Work Contract Service, Service Tax

[sunil jain]

Pl clarify wheher following services would be covered in "Works Contract Service"[WCS] as per new definition in clause 54 of sec 65B.

a.Gift wrapping (as paper etc cost included)

b.Packing service( as paper & small materia cost included)

 c. Tailoring services (as thread, lining, button is included in cost of tailoring charges)

d.Interior decoration services( as fabric, blinds cost is included)

The items like fabric etc is subject to VAT.

The definition of works contract as per clause 54 is

"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 moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

The work covered in r/o movable property is mainly repair, maintennace as construction, erection etc are relevant for immovable property and not for movable.

Hence, kindly clarify whether above service provided or recd would be in WCS as in such case liability would arise on reverse charge basis.

R.K. Aggarwal

Posts / Replies

[Mahaganapathi V]

Sir

To understand what is works contract first - the activity of combining material and srvice in one item to form a new item sold as package and this includes immovable items also. if after the sales, the product can be sold seperately after removing some of the covers, pakages, attachements etc then it cannot be termed as works contract service.

In any works contract, the volume of material and service portion plays a dominant % so that it becomes complecated to identify the worth of material and service respectively. For this purpose only the abatement method is followed inorder to siplify the computatuion.

with the above simple understanding, the anwers to the questions are as follows

a.Gift wrapping (as paper etc cost included) 

not a works contract - sale of wrapper to be billed seperately and supply of service to be billed seperately

b.Packing service( as paper & small materia cost included)

As answered for a above since packing material comes udner vat.

c. Tailoring services (as thread, lining, button is included in cost of tailoring charges) - If the garment is supplied as finished product it comes under excise and vat. minor consumables as given in the question cannot be construed as works contract. One can decide based on the benefit of tax whether to pay service tax for the entire billing or to seperate consumables under vat and balance under service tax.

d.Interior decoration services( as fabric, blinds cost is included) - comes udner works contract since this is already covered under construction service

FYI not all the works contracts are falling under the reverse charge category.

Regards

Mahaganapathi.V.,

Chartered Accountant

 

[vijay kumar]

To attract service tax under works contract, there should be a contract. A contract, as per the indian Contracts Act, 1872 means an agreement enforceable by law. In your case, it is not mentioned whether any contract is involved, in the first place. If there is no contract, the question of levy of service tax does not arise. Secondly, it has to be seen whether there is transfer of property leviable to VAT. Thirdly, it has to be for the kind of activiites specified, whether related to movable or immovable property. The phrase 'of any moveable or immovable property' in the definition of WC signifies that the activity should comprise of transfer of such property. In the first three cases mentioned by you ie.. gift wrapping, packing and tailoring, the involvement of any moveable or immovable property is not seen. Packing forms an inherent part of the cost of the product, whether from excise or VAT point of view, to make it marketable. hence the packing cost gets included in the value of the goods for the purpose of payment of excise duty. Tailoring is essentially a service activity and does not fall under works contract. Of course, interior decoration service in respect of a property, if combined with supply of material involving VAT, is a works contract since it is 'in relation to such property'. As far as reverse charge is concerned, it is attracted only when the service provider is an individual, HUF or partnership firm and the receiver is a body corporate (refer notification no 30/2012).