TMI Blogservice taxX X X X Extracts X X X X X X X X Extracts X X X X ..... In residential complex service, if the builder has paid service tax under partial reverse charge for works contract provided by the contractors on the advice of departmental audit and the department has accepted the same then how far is the department correct in demanding proof of material purchased and the proof of VAT paid by the contractor while discharging the remaining 50% of tax liability by the contractors under reverse charge. The fact of the matter is that the builder was paying tax on residential complex service and it is in the common knowledge of every one including the department that the builders engage contractors for supply of materials as well as service but till the time of this audit neither the department nor the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r audit ever pointed out the builder or the contractor regarding their liability of paying service tax. Hence, they were unaware of any additional payment of service tax other than the tax they were paying on the residential complex service. Since the contractors were not aware of the service tax rules, they simply purchased building materials from the market and with the help of manpower completed the required job of construction of residential complex of the builder without maintaining any records thereof, more so, because their payment was based on the measurement basis which did not require them to maintain records.There was no formal work orders. every thing was verbal. Therefore, no ill intention on the part of contractor can be attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibuted in the present case for not keeping any record of material purchased. Moreover, as at every stage credit was available to the contractor as well as to the builder, in ultimate analysis, the government exchequer was also not in loss. There is no dispute regarding construction of residential complex and therefore, the use of building material and its vat able nature also cannot be disputed which is in line with the definition of Works contract. The department's contention is that if the contractors do not produce the purchase documents and proof of payment of VAT then they will have to pay tax on the full value. How far is department's contention of not agreeing to grant works contract status of the construction work done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the contractor correct in view of the fact that the builder has already paid 50% duty under reverse charge on the same service i.e works contract on the basis of departmental audit? Can tax be charged under reverse charge at the end of builder and at full rate at the end of contractor for the same service? If not, what would be the way out? - Reply By Ganeshan Kalyani - The Reply = The reverse charge is applicbale if the provider of service is individual, HUF, Firm and the recipient is a body corporate. I hope this considiton satisfies in your case. The service tax liability under reverse charge under works contract service shall be paid partially by the provider or service and the service recipient on 40% of Value of service in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the works is original and 70% in case of other than original works. As per section 67 of the Finance Act, 1994 the consideration means amount received by service provider for the service rendered. And as per Service tax (Determination of Value) Rules the taxable service amount shall include the value of free issue of material supplied by the service recipient to the provider for incorporating the same in the works contract work. The department refers the valuation rules and seeks information of purchase of material by the service recipient in order to include the same to the value of service in order to work out service tax payable. The department cannot demand service tax in the manner as explained by you in your last par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a of the query. Further, the ignorance of law is not an excuse. Hence I do not find any strength in the reason as expressed by you in the third para of the query. - Reply By MARIAPPAN GOVINDARAJAN - The Reply = I endorse the views of Shri Ganeshan. - Reply By jagannath prasad - The Reply = After payment of tax by the builder on 50 % of 40%of the total payment made to the contractor as per balance sheet on initiation of the departmental audit, the contractors have paid tax on remaining 50% of 40% of the total amount received by them as per balance sheet. These payments were made in light of audit's observation treating the service to be Works Contract. Now after payment of tax by both the builder as well as the contractor un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der works contract, the problem is that the department is demanding proof of purchase of goods and payment of vat from the contractors which they don't have because they had not maintained the same. Our contention is that when the builder first paid tax under works contract on the initiation of audit and it was accepted by them then the department's plea of not granting benefit under works contract to the contractors and demanding tax at full rate from them because they don't have purchase documents at this stage is arbitrary and unfair because ultimate construction of residential complex is not in dispute which could not have been completed without the use of materials and labours by the contractors.And when the use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vat able material as well as labour is evident then the service provided by the contractors is definitely works contract. Demanding full tax from the contractor would also lead to undue enrichment of Government's coffer because the builder has already paid substantial tax under works contract on the insistence of departmental audit.The department should have confirmed taxability under proper head before demanding tax under works contract under reverse charge from the builder. Kindly confirm whether our appreciation of the matter is correct or not and whether the department is justified in demanding tax at full rate from the contractors when part of the tax under reverse charge has already been paid by the builder and accepted by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment. And when the the use of vat able building materials is evident in the form of building of residential complex which has not been disputed by the department and undue enrichment of the govt. coffers because of allready paid tax by the builder. - Reply By Ganeshan Kalyani - The Reply = Consideration means any amount received by a person providing taxable service to another person for taxable service being provided. Here the contractor is a service provider and builder is a recipient. Here in the query the contractor has purchased material and incorporated the same in the construction activity by availing manpower supply. The contractor while raising an invoice on the builder for the service render, he would have included the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of material purchased and value of manpower service that he has availed in the course of providing construction service and including some margin. If the fact is so then it is apparent that cost of material has also been included in the value for calculating service tax liability by applying valuation rule. If the contractor has raised only service bill or if you had paid service tax only the Service portion by appying valuation rule then the department is correct in demanding the differential service tax. When the bifurcation of material value and service portion is not known then the valuation rule need to be applied in the amount including both material value and service charges. - service tax - Query Started By: - jagannath p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rasad Dated:- 17-10-2016 Service Tax - Got 4 Replies - Service Tax - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
