Pradeep Jain - Chartered Accountant

Query

(naresh pancholi) Posted On: 29 Oct, 2012

Sir, We hare engaged in providing garden development services wherein we carry out certain agricultural operations to grow lawns (grass) and ornamental plants. For this we procure manures, fertilizers, plants, grasses, etc and use our team of labours and supervisors to execute the work. In one of our projects, client has deducted Works contracts Tax at the rate of 3.6% on advances. Still final bill is not raised. Our questions are: (1) Does garden making fall under the purview of Works Contracts Tax at all? (2) If yes, then is the rate at which it is deducted correct? (3) It is deducted on the total amount of advances, true? Your expert views are sought for this issue. Thank you. Regards, Naresh Pancholi

Work contract is defined in the section 65B, which reads as follows: “(54) work contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such properly” As in instant case transfer of material involved for maintenance of garden, therefore it will be work contract service. As it is work contract service therefore valuation rule 2A will be applicable and as per Clause (ii)(c) of this rule 2A, when value of material portion and service portion can’t be determine then service tax shall be leviable on 60% of total amount charged in case of work contracts relating to immovable property. Reverse charge will be applicable if service provider (i.e. contractor) is individual, HUF, partnership firm and service receiver is body corporate. Liability to pay service tax under reverse charge in case of work contract service is 50% on service receiver and 50% on service provider---…Notification 30/2012-ST. As in instant case you have not clarified the status of service provider and service receiver, therefore we assume that reverse charge is applicable in instant case. As discussed above that the service tax is leviable on 60% of gross amount. 50% liability out of total tax will be on service receiver. Therefore, amount to be deposited service receiver on advance will as follows:- [100 X 60% X 12.36% X50%] = 3.708 You have said that the service receiver is deducting the service tax. But this is not to be deducted. You will charge your portion of service tax, if any in your invoice and deposit the same with the exchequer. The service recipient will calculate his portion of service tax and deposit the same with the Government. Hence, there is no question of deduction of service tax from you.

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