Valuation w.e.f. 1.7.2012
With the introduction of system of taxation of services based on the negative list there has been no fundamental change in the manner of valuation of service for the purpose of payment of service tax. The broad scheme remains the same barring some marginal changes carried out to align the scheme of valuation of taxable services and the Service Tax (Determination of Value) Rules, 2006 with the new system of taxation.
The manner for determining the value of service portion of a works contract from the total works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006. As per sub-rule (i) of the said Rule 2A the value of the service portion in the execution of a works contract is 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.
Gross Amount
Following table lists out the components of gross amount for valuation of works contacts -
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Gross amount includes
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Gross amount does not include
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Labour charges for execution of the works
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Value of transfer of property in goods involved in the execution of the said works contract.
Note:
As per Explanation (c) to the said sub-rule (i), where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract.
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Amount paid to a sub-contractor for labour and services
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Charges for planning, designing and architect's fees
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Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract
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Cost of consumables such as water, electricity, fuel, used in the execution of the works contract
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Cost of establishment of the contractor relatable to supply of labour and services and other similar expenses relatable to supply of labour and services
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Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract
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Profit earned by the service provider relatable to supply of labour and services
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The manner of arriving at the 'total amount charged' is explained with the help of the following example pertaining to works contract for execution of 'original works'
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S. No.
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Particulars
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Amount (in Rs.)
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1
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Gross amount received excluding taxes
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95,00,000
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2
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Fair market value of goods supplied by the service receiver excluding taxes
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10,00,000
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3
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Amount charged by service receiver for 2 above
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5,00,000
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4
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Total amount charged (1+2-3)
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1,00,00,000
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5
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Value of service portion(40% of 4 above in case of original works)
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40,00,000
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When the service provider pays partially or fully for the materials supplied by the service receiver, gross amount charged would inevitably go higher by that much amount.
In term of Notification No. 30/2012-ST dated 20.06.2012 dealing with reverse charge mechanism, it has been provided that in works contract services, where both service provider and service recipient are the persons liable to pay Service Tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the service provider. taxmanagementindia.com
Rates/Abatements
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S. No.
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Classification
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Description
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Old Rate
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New Rate
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1
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Works contract Service - any work
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Composition Scheme
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4.12%
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4.944% (wef 1.4.2012) [Notification No.10/2012-ST dated 17/03/2012 w.e.f. 01/04/2012 upto 30.06.2012]
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2
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Works contract Service - original work without land
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As per Valuation Rule 2 A
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NA
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4.944% (40% of 12.36%) w.e.f. 1.7.2012
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3
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Works Contract service - original work including land
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As per Valuation Rule 2 A
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NA
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3.09% (25% of 12.36%) w.e.f. 1.7.2012
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4
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Works Contract service - Completion and finishing works
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As per Valuation Rule 2 A
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NA
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7.416% (60% of 12.36) w.e.f. 1.7.2012
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5
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Construction of Complex alongwith land
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Abatement scheme (Notification No. 26/2012-ST)
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2.575% (25% of 10.3%)
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3.09% w.e.f. 1.7.2012
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6
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Construction of Complex without land
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Abatement scheme (Notification No. 26/2012-ST)
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3.399% (33% of 10.3%)
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4.07% w.e.f. 1.7.2012
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7
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Construction of Complex - Completion and finishing
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NA
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10.3%
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12.36% w.e.f. 1.7.2012
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= = = = = = = = = = =
