We are engaged in executing Water Pipe Line projects awarded by Government of Maharashtra and as per section 65 (25b) of the Finance Act, 1994 the work done by us is exempt from Service Tax. But the work done by Sub Contractors who working under us on such project are leviable for Service Tax and we are paying them the service tax charged by them in the bills. This means, we are indirectly paying service tax on the work done by the Sub Contractors on the Govt Projects awarded to us. In such situation, whether the Service Tax paid through the Sub Contractors can be claimed for refund ? If so, what shall be the procedure ?
For N.V.Kharote Constructions Pvt Ltd.
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Sub-Contractors are not exempted from charging of service tax. This has been clarified by the Department in a recent circular/notification.
when the particular work is exempted from service tax , even the service provider sub condractor is also
eligible for exemption. .yr out put tax may become input tax to the vendor hence not eligible for reimbursement. tks
Respected Shri Pradeep khatri,
Will you please forward me the recent circular / notification in respect of Exexption of Serive Tax ?
Services provided by subcontractors/consultants are classifiable as per section 65A: CBEC. CBEC has clarified that the services provided
by the subcontractors / consultants and other service providers are classifiable as per Section 65 A of the Finance Act, 1994 under respective sub clauses (105) of Section 65 of the Finance Act, 1944 and chargeable to service tax accordingly. The Central Board of Excise and Customs (CBEC) has said infrastructure sectors such as dams, roads and tunnels will be liable to service tax if projects are executed through the sub-contracting route.
Clarifying its stand, the CBEC said, “Sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by sub-contractor.” This essentially means the 10.3% service tax will continue to be applicable to sub-contractors.
The works contract service (WCS) in respect of construction of dams, tunnels, road, and bridges is exempt from service tax. WCS providers engage sub-contractors who provide services such as architects, consulting engineers, construction of complex service, design, erection commissioning or installation, management, maintenance or repair, among others.
In a representation, Jaiprakash Associates had sought to extend the benefit of such exemption to the sub-contractors providing various services to the WCS provider, arguing that the service provided by the sub-contractors are ‘in relation to’ the exempted WCS and hence they deserve classification under WCS itself. Jaiprakash Associates moved the Delhi High Court, which referred the matter to the competent authority in February this year.
Industry feels that with the CBEC’s reiteration of its stand, the large developers will continue to bear the additional liability. M Murali, director general, National Highways Builders Federation, said, “A repercussion in the range of at least 6-8% on the cost of the projects is seen owing to this. In build, operate and transfer project, the developer will not have the capacity to implement the entire project on his own. There are many aspects to an infrastructure project like deign, architecture, equipment procurement, which have to be arranged only through sub-contracting.”
Dharmesh Panchal, executive director, PricewaterhouseCoopers, said CBEC has rightly clarified that individual services provided by various sub-contractors for infrastructure projects such as road, dams, etc will be taxable if they are classified under categories other than commercial or industrial construction services and WCS.