pgcicai service tax emerging wc
DESCRIPTION
service taxTRANSCRIPT
SERVICE TAX
“Emerging issues” – ‘Works Contract’
Content Taxability
Works Contract – Concept
Taxability
Valuation
Cenvat credit
Issues
Taxability under Negative List ‘Negative List’ regime – most of the ‘services’ are
taxable
Services not taxable only if:-
Sale / deemed sale of goods (moveable / immovable)
Transaction only in money or equivalent
Falling under Negative list
Exempted by notification
Widen tax base and reduce tax litigation
Easy integration with GST
Works Contract - General Contract which involves goods as well as services and
‘goods’ are transferred to the customers
‘Goods’ can be transferred either in the same form or in a different form
Not dependent on quantum of material – may vary from contract to contract
Incidental transfer of goods in predominantly ‘service’ contract – may not be a works contract
Works Contract - Concept VAT – only on transfer of property involved in the
execution of contract
Works contracts could be
Composite / Indivisible
Divisible – value of goods and services
Activity covered – assembling, construction, building, altering, manufacturing, processing, fabrication, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property
Works Contract definition – Service tax
Contract where transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods; and
For the purpose of carrying out
Construction
Erection, commissioning, installation
Completion, fitting out,
Repair, maintenance, renovation, alteration
of any moveable or immovable property
or any other similar activity in relation to such property
Exclusion from ‘Service’ definition
Transfer of title in goods or immovable property
Transfer ‘deemed to be sale’ as per article 366(29A) of the constitution
Tax on sale or purchase of goods - Article 366(29A)(b)
Tax on the transfer of property in goods (Whether as goods or in some other form) involved in the execution of a works contract
Can Service tax be levied on Works contract
Yes, only on value of services
Negative list ………. Trading of goods
Process amounting to manufacture or process of goods
Services by Govt., RBI, foreign diplomatic Mission,
Service relating to Agriculture
Toll charges, renting of residential unit, recognized education, interest on loans, distribution of electricity
Transport of goods / passengers by specified method
State subject – gambling/lottery, entertainment events
Funeral, burial, crematorium or mortuary services
Declared services ………. Construction of complex / building, civil structure
Excludes sale of building (whole or a part) after issuance of completion-certificate by the competent authority
Service portion in execution of a Works contract
Service portion during supply of food
Renting of immovable property
Right to use of “IPR”
Information technology software
Hiring, leasing of goods (without transfer of right to use goods)
Mega Exemption Notf………. Specified works contract for Govt. / Local authority / Governmental
authority
Structure for use other than for commerce or industry
Canal, dam or other irrigation works
Structure for education, clinical, cultural establishment
Construction / repair of Infra projects including
Road, bridge, tunnel etc. for general public
Building owned by Section 12AA entity for religious use
Construction etc. (original works) of
Airport, port, railways, metro rail
Works contract services of Sub-contractor provided to another contractor whose services are exempt from service tax
WC - Valuation of Services 1st method
Gross amount charged for execution of contract
Exclude - Value Added Tax / Sales tax
Include - Value of service includes labour charges, amount paid to sub-contractor, planning, designing, hire charges for machine / tools, consumables, establishment cost, similar expenses, profit earned (for labour and services)
Exclude – Actual value of goods method adopted for the purpose of payment of state VAT
Regular scheme under State VAT - Not abatement / Composition
WC - Valuation of Services 2nd method - Where the value has not been determined under 1st
Gross amount charged for execution of contract excluding VAT
Original Works contract – 40% of the Contract value
All new construction,
Erection, commissioning installation of equipment, Plant, machinery
Addition / alteration to abandoned structure
Other works contract – 70% of the contract value (repair of goods, maintenance/repair or completion services for immovable property)
Scheme opted under VAT
Regular scheme under VAT - 1st method applicable
Composition / Abatement - 2nd method applicable
Method under Service tax Not an option – dependent on VAT
Place of provision ………. General rule – location of service receiver
Repairs, re-conditioning of ‘goods’ – location where services are actually performed
Directly in relation to immovable property (located / intended to be located ) – location of property
Implication on Import / Export of services and services provided from / received in Jammu & Kashmir
Point of taxation ………. Continuous supply of service
Service portion in execution of works contract
Services to be provided exceeding 3 months
Advances received – Date of receipt of advance
Invoice issued within 30 days from date of completion of specified event which entitle payment from client – Date of Invoice
Otherwise completion of service (event)
Cenvat Credit – Customer Input service excludes
Service portion in the execution of works contract and construction services used for
Construction of building or civil structure
Laying of foundation / structure for support of capital goods
Establishment in taxable and non-taxable territory of the same entity to be considered as different
Eligible only if customer engaged in provision of above specified services
Cenvat Credit – Contractor Input excludes
Any goods used for construction or execution of works contract
Construction of building or civil structure
Laying of foundation / structure for support of capital goods
Establishment in taxable and non-taxable territory of the same entity to be considered as different
Only goods used in execution of service portion of works contract are eligible for Cenvat Credit
Cenvat Credit – Control Inputs – part of ‘Goods’ – VAT applicable
Contractor – No cenvat credit
Customer – No cenvat credit (break in chain)
Goods procured directly – No (only if capital goods)
Inputs – Not part of ‘Goods’ – VAT not paid
Contractor – Eligible to take cenvat credit
Customer – converts into input service
Input services
Contractor – all input services including works contract
Customer - Restriction under input service – works contract
Threshold exemption Aggregate value of taxable services upto Rs 10 lacs
No service tax
Value of taxable services to exclude
Value of goods
Value of exempt services
Reverse charge Service portion in the execution of works contract services
provided by
Individual
HUF
Partnership firm (including LLP)
Association of persons
by Aggregate value of taxable services upto Rs 10 lacs
No service tax
Received by business entity registered as body corporate
Provider / recipient to pay 50 : 50 Service tax
Works contract issues Classification of contract as Works contract
Deduction for value of goods
Reverse charge for service receipient
Cenvat credit to receiver of services
Even though regular scheme under VAT
Service tax charged generally on total value of the contract to avoid sharing of goods replaced details with customer
Project eligible for exemption
Cenvat credit – Rule 6 (3) for goods supplied
Emerging issues From 01/10/2014 Interest rate 18, 24 and 30% p.a. as per delay
6, 12 and beyond 12 months
Pay and litigate
First Stage Appeal before Comm. (Appeals) / CESTAT
Pay 7.5% of total service tax demand
Earlier discretion of Commissioner (A) / CESTAT
Second Stage Appeal before CESTAT
Pay 10% of total service tax demand
Presently discretion of CESTAT
Pending appeals / stay applications to be governed by existing law (till enactment of finance bill – appeal files before 6th Aug’ 2014)
