Service Tax - ‘Gross Amount' - Works Contract Composition
RULE 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, reads as:
Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to Four per cent. of the gross amount charged for the works contract.
Explanation.-For the purposes of this sub-rule, gross amount charged for the works contract shall be the sum,-
(a) including-
(i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and
(ii) the value of all the services that are required to be provided for the execution of the works contract;
(b) excluding-
(i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and
(ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire:
Provided that nothing contained in this Explanation shall apply to a works contract, where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009.
Now there is a doubt as to whether ‘gross amount', for the purpose of payment of service tax under the Works Contract Composition Scheme, included the value of free of cost supplies, for the period prior to 07/07/2009.
Board clarifies that the explanation appended to Rule 3(1) with effect from 07/07/2009, categorically says in the proviso that “…nothing contained in this Explanation shall apply to a works contract where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009.” Where execution of works contract has commenced prior to 07/07/2009 or where any payment(except payment through credit or debit) has been made towards a works contract prior to 07/07/2009, then in those cases ‘gross amount' for the purpose of payment of service tax does not include the value of free of cost supplies.
CBEC Circular No. 150/1/2011-ST, Dated: February 08, 2012