Valuation in works contract and other issues requiring more clarity after provision of Reverse charge in Service Tax in Budget 2012

[R.S. Mangal]

In the Budget 2012, a new scheme is proposed to be introduced to collect tax from service recipient also. where the service provider is either an individual or a firm or LLP and the recipient is a body corporate. The three services and the portion of tax payable are as follows:

l. No.	Description of service	Service recipient	Service provider
1.	Hiring   of   a   motor   vehicle   designed   to carry passengers: (a) with abatement (b) without abatement	100% 40%	NIL 60%
2.	Supply of manpower for any purpose	75%	25%
3.	Works contract service	50%	50%

• Further in extreme situations the small service provider is also being allowed the refund of unutilized Cenvat credit if any, available with him.
• Further Valuation Rules have been reformulated in Works Contract service  as     per following options sequence wise--

1. Firstly the valuation will be total amount of consideration  minus value of property transferred in goods for State VAT purpose;
2. Secondly, if the valuation is not possible from first option, then valuation will be

                               = Total Value minus the actual value of goods;

                 3. Thirdly if the value is not so deduced, and not merely as an option, the value shall be specified percentage of the total value as follows:

1. for original works: 40% of the total amount;
2. other contracts: 60% of the total amount;
3. c.       for contracts involving construction of complex   or building for   sale where any part of the consideration is received before the completion ofthe building: 25% of the total amount   

Aspects requiring more clarity-

1. Thus it appears that the ( iii )option of abatement is available only when first two options can not be exercised. For service recipient, it will be very difficult as to which option of valuation would be exercised for valuation as it appears the option of valuation in works contracts services  is be exercised sequentially.  It appears doubtful as to whether the service provider can straightway claim the option of paying service tax on abated amount of 40% or 60% or 25% as the case may be as language of budget proposal expressly speaks that if the value is not so deduced in first two options, and not merely as an option, the value shall be specified percentage of the total value. Therefore, it appears that there will be practical difficulty at the paying tax by service recipient about the method of valuation and the figures for actual value of goods  sold. It will be more appropriate if the option third i.e. of abatement be made optional as was available to the assessee presently.

2.   Though the Govt intends to allow refund for unutilized cenvat at the end of small provider. The word small provider is not clear, whether it means a service provider having a taxable turnover of less than Rs 10 lacs. The SSI service recipient would be exempted for paying tax on his portion of amount then how he would be eligible for refund of Cenvat. The word small provider may made clear. The getting of refund of unutilized cenvat will be very difficult for small provider particularly when the systems of department in refund allow ability is negative one.