Question 21: Reg: Determination of value of service portion in the execution of a works contract. W.e.f. 01-07-2012

Rule 2A (i) of Service Tax (Determination of Value) Rules, 2006 provides that Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.

Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006 provides that Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty percent of the total amount charged for the works contract;

(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract;

(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property, service tax shall be payable on sixty per cent of the total amount charged for the works contract

Question

Whether the Service provider has the option to determine the value of service portion

(i) as per Rule 2A (i) of Service Tax (Determination of Value) Rules, 2006 or

(ii) as per Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006

What is legal position'

Answer According to the language employed in Rule 2A of Service Tax (determination of Value) Rules, 2006 the service provider for determination of the value of service has to read the Rule sequentially. The service provider cannot jump the clauses/sub-clauses according to his convenience. For determination of the value first clause (i) of the said Rule has to be read, if the same same is not applicable then only clause (ii) is to be applied.
(Reply dt. 14/3/2018)