Dear officers this is only a discussion based on my little knowledge on service tax liability of FCI on works contract being carried out by the Engineering officers. For details on typical cases has to be referred with the govt's notification in this regard from time to time. If there is any better suggestion over this or criticism on this are most invited rather the appreciation. Further to state that I am not a account officer or qualified accountant, so there may be mistakes in interpretation.
There are three type of contract in Engineering Works
1.Supply contract which may not attract service tax as there is no services involved.
2.Consultancy services involves Architectural, design consultancy, getting expert opinion etc. which attracts service tax for whole the value and liability rest with the service provider and not by the service receiver. For this Necessery clauses in the contract may provided to clarify whether the rate to be quoted is inclusive of the tax or exclusive.If it is not clearly defined then it presumably thatthe rate is inclsive of the tax as the liability is rest with the service provider.
3.Works Contract:
3.1. Original works - Such as the new construction, Projects, Minor Capital works or any other new works in the existing complex which are to be capitalised. For which the service value of the works can be arrived by multiplying factor of 0.4 with the total value of works billed as per the comprehensive Scheme of Service tax rules.
3.2. Repair and Maintenance of immovable assets - Such as addition, alteration,renovation, resurfacing of roads,railways and buildings or any other immovable assets. For which the service value of the works can be arrived by multiplying factor of 0.6 with the total value of works billed as per the comprehensive Scheme of Service tax rules.
3.3.Repair and Maintenance of movable assets - Such as AMC or repair or servicing of the Lorry weighbridges (Excluding building part ie cabin), Transformer, Power generators sets, Lifts, housekeeping works of the building etc. For which the service value of the works can be arrived by multiplying factor of 0.7 with the total value of works billed as per the comprehensive Scheme of Service tax rules.
The service tax payable for the works contract by the service provider from the year 2007 onwards. There was no liability for FCI till the reverse charge mechnism was introduced w.e.f 01.07.2012. According to this the FCI become liable to pay service tax w.e.f 01.07.2012. The Hqrs have also issued instructions on this.
As per the contract clauses in the MTF the Rate Quoted by the contractor / agency prior to 01.07.2012 is with the service tax component for the 100% liability of ST on the part of the contractor. By the same clauses the Rate quoted by the contractor / agency is only for the 50% liability on the contractor. The remaining 50%liability become payable by the FCI to the Govt in addition to the bill payable to the contractor. The doubts arises for the accountability of service tax component for the works contract for which the tenders are opened before 01.07.2012 and bills are paid after the cut off date of 01.07.2012, as the rate quoted by the contractor are for the 100% service tax liability by the contractor as per the tender clauses. Hence the service tax for the bills paid after 01.07.2012 is payable by the FCI by making recovery from the bills of the contractor / agency. If the contract has finalised and settled earliar the agency is to be addresed to show the documentary evidence of the service tax payment to the Govt for 100% liability. If there is no evidences the amount is to be recovered from his future / pending payment if any to the extent of 50% tax liability of FCI. In the worst case (where the recovery could not be made) the ST to be paid by FCI to fulfil the statutory obligation and to be weived by the competant authority as this appears to be the infectutious.
The Value of service to be calculated taking into account that the value of bill is inclusive of service tax as given below
The vaue of the bill divided by (1+0.4*x 0.1236) will gives you the value of service before tax ie 'A' =B.V/(1.04944)
The Service tax payable by the service reciever by making recovery in bill is = Ax0.4*x0.5x0.1236 = Ax0.02472
* denotes 0.4 or 0.6 or 0.7 as the case may be depends on the nature of works
For the contract entered on or after the cut off date of 01.07.2012 (ie Tender opening date) the liability of the FCI is born by the FCI as and accounted to the works expenditure as addition to the bill value as the contractor may not quote for the FCI liability unless otherwise it is clearly indicated.However the rate should presumably includes the ST liability of the contractor as per the clause.
The Value of service to be calculated taking into account that the value of bill is inclusive of service tax as given below
The vaue of the bill divided by (1+0.4*x0.5x 0.1236) will gives you the value of service before tax ie 'A' =B.V/(1.04944)
The Service tax payable by the service reciever by making recovery in bill is = Ax0.4*x0.5x0.1236 = Ax0.02472
* denotes 0.4 or 0.6 or 0.7 as the case may be depends on the nature of works.
As per the CPWD manual, the justification should be made market rate of material and labour and also taking in to account of the VAT 2%, cess for construction labour welfare at 1% and the tenders are to be finalised by the competant authority. There is no provision for the Service tax component as the same is not applicable to Govt. building. However it has been told in their circular that the ST if paid by the contractor which is reimbursible to them. Hence in Fci works contract the Servicetax component should also be taken into account to the extent of service provider's liability for justification. However the whole portion of service tax for individual works to be considered at the time of estimation so as to have the realistic cost of the works / project.
