Presentation Transcript

1. Negative IMPACT ONWorks contracts By Mr. Ravi Mansaka ACA, CS, BCOM Service Tax – Works Contract Services September, 2013
2. Service Tax – Works Contract Services – By CA Ravi Mansaka Introduction to wcs FINANCE ACT, 2012
3. Introduction– WCS under Negative Era Fundamental change in Scope of Works Contract Service: WCS listed as ‘Declared Service’ Scope extended to Moveable Properties also Substitution of Valuation Rule 2A Composition Scheme : Scheme Deleted but Concepts Remain Notification No. 24/2012 Dated 20.06.2012
4. Works Contract – A Declared Service Section 66E of Finance Act, 1994 inserted by Finance Act, 2012 Finance Act listed the “Service portion in execution of Works Contracts” as a “Declared Service” Amply covered in the Definition of “Service” u/s 65B(44) itself However defined as “Declared Service” to remove the ambiguity for uniform application of law all over the country
5. Definition "works contract" means a contract – wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;
6. Works Contracts ?? Labour & Service Works Contract Transfer of Property in goods Consumption Goods Contract involving transfer of property in goods along with consumption of services
7. Contract is leviable to tax as sale of goods It must be noted that here the words which are used are “leviable to tax as sale of goods’, therefore, it is not necessary that VAT have been actually paid on the transfer of property involved in such contract. It is enough if transfer of property is leviable to tax as sale of goods for determining whether such contract is a works contract or not.
8. Type of Contracts – Scope
9. Expansion of Scope Earlier Applicable to construction related activities only Now scope expanded to include – Movable Properties also Examples: Authorised Service Station Service Repair & Maintenance Service AMC which includes material component Pure labour contracts – Outside the ambit
10. Reverse charge MECHANISM Works Contract Services Sept 21, 2013
11. Reverse Charge Mechanism Notification No. 30/2012 – ST Dated 20.06.12 RCM extended to Works Contract Services 50% of tax to be paid by Service Provider & 50% by Service Receiver Subject to specified conditions
12. Reverse Charge – Summary
13. Valuation under Reverse Charge the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service. the invoice raised by the service provider would normally indicate the abatement taken or method of valuation used for arriving at the taxable value. however, since the liability of the service provider and service recipient are different and independent of each other, the service recipient can independently avail or forgo an abatement or choose a valuation option depending upon the ease, data available and economics.
14. Reverse Charge – Small Service Provider ?? how the reverse charge mechanism works where the service provider is a Small Service Provider claiming exemption upto Rs. 10 lacs In such a situation, scheme of reverse charge would not change and accordingly, service provider is not liable for service tax on 50% portion whereas service receiver has to pay service tax on remaining part which he is obliged to pay under partial reverse charge mechanism.
15. Valuation Works Contract Services Sept 21, 2013
16. Rule – 2A of Service Tax (Determination of Value) Rules, 2006
17. Regular Scheme Value of works contract service = Gross Amount Charged [GAC] (-) Value of Transfer of Property in Goods Exclusions from GAC: Value Added Tax or Sales Tax, paid or payable, if any. Inclusion in GAC: labour charges for execution of the works; amount paid to a sub-contractor for labour and services; charges for planning, designing and architect’s fees; charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; cost of consumables such as water, electricity, fuel used in the execution of the works contract; cost of establishment of the contractor relatable to supply of labour and services; other similar expenses relatable to supply of labour and services; and profit earned by the service provider relatable to supply of labour and services;
18. Value of Transfer of Property in Goods Where VAT or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.
19. Composition Scheme
20. Meaning of Relevant Terms
21. Example: XYZ Ltd. has entered into a contract for construction of a building with ABC Constructions Ltd. (ACL). As per the agreement, the amount payable (excluding all taxes) by XYZ to ACL is Rs. 1,95,00,000 in addition to the steel and cement to be supplied by XYZ for which it charged Rs. 5,00,000 from ACL. Fair market value of the steel and cement (excluding VAT) is Rs. 10,00,000/-. The total amount charged pertaining to the said works contract for the execution of ‘original works’, shall be computed as under :
22. Example - ......continued..
23. POINT OF TAXATION Works Contract Services Sept 21, 2013
24. POT – For Service Provider Works Contract Services defined as “continuous supply of services” – POT Rules, 2011 Notification No. 4/2012 Dated 17.03.2012 provides that the ‘point of taxation’ in case of continuous supply of service shall be determined in the same manner as provided for services other than continuous supply of services. However, for this purpose, where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.
25. POT – Service Provider – Summary
26. POT – For Service Receiver Point of Taxation of service receiver governed by Rule – 7 of POT rules According to the said rule, the POT in relation to service receiver would be the date of payment to service provider subject to the condition that payment has been made within six months from the date of invoice.
27. Cenvat credit Works Contract Services Sept 21, 2013
28. Explanation 2 to Rule 2A In relation to Inputs – Not Available In relation to Input Services & Capital Goods – Available CENVAT to Service Receiver against partial reverse charge liability – Not Available, payment to made only in CASH Service Receiver can claim credit of tax paid under partial reverse charge mechanism on the basis of challans Above provisions are applicable under both schemes
29. Example: (Sept. 2013 – Month) A Builder Company sales flat and receive advance of Rs. 20 lacs. He receive following bills from different service providers : From Architect – Rs. 1 lacs – Service Tax Rs. 12360/- From Individual Works Contractor – Rs. 10 lacs – Service Tax – 24720/- (i.e. 10 lacs x 40% x 12.36% x 50%) However, builder has made payment of Rs. 12 lacs to the Contractor and no payments are made to architect yet. Compute the liability??
