relating to value of service. As an obvious corollary,service tax cannot be imposed on value of material.


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Evolution of Earth Philosopher Doctor Engineer

Tax Consultants


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Non-receipt of Payment

X Pvt Ltd completed the services to the client on 30 th Sept,2011. Final RA bill of Rs.50 Lacs has been raised. Due tosome dispute, payment of only Rs. 10 Lacs was made. Thechances of getting the balance amount is very less.

B d D b


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Bad Debts

Letter No. 341/34/2011 dt. 31 st March, 2011 categoricallystates that bad debts can-not be claimed as adjustments.

If the invoice is renegotiated due to deficient provision oras per change in terms, the tax will be payable on revisedamount. However no concession is available for bad debts

Rule 6(3) of Service Tax Rules.

Amnesty scheme under Service Tax


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Amnesty scheme under Service Tax Scheme applicable for persons who have pending tax dues for tax period Oct ober 2007 to

December 2012, as on 1 March 2013, in respect of which no notice has been issued evenfor the prior period

Benefit would not be available to the assessee who failed to pay taxes after declaring hisliability in the return

Person opting for this scheme would be required to make a declaration of tax dues todesignated authority by 31st December 2013 and pay at least 50% of tax dues by that

date and balance by 30 June 2014

In case amount is not paid by 30 June 2014, it can be paid upto 31 December 2014 withinterest computed w.e.f. 1 July 2013

Proceedings covered by the period of declaration shall not be reopened before anyauthority/court

In case of failure to pay tax dues by specified date or substantially false declaration, thebenefit under the scheme shall not be available and tax dues will be recoverable from theassessee as if the scheme doesn t exist


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They are deciding, what to pay VAT or ServiceTax


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