Is Service Tax applicable in the case of Special Repairs of existing Coop Hsg Society BLDG?

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  1. TVS

    TVS New Member

    What is the liability of SERVICE TAX on a Coop Hsg Society where the Contractor takes up a SPL Repairs work worth over Rs 10 Lacs over a period covering 2 Financial Years?
    Further is the Hsg Society liable for Service Tax Deduction/Payment/ST Returns,Regn etc?
     
  2. ZED

    ZED Well-Known Member

    Service tax is applicable and is payable by the the service provider. The housing society is the service recipient who is to make the payment of service tax to the service provider.
    Registration etc are to be done by Service provider.
     
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  3. TVS

    TVS New Member

    and we will not be liable under the so-called "Reverse Charge" Liability as Service-Receivers either along with the cost of materials used in the construction of Repairs...?
    What exactly does the section have to say about this?
     
  4. ZED

    ZED Well-Known Member

    I was not seeing it from point of view of works contract. In case repairs involves materials aswell then this case would fall into works contract and hence partial reverse charge is applicable . i.e 50% of the TOTAL ST is to be paid by each party. ( I should have considered works contract into consideration. My mistake)

    As per rule 2A of Service Tax rules "Determination of value of service portion in the execution of a works contract" ,there are 2 methods for computing the ST

    One is that we deem that 70% of the value is Value of service.

    Other is on actual basis where we will compute the Value of materials actually used and deduct this value from the total value. What we will get is value of service


    Extracts from the rules
    [First clause relates to actual basis and second relates to deem basis.]


    Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:-

    (i) 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.

    Explanation.- For the purposes of this clause,- (a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;

    (b) value of works contract service shall include, -

    (i) labour charges for execution of the works;
    (ii) amount paid to a sub-contractor for labour and services;
    (iii) charges for planning, designing and architect’s fees;
    (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;
    (v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;
    (vi) cost of establishment of the contractor relatable to supply of labour and services;
    (vii) other similar expenses relatable to supply of labour and services; and
    (viii) profit earned by the service provider relatable to supply of labour and services.


    (c) Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.



    (ii) 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:-


    (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;
    In case of other works contracts, not covered under sub-clauses (A) [Original Work] 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 seventy per cent. of the total amount charged for the works contract;



    Explanation 1. - For the purposes of this rule,- (a) “original works” means-
    (i) all new constructions;
    (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
    (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;
     
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  5. TVS

    TVS New Member

    Thanks a lot ZED.
    But the all important point remains...at what point or Aggregate Value Ser Tax is payable by our Society...especially if the SPL Repair job is done over a period of 2 years or more and part of the contract is not yet executed? And do we have to take Service Tax Regn.NO. for this as a Hsg Society? And do we have to file ST3 Return?
     
    Last edited: Jun 29, 2016
  6. ZED

    ZED Well-Known Member

    In such cases the Point of taxation has prescribed that in such cases the point of taxation should be checked at each milestone/event .
    By milestone/event I mean that time/event as is fixed in the contract. For eg builder says that when 30% of the work will be completed he will issue the invoice/ask payment. Now this 30% is our milestone.

    The rule in general is
    Date of issue of invoice or Date of payment [whichever is earlier]
    But if invoice is not issued within 30 days then the point of taxation shall be

    Date of completion of milestone or date of payment, whichever is earlier.

    For the purposes of these rules, unless otherwise provided, 'point of taxation' shall be,-

    (a) the time when the invoice for the service provided or agreed to be provided is issued:
    Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be date of such completion of provision of the service.

    (b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

    (i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to the service provider, the date of completion of provision of service shall be determined in accordance with the provisions of clause (a)


    If ST is to be paid then registration will also have to be taken.





    service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory[Shall be under reverse charge]
     
    Last edited: Jun 29, 2016
    TVS likes this.
  7. TVS

    TVS New Member

    so I guess U confirm that "including association of persons" will make our Society liable for Service Tax @50% (as receiver of service) on 70% of the cost of the SPL Repair work. Right?
    & Moreover we have to apply to ACES for ST Regn. as Service Receiver?
    Also pls let me know if Rs.2 lacs is paid in say feb-14,then Rs.9.80 Lacs is paid by Aug-15, then will the Rs.10 Lacs Limit per Fin Year be applicable for the liability to ser.tax arising? Further if we show the Tot amt. paid as 11.80 Lacs in the BS as "Advance to Contractor" what will be the position of STax liability? Can we pay it now in say June/Jul 2016 on the contractor submitting his Final Bill? And if so @ what rate of Ser. Tax?
    Say my working will go as : Rs.11,80,000 x 70% = 8,26,000 & @15% Ser.Tax =123,900/= & so 50% =Rs.61,950/- will be our ST Liability.?
     
    Last edited: Jun 29, 2016
  8. ZED

    ZED Well-Known Member

    Wait a sec, it just struck to me that society (though registered) will not be considered as body corporate.

    To make the recipient liable to tax we need to check 2 things
    1. The entity should be a registered as body corporate.
    2. The entity must be a business entity.



    1. “Business Entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession
    2. “Body Corporate” means the meaning assigned to in clause (7) of Section 2 of the Companies Act, 1956 and section 2(11) of 2013 Act.
      1. Company , corporation and LLP are ‘body corporate’
      2. Firm, HUF, Trust and Co-operative society are not ‘body corporate’
      3. But firm includes LLP for Service Tax

    S.2(11)[Companies Act 2013] “body corporate” or “corporation” includes a company incorporated outside

    India, but does not include

    (i) a co-operative society registered under any law relating to co-operative societies; and

    (ii) any other body corporate (not being a company as defined in this Act),which the Central Government may, by notification, specify in this behalf;


    service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory.



    If the service not rendered to a business entity registered as body corporate, located in the taxable territory then reverse charge should not apply.
     
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  9. TVS

    TVS New Member

     
  10. TVS

    TVS New Member

    THAT was GENIUS ZED
    Thanks for your "afterthought"
    It saved me a lot of botheration and trouble..
    Thanks to this Q&A Forum,we have a shelter against unforeseen Govt.Poaching...
     
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