Service Tax - Services provided by sub-contractors Not Taxable - CBEC
IN Circular No. 138/07/2011 – Service Tax dated 06.05.2011, CBEC had clarified that the services provided by the subcontractors / consultants and other service providers to the Works Contract Service (WCS) provider in respect of construction of Dams, Tunnels, Road, Bridges etc. are classifiable as per Section 65 A of the Finance Act, 1994 under respective sub clauses (105) of Section 65 of the Finance Act and are chargeable to service tax accordingly.
In DDT 1604-09 05 2011, we had asked , “But why? If the whole service provided by one person is not taxable, why a part outsourced to a sub-contractor be taxable ?”
Now the Board seems to have realised this logic and clarifies,
“it is apparent that in case the services provided by the sub-contractors to the main contractor are independently classifiable under WCS, then they too will get the benefit of exemption so long as they are in relation to the infrastructure projects. Thus, it may happen that the main infrastructure projects of execution of works contract in respect of roads, airports, railways, transport terminals, bridges tunnels and dams, is sub-divided into several sub-projects and each such sub-project is assigned by the main contractor to the various sub-contractors. In such cases, if the sub-contractors are providing works contract service to the main contractor for completion of the main contract, then service tax is obviously not leviable on the works contract service provided by such sub-contractor.”
Board hopes that the statutory position is clarified and wants the Circular to be widely disseminated to the trade and field formations.
The Board should have also clarified that this being a clarification is retrospectively applicable. Let us hope the field would accept this with retrospective effect and avoid unnecessary litigation.
CBEC circular No. 147/16/2011-ST Dated: October 21, 2011