we are manufactures We are getting bill from our work contractor towards erection fabrication etc, with charging 4% Vat on 33% value of bill amount as well charging 12% service tax on full bill value . Is this correct or 12% service tax should be applicable on 67%( 100-33) of bill value
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In your case, Contractor can not be charge 4% as VAT on 33% value of works contract, he can charge only service tax on 33% value of works contract, subject to condition that contractor should not be availed any Cenvat credit as per Notification 1/2006-ST. Otherwise he can charge 12% service tax on total works contract. Vijay Chitte - Claris Lifesciences Ltd.
works contract is not supposed to charge 4% VAT on 33% of value as 4% must be a composition basis and VAT @ 4% should be paid on total value. However, Service tax is payable on 67% value @ 12.24% with the CENVAT credit of inputs/input services or 2 % under optional composition scheme on the gross value of contract minus amount of VAT/sales tax charged without having any input tax credit.