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Back to Back Works Contract under Service Tax Brief Analysis

Back to Back Works Contract under Service Tax Brief Analysis - Service Tax - By: - Monalisa Khuntia - Dated:- 16-7-2015 - Introduction Works contract, as understood in trade, means a composite contract involving both supply of goods and provision of service. As per Article 366(29A) of the Constitution of India, transfer of property involved in goods in the execution of works contracts are considered as deemed sale. The service tax levy on works contract was specifically introduced way back in .....

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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. Service Portion in the execution of Works Contract [Section 66E(h)] It is relevant to note that works contract is deemed to .....

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p; T Ltd. vs CST [2015 (3) TMI 748 - CESTAT NEW DELHI (LB)], is that a works contract can be segregated into a contract of sale of goods and contract of provision of service even before 01.06.2007. This declared list entry has been incorporated to capture this position of law in simple terms. Exemptions under Notification 25/2012-ST dtd 20.06.2012 There are exemptions in the mega exemption notification no. 25/2012-ST dated 20.06.2012, as amended, with respect to the works contract service. Such .....

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1) of the Finance Act, 1994, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service. Therefore, strictly speaking the sub-contractor would be ineligible for the exemption unless they are also independently falling in to any of the specific entry contained therein. However, interestingly mega exemption notification covers entry 29(h). This entry exempts the works contract service provided by sub-contractor to a .....

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other words, the sub-contractor would provide the material and would execute the original contract. We will now see the taxability of back to back works contract. From the VAT perspective, though there is no direct contractual relationship between the sub-contractor and the contractee, the sub-contractor would be liable to pay VAT, by virtue of principle of accretion. It is to be noted that in the case of State of AP vs Larsen & Toubro Ltd. & Ors. [2008 (8) TMI 21 - SUPREME COURT ], Hon .....

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e the whole of the work is sub-contracted on back to back basis, the question arises as to, in the absence of transfer of property in goods involved in the execution of such works contract, from the main contractor to contractee, whether the main contractor is eligible to be called as works contractor. In this regard, recently the Bangalore Larger Bench in the case of Lanco Infratech Ltd. vs CCE & ST [2015 (5) TMI 37 - CESTAT BANGALORE (LB)], held that in such scenario the main contractor ca .....

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