Payment of service tax, Service Tax

[SUNIL BHANSALI]

Fact: A limited company engaged in providing Tower Installation Services by using certain materials which are ultimately transfer to the contractee. As the installation service includes the transfer of property in goods, the company is charging VAT @ 12.5% on 80% of the Gross Amount Charged (Including Material) according to the provisions of DVAT. As per DVAT provisions 20% abatement will be available in case of composit work contract. Further, the company is charging Service Tax after availing 67% Abatement under Nofn.1/2006-ST i.e. service tax is charged on 33% of the Gross Amount Charged. By following the above procedure, company is paying tax (both VAT and Service Tax) on 113% of the gross amount charged. Query: Can the company pay Service Tax on balance 20% of the Gross Amount Charged by following the Notification No.13/2003-CE or Rule 2-A of the Service Tax (Determination of Value) Rules 2006, rather than paying service tax on 33% of the gross amount charged.

Posts / Replies

[Madhukar N Hiregange]

The payment of 20% in our opinion under not.12/2003 is perfectly in order and also in line with the SC judgement in BSNL + Imagic Creative.

[Mukesh Kumar]

You can not jump to rule 2A directly when you are classifying your service under erection commissioning and installation service category. Your proper category of taxable service is "works contract" as appears from the plain reading of query. Once you are falling within the scope of works contract category of taxable service you have the option of paying 4% as ST on composite value. Alternatively, you can deduct the cost of material from the gross value of taxable value. When you are paying VAT on 80%, in view of certain decisions of SC/ HC / CESTAT, I agree with the opinion of Mr. Madhukar N Hiregange that you can pay service tax on 20%. Further, please remember the purpose of the both; rule 2A of valuaiton rules and Notification No. 12/2003 is to exclude value / cost of material from the gross value.

[madhavvan]

your category of service falls under works contract and you cannot avail abatement of 67% it is applicable for other category viz ercetion and installation construction etc. two options are available to service provider of works contract service - (a) Calculate value of service as per rule 2A of Service Tax (Determination of Value) Rules, 2006 (in short 'Valuation Rules) and pay service tax at normal rate @ 10.30% (inclusive of education cess and SAH education cess) on such 'value'. In such case, assessee can avail Cenvat credit of input services, inputs and capital goods. As per rule 2A(1) of Valuation Rules, 'value' 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. (b) Pay service tax under 'composition scheme' at 4.12% of 'gross amount charged for works contract' (inclusive of education cess and SAH education cess), under 'Works Contract (Composition Scheme for Payment of Service tax) Rules, 2007'. As per rule 3(2) of Composition Scheme, the assessee cannot avail Cenvat credit of inputs. Thus, the assessee can avail Cenvat credit of input services and capital goods. If the assessee pays service tax under composition scheme @ 4.12%, he is not entitled to avail Cenvat credit of service tax paid on inputs. It is advisable to pay service tax on entire value of contract including material, after informing department that you will be paying service tax on full value of contract under section 67, without availing benefit of notification No. 12/2003-ST or rule 2A of Valuation Rule. then dept cannot impose penalty or extend period of limitation under 'suppression of facts'.