Any thing found misleaded or misinterpretted to any officers please neglect this. This is only for the discussion among the all concerned. The expression of mistakes, errors and criticism on the above is most appreciable rather than any appreciation.
Thank you officers. Hope we have better year 2014 before us
There are three type of contract in Engineering Works
1.Supply contract which may not attract service tax as there is no services involved.
2.Consultancy services involves Architectural, design consultancy, getting expert opinion etc. which attracts service tax for whole the value and liability rest with the service provider and not by the service receiver. For this Necessery clauses in the contract may provided to clarify whether the rate to be quoted is inclusive of the tax or exclusive.If it is not clearly defined then it presumably thatthe rate is inclsive of the tax as the liability is rest with the service provider.
3.Works Contract:
3.1. Original works - Such as the new construction, Projects, Minor Capital works or any other new works in the existing complex which are to be capitalised. For which the service value of the works can be arrived by multiplying factor of 0.4 with the total value of works billed as per the comprehensive Scheme of Service tax rules.
3.2. Repair and Maintenance of immovable assets - Such as addition, alteration,renovation, resurfacing of roads,railways and buildings or any other immovable assets. For which the service value of the works can be arrived by multiplying factor of 0.6 with the total value of works billed as per the comprehensive Scheme of Service tax rules.
3.3.Repair and Maintenance of movable assets - Such as AMC or repair or servicing of the Lorry weighbridges (Excluding building part ie cabin), Transformer, Power generators sets, Lifts, housekeeping works of the building etc. For which the service value of the works can be arrived by multiplying factor of 0.7 with the total value of works billed as per the comprehensive Scheme of Service tax rules.
The service tax payable for the works contract by the service provider from the year 2007 onwards. There was no liability for FCI till the reverse charge mechnism was introduced w.e.f 01.07.2012. According to this the FCI become liable to pay service tax w.e.f 01.07.2012. The Hqrs have also issued instructions on this.
As per the contract clauses in the MTF the Rate Quoted by the contractor / agency prior to 01.07.2012 is with the service tax component for the 100% liability of ST on the part of the contractor. By the same clauses the Rate quoted by the contractor / agency is only for the 50% liability on the contractor. The remaining 50%liability become payable by the FCI to the Govt in addition to the bill payable to the contractor. The doubts arises for the accountability of service tax component for the works contract for which the tenders are opened before 01.07.2012 and bills are paid after the cut off date of 01.07.2012, as the rate quoted by the contractor are for the 100% service tax liability by the contractor as per the tender clauses. Hence the service tax for the bills paid after 01.07.2012 is payable by the FCI by making recovery from the bills of the contractor / agency. If the contract has finalised and settled earliar the agency is to be addresed to show the documentary evidence of the service tax payment to the Govt for 100% liability. If there is no evidences the amount is to be recovered from his future / pending payment if any to the extent of 50% tax liability of FCI. In the worst case (where the recovery could not be made) the ST to be paid by FCI to fulfil the statutory obligation and to be weived by the competant authority as this appears to be the infectutious.
The Value of service to be calculated taking into account that the value of bill is inclusive of service tax as given below
The vaue of the bill divided by (1+0.4*x 0.1236) will gives you the value of service before tax ie 'A' =B.V/(1.04944)
The Service tax payable by the service reciever by making recovery in bill is = Ax0.4*x0.5x0.1236 = Ax0.02472
* denotes 0.4 or 0.6 or 0.7 as the case may be depends on the nature of works
For the contract entered on or after the cut off date of 01.07.2012 (ie Tender opening date) the liability of the FCI is born by the FCI as and accounted to the works expenditure as addition to the bill value as the contractor may not quote for the FCI liability unless otherwise it is clearly indicated.However the rate should presumably includes the ST liability of the contractor as per the clause.
The Value of service to be calculated taking into account that the value of bill is inclusive of service tax as given below
The vaue of the bill divided by (1+0.4*x0.5x 0.1236) will gives you the value of service before tax ie 'A' =B.V/(1.04944)
The Service tax payable by the service reciever by making recovery in bill is = Ax0.4*x0.5x0.1236 = Ax0.02472
* denotes 0.4 or 0.6 or 0.7 as the case may be depends on the nature of works.
As per the CPWD manual, the justification should be made market rate of material and labour and also taking in to account of the VAT 2%, cess for construction labour welfare at 1% and the tenders are to be finalised by the competant authority. There is no provision for the Service tax component as the same is not applicable to Govt. building. However it has been told in their circular that the ST if paid by the contractor which is reimbursible to them. Hence in Fci works contract the Servicetax component should also be taken into account to the extent of service provider's liability for justification. However the whole portion of service tax for individual works to be considered at the time of estimation so as to have the realistic cost of the works / project.
Any thing found misleaded or misinterpretted to any officers please neglect this. This is only for the discussion among the all concerned. The expression of mistakes, errors and criticism on the above is most appreciable rather than any appreciation.
Thank you officers. Hope we have better year 2014 before us