Anup Shrivastava asked 7 years ago
Pls. Solve my Problem from the illustration stated below :-
A Ltd. is a company, who awarded a contract (including material) to B.Pvt. Ltd. amounting = 2.00 Crore
Now B. Pvt. Ltd. gives a work contract to C (Excluding material cost used in work).
B.Pvt Ltd. raised a Running bill to A.Ltd. like that :-
Amt of work = 30,00,000
Service Tax (15% on 40% of Work Amt ) = 1,80,000
Gross Amt of Running Bill = 31,80,000
Now C raised a bill (Excluding Material Cost) to B Pvt. Ltd. of = 15,00,000
C is a unregistered Co. in Service Tax Deptt. but has TIN No.
Now Pls. explain me which type of taxes (as RCM,Vat etc.) would be applicable to C
आदित्य कुमार answered 7 years ago
Dear Anup,
Let’s discuss your query about Service Tax-RCM point by point, assuming that it belongs to Pre-GST era because Service tax is claimed in invoice of B Pvt. Ltd.,
- Contract awarded by A ltd. to B pvt. ltd. is a “Works Contact” . But B is a registered company hence Service Tax-RCM will not apply for making payment of bill of B Pvt. Ltd.. Hence assuming the nature of work contract is Original work as per Service tax provision Hence service tax is applicable on 40% which is rightly claimed by B pvt. ltd.
- Now come to contract awarded by B Pvt. Ltd. to C which is not a work contract Because it does not include any material. As per provision of service tax,.”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 purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration etc. Hence contract awarded by B Pvt. ltd to C is not a work contract. Hence Service tax-RCM will not apply for making payment to C (Assuming that the contract between B & C does not fall in any other category on which RCM applies like Labor supply contract etc)
- As per your query, C is not registered in Service tax, But raised an invoice of Rs. 15 lakh. The turnover limit for registration is Service tax was Rs. 9 lakh. Hence C was required to get Service tax Registration. C should have claimed Service tax in his invoice and must have deposit the same to Govt. Revenue.
- Now come to VAT, In contract between B & C, No material is involved hence no implication of VAT or WCT. B Pvt ltd. should not deduct any VAT/WCT from invoice of C.
- But material is involved in contract between A & B Hence A Ltd. should deduct WCT from bill of B and Should have deposited the same to Govt.
Now I think, you get my point that RCM or VAT/WCT is not applicable to C But C was required to get Service tax registration and deposit Service tax to Govt. account.
Note: After GST Implementation whole of above situation has been changed as GST reverse charge is applicable to all unregistered vendor. To know more about work contract in GST era Click here