SERVICE TAX TERMINOLOGY – PART-VIII - Works Contract

[Dr. Sanjiv Agarwal]

 According  to section 65 (54), as inserted by the Finance Act, 2012,  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 movable or immovable property  or for carrying out any other similar activity or a part thereof in relation to such property.

Works contract has been defined in section 65B of the Act as 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 movable  or immovable  property  or for carrying out any other similar activity or a part thereof in relation to such property.

Typically every works contract involves an element of sale of goods and provision of service. In terms of Article 366 (29A) of the Constitution of India transfer of property in goods involved in execution of works contract is deemed to be a sale of such goods. It is a well settled position of law, declared by the Supreme Court in BSNL‘s case [2006 (3) TMI 1 (SC)], that a works contract can be segregated into a contract of sale of goods and contract of provision of service. This declared list entry has been incorporated to capture this position of law in simple terms.

Labour contracts do not fall in the definition of works contract. It is necessary that there should be transfer of property in goods involved in the execution of such contract which is leviable to tax as sale of goods. Pure labour contracts are therefore not works contracts and would be leviable to service tax like any other service and on full value.

The phrase used is ‘works contract’ and not work contract. ‘Works’ has a defined and accepted legal meaning. As per Black’s Law dictionary ‘works’ means ‘buildings or structures on land’. Moreover works contract has been defined in the Act as contract for carrying our specified activity, like construction, erection, commissioning, installation, completion, fitting out, improvement, repair, renovation, alteration etc., or a part thereof in relation to any building or structure on land. Therefore contracts which do not pertain to building or structures on land would be out of the ambit of works contracts.

Such contracts would be treated as works contracts if –

• Transfer of property in goods is involved in such a contract; and
• The machinery ,equipment  or structures are attached or embedded to earth after erection,  commissioning or installation.

Works contracts would cover the carrying out of the  following activities-

(i)  construction

(ii)   erection

(iii)  commissioning

(iv)  completion

(v)   fitting out

(vi)  repair

(vii)  maintenance

(viii)  renovation

(ix)  alteration, or

(x) any other similar activity or part there of .

such activities could be in relation to any –

(i)   movable property (plant, machinery, equipments etc)

(ii)  immovable property (land, building, structures etc)

This definition is very vast and covers almost every thing.

Original works’ means :

• all new constructions;
• all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

 

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