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Works Contract, Service Tax

Issue Id: - 118004
Dated: 22-6-2022
By:- Rushi Upadhyay
Works Contract

  • Contents

Respected Members,

I have a query w.r.t. works contract service.

As per amendments in Mega Exemption Notification No. 25/2012-ST, works contract entered into after 01.04.2015 is not exempted as Sr. 12 (a)(c) and (f) was omitted. However new Sr. No. 12A was inserted with retrospective amendment from 01.03.2016 and work order entered into prior to 01.04.2015 was made exempted again.

Now the issue is my client has entered in sub-contract and sub-contract was entered into after 01.04.2015 but main contractor was allotted the work in 2014 only and we have claimed the exemption vide Sr. No. 29(h) of mega exemption notification which interealia reads as under:

‘29. Services by the following persons in respective capacities –

(h) sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;”

and therefore argument was putforth that when the main contractor is exempt than sub-contractor would also get exempted and it does not affect the taxability on the part of sub-contractor even contract of sub-contract with main-contractor is entered after 01.04.2015.

I am searching for case laws where similar situation was occurred but not able to find the same.

Any of the member can help would be highly appreciated.

Thanks in advance.

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Posts / Replies

Showing Replies 1 to 6 of 6 Records

1 Dated: 22-6-2022
By:- Amit Agrawal

Interesting situation!

Just wish to share some preliminary thoughts:

If I understand correctly, main-contractor was not exempt on his work-contract services provided during FY 2015-16. Is this correct? What I am really asking is how new Sr. No. 12A of mega exemption covers the subject services provided by the original contractor during FY 15-16.

If I understand correctly, your client / sub-contractor has entered into contract with the main-contractor on or after 01.04.2015 and started providing his works contract services during FY 15-16? Is this correct?

An if above holds true, can Sr. No. 29(h) of mega exemption notification can really help the sub-contractor when original contract got exempted only for partial period (i.e. prior to 01.04.2015 and on or after 01.04.2016, but not for services provided during FY 15-16)?

Lastly, what is period for which demand is raised upon the sub-contractor?

2 Dated: 22-6-2022
By:- Rushi Upadhyay

Dear Amit Sir,

Recently you may have faced the situation where in Service Tax department has issued the noticees based on the third party data received from the Income Tax department.

Demand was raised from the period from 2014-15 to 2016-17.

Now the situation is main contractor has entered into contract with government in 2014 and that work is ongoing so by reading the mega exemption notification that work is exempted vide sr. no. 12(a).

Sr. No. 12(a) was omitted w.e.f. 01.04.2015. So those contract which were ongoing has two situations. One is exempted berfore that and taxable after that. So there was chaos and that exemption was reinserted through Sr. No. 12A w.e.f. 01.03.2016 and adititonaly it was given that exemption is available to those contracts which are entered before 01.04.2015.

So, work order issued to main contractor was before 2015 and exempted.

Now, issue with my client is that main contractor provided some work to him during 2015-16 and he was under impression that whatever work he was undertaking is not liable to service tax and he was not registered with department as apart from this contract there were many contract which was undertaken by him and exempted also even adjudicating authority has dropped almost 95% demand but confirmed the demand in some of the contracts in like situation which we are discussing now.

Now, Sr. 29(h) comes into play wherein it is clearly mentioned that when main contractor is exempt than sub contractor is also exempt. So my view is that my client is also exempted from service tax as main contractor has entered into contract well before 01.04.2015 and it is exempt from service tax.

I hope now you have the clear picture.

3 Dated: 22-6-2022
By:- Amit Agrawal

Thanks for the clarity!

I am afraid that wordings of Sr. No. 12A of mega exemption does not cover the period of work-contract services provided by main contractor during the period from 01.04.2015 to 28.02.2016. This is more so when it is settled law that benefit of doubt goes to Revenue in case of interpretation of any exemption notification.

To overcome above, I further studied the given situation and I found Section 102 of the Finance Act, 1994 (32 of 1994). Presuming that main-contractor was eligible for relief under said Section 102, you got a decent case of defend, both on merits and time-limitation.

With regards to non-discreet SCNs (without any prior investigation and without giving any opportunity to explain your position before SCN, purely based on data from income-tax dept etc.), you got additional grounds of legal defenses as well.

I wish you all the very best!

All above are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

4 Dated: 22-6-2022
By:- Amit Agrawal

In continuation of my last post:

Sr. No. 29(h) of mega exemption notification does not have the requirement that agreement between sub-contractor and main contractor should be before 01.04.2015.

While it is settled law that exemption notifications needs to be read strictly, this principle also means, in my view, that Revenue cannot deny exemption by reading into such notifications and putting non-existent requirements / conditions to claim the exemption.

Similarly, while it is also settled law that benefit of doubt goes to Revenue in case of interpretation of any exemption notification, I am of the view that, there is no doubt whatsoever for the issue under discussion in this post w.r.t. Sr. No. 29(h) of mega exemption notification.

This is more so if one notice changes brought by Sr. No. 12A in mega exemption notification taking care of period from 01.03.2016 onwards, read with Section 102 in the Act dealing with the interim period from 01.04.2015 to 28.02.2016, but NO changes were brought in Sr. No. 19 (h).

This was because, in my view, no changes were required in said Sr. No. 29 (h) to give the relief from service tax to the sub-contractor in given situation (i.e. where main contractor had entered into agreement prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date).

All above are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

5 Dated: 23-6-2022

Sh.Rushi Upadhyay Ji,

Are you 100 % sure that sub-contractor provided works contract service (as per definition of works contract service ) to the main contractor ? Pl. confirm so that my efforts for tracing out case law in your favour should not end in smoke.

I also agree with you to the effect that the date of execution of contract is not relevant after restoration of exemption.

6 Dated: 23-6-2022
By:- Rushi Upadhyay

Yes sir 200% sure.


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