Rule 2A - Determination of value of services involved in the execution of a works contract - Service Tax (Determination of Value) Rules, 2006

1 [2A. Determination of value of service portion in the execution of a works contract.: Subject to the provisions of section 67 , the value of service portion in the execution of a works contract , referred to in clause ( h ) of section 66E of the Act, shall be determined in the following manner, namely:- ( i ) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods, 3C [or in goods and land or undivided share of land, as the case may be] transferred in the execution of the said works contract. Explanation .- For the purposes of this clause,- ( a ) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract; ( b ) value of works contract service shall include, - ( i ) labour charges for execution of the works; ( ii ) amount paid to a sub-contractor for labour and services; ( iii ) charges for planning, designing and architect's fees; ( iv ) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; ( v ) cost of consumables such as water, electricity, fuel used in the execution of the works contract; ( vi ) cost of establishment of the contractor relatable to supply of labour and services; ( vii ) other similar expenses relatable to supply of labour and services; and ( viii ) profit earned by the service provider relatable to supply of labour and services; ( c ) Where value added tax 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. ( ii ) Where the value has not been determined under clause ( i ), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:- (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; 3G [Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract.] 2 [(B) in case of works contract, not covered under sub-clause (A), including works contract entered into for,- (i) maintenance or repair or reconditioning or restoration or servicing of any goods; or (ii) maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property, service tax shall be payable on seventy per cent. of the total amount charged for the works contract] Explanation 1.- For the purposes of this rule,- ( 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. Explanation 2. -- For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004 .] **************************** Note : 1. Rule 2 (A) has been inserted vide Notification No. 29/2007 dated 22/5/2007 with effect from 1 st day of June, 2007, Further Substituted vide Notification No. 24/2012, Service Tax, dated 6-6-2012 , before it was read as:- 2A. Determination of value of services involved in the execution of a works contract: (1) Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner:- (i) Value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Explanation . - For the purposes of this rule,- (a) gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include,- (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and services; (ii) Where Value Added Tax or sales tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or sales tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under clause (i) 2. Substituted vide Notification No. 11/2014 - Service Tax dated 11th July, 2014 w.e.f. 1st day of October 2014 , before it was read as, (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; 3. Retrospective Amendments in the Rule 2A by the Finance Act, 2017 . Rule 2A as inserted by notification number G.S.R. 375(E), dated the 22nd May, 2007 [29/2007 Service Tax, dated the 22nd May, 2007]. In the Service Tax (Determination of Value) Rules, 2006, in rule 2A, 3A From 1st day of July, 2010 to 30th day of June, 2012 (both days inclusive). (I) in sub-rule (1), in clause (i), after the words value of transfer of property in goods , the words or in goods and land or undivided share of land, as the case may be, shall be inserted; 3B From 1st day of July, 2010 to 30th day of June, 2012 (both days inclusive). (II) after sub-rule (1), the following subrule shall be inserted, namely:- (2) Where the value has not been determined under sub-rule (1) and the gross amount charged includes the value of goods as well as land or undivided share of land, the service tax shall be payable on twenty-five per cent. of the gross amount charged for the works contract, subject to the following conditions, namely: (i) the CENVAT Credit of duty paid on inputs or capital goods or the CENVAT Credit of service tax on input services, used for providing such taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004; (ii) the service provider has not availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/ 2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503(E), dated the 20th June, 2003]. Explanation. For the purposes of this sub-rule, the gross amount charged shall include the value of goods and materials supplied or provided or used for providing the taxable service by the service provider. . . Rule 2A as substituted by notification number G.S.R. 431(E), dated the 6th June, 2012. [24/2012 Service Tax, dated the 6th June, 2012]. In the Service Tax (Determination of Value) Rules, 2006, in rule 2A, 3C From 1st day of July, 2012 onwards. (I) in clause (i), after the words value of property in goods , the words or in goods and land or undivided share of land, as the case may be, shall be inserted; 3D From 1st day of July, 2012 to 28th day of February, 2013 (both days inclusive). (II) in clause (ii), in sub-clause (A), (a) the following proviso shall be inserted, namely:- Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on twenty-five per cent. of the total amount charged for the works contract. ; 3E 1st day of March, 2013 to 7th day of May, 2013 (both days inclusive). (b) for the proviso, the following provisos shall be substituted, namely: Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract: Provided further that in case of works contract for construction of residential units having carpet area up to 2000 square feet or where the amount charged per residential unit from service recipient is less than rupees one crore and the amount charged for the works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on twenty-five per cent. of the total amount charged for the works contract. ; 3F From 8th day of May, 2013 to 31st day of March, 2016 (both days inclusive). (c) for the provisos, the following provisos shall be substituted, namely: Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract: Provided further that in case of works contract for construction of residential units having carpet area up to 2000 square feet and where the amount charged per residential unit from service recipient is less than rupees one crore and the amount charged for the works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on twenty-five per cent. of the total amount charged for the works contract. ; 3G From 1st day of April, 2016 onwards (d) for the provisos, the following proviso shall be substituted, namely: Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract. .