30. Solution: Output Service Tax Liability – Rs. 61,800/- (i.e. 20 lacs x 25% x 12.36%) Less: CENVAT Credit Rs. 37,080/- Architect Bill – 12360/- Contractor Bill – 24720/- Net Output Liability Rs. 24,720/- Liability under RCM (on payment basis) Rs. 29,664/- (Rs. 12 lacs x 40% x 12.36% x 50%) Above liabilities are to be discharged by 5th Oct. Credit of Rs. 29,664/- would be available in the month of Oct. 2013 on the basis of challan against the Output Liability of that month and not against the RCM liability for that month
31. Service Tax on Cancelled Contracts According to Section 66B of the Act, service tax would be payable on services ‘provided or agreed to be provided’ in the taxable territory. Accordingly, advance retained or forfeited by service provider in the event of cancellation of contract by the service receiver become taxable as these represent consideration for a service that was agreed to be provided. Further, an amount is received in settlement of dispute may also be taxable if the dispute itself pertains to consideration relating to service. For example the amount may represent payments for an executed works contract in dispute then it would be a part of consideration for such works contract service.
32. WCS by Sub-Contractors Entry No. 29 (h) of Mega Exemption Notification No. 25/2012 Dated 20.06.2012 provides exemption to sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt.
33. WCS by Sub-Contractors Any Service, other than Works Contract Service provided to principal contractor providing exempted works contract service are not exempted For example, architect service provided to exempted works contract service provider are not exempted Further, pure labour services provided to exempted works contract service provider are not exempted as the same are not works contract services
34. WCS provided by Government, Government Authority WCS provided by Government or Government Authority – Not Covered under Negative List, accordingly liable for tax In other words, when works contract services are provided by Government or Local Authority to business entities service tax would be payable unless otherwise such activity or transaction is exempted or not taxable otherwise. However, Govt departments are not liable for registration as the tax would be paid by service receiver where the same is a ‘business entity’
35. exemptions Works Contract Services Sept 21, 2013
36. WCS provided to GovernmentEntry No. 12 to Mega Exemption Notification services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of - a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958;
37. a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; canal, dam or other irrigation works; pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or 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. (The persons specified in Explanation 1 to clause 44 of section 65B are such as MP, MLA, etc.) WCS provided to GovernmentEntry No. 12 to Mega Exemption Notification
38. WCS – Exemptions Entry No. 13 – Mega Exemption Notification Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,- a road, bridge, tunnel, or terminal for road transportation for use by general public; a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv AwaasYojana; 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; 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.
39. Construction of Roads Earlier, construction of roads, whether are meant for general public or otherwise were exempt from service tax. However, under new provisions, the construction of road meant for general public only is exempt. In other words, construction of road in a factory, premises, complex or township is not exempt from service tax.
40. Entry No. 14 – Mega Exemption Notification Services by way of construction, erection, commissioning, or installation of original works pertaining to,- an airport, port or railways, including monorail or metro; a single residential unit otherwise than as a part of a residential complex; 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 the Ministry of Housing and Urban Poverty Alleviation, Government of India; post- harvest storage infrastructure for agricultural produce including a cold storage; or mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.
41. Meaning of Certain Terms “residential complex” means any complex comprising of a building or buildings, having more than one single residential unit. ‘A single residential unit’ means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family.
42. Time for Discussion ??
43. Time for Discussion ?? Whether printing activity is a ‘works contract’? Printing both on textile & paper has been held to be a “works contract’ under sales tax law. However, service tax may not be applicable on printing activity as – Where printing is done on job work basis - Carrying out an intermediate production process as job work in relation to agriculture, printing or textile processing is exempt – Entry No.  30(a) of Mega Exemption Notification Where printing is done with material (i.e. Bills, invoices, letter heads, etc.) – Activity amounts to manufacture and any process amounting to manufacture or production of goods is not taxable service – Clause (f) of Negative List u/s 66D
44. Time for Discussion?? Whether photography is a works contract Service? Photography is ‘manufacture’ as new and identifiable product comes into existence. In fact photograph is an excisable goods covered under central excise tariff heading 49119100. Therefore, not liable for service tax at all.
45. Time of Discussion?? Pest Control Services – Not a works contract even though it includes material as well as labour because as the chemicals get consumed during the process. Property in the chemicals does not get transferred to the customer. Cleaning Services – Not a works contract, above concept also applicable on cleaning Tyre Retreading – It may be a works contract service as the retreading requires some material during the course of process
46. Time for Discussion?? Works Contract Services provided to Rajasthan Housing Board – Taxable or Not?? As per Rajasthan Housing Board Act, 1970, RHB is a body corporate and deemed to be local authority. Therefore, works contract services provided to RHB being a ‘local authority’ may not be liable to service tax because of exemption. However, where the RHB get the construction work done for its business i.e. Sale of houses, it is not exempted and accordingly, liable to tax.
47. THANK YOU Presented by : CA Ravi Mansaka 434, Triniti Mall, Swage Farm, New Sanganer Road, Sodala, Jaipur Mobile/Phone: 91 9829753254, 0141 2297330 Email: ravimansaka@gmail.com