Shylock take your flesh but not a drop of blood
Works contract service tax – Bonus to the Government?
A passionate Netizen writes in
After readingtoday's DDT I thought I should write to you.
Without entry 92-C of the Constitution being amended, to tax the service part of the "indivisible works contract" by a deemed fiction of law, as the 46th amendment to the Constitution, (Refer Supreme court decision in sales tax -Builders Association of India (1987) and BSNL's decision in 2006) Government has no power to tax the service part of an indivisible contract, as in all civil construction contracts rates quoted are inclusive of material cost. In a building construction contract for eg: flooring work, the rates quoted would definitely include cost of flooring material labour and profit of the contractor. Never cost of material and labour (service part) are quoted separately.Entry 92C gives power to tax service and not to tax cases where service and supply of material and profit thereon are integrated. It reminds me of the argument of the advocate Shakespearian drama Merchant of Venice where the advocate argues "you take flesh but not a drop of blood should be lost!
The BSNL decision is a bonus to Government. The present amendment works contract taxability for service tax has its base in BSNL's decision. So whatever Government gets on account of service tax in the case of indivisible works contract before amendment to 92-C, is a bonus to Government -- I believe.