Work Contracts are subject to levy of VAT and Service Tax both
On certain Works Contracts, both the VAT (Works Contract) & Service Tax are applicable on the Contract price, as these work contracts involve both i) the transfer of property in goods (sale of goods / materials) which is subject to VAT levied by the State Government and ii) rendering of Taxable Service which is subject to Service Tax levied by the Central Government.
Thus, both the VAT & Service tax can be levied on the same taxable base, i.e. the Contract Price. The Contracts/ Taxable services where both VAT and Service Tax are applicable are shown as under:
i) Construction contracts, Civil Jobs;
ii) Annual Maintenance Contracts (AMCs);
iii) Errection of Plant and Machinery etc.
Please note that in such Works Contracts / Taxable Services, the working for levy of VAT & Service Tax is to be done, separately, as per the provisions of VAT Act of respective State & the Service Tax.
In the case where the Contractor chooses under VAT the option of actual labour deduction method, he can pay Service Tax on the actual labour portion and VAT on actual Material value. Otherwise all other cases are treated as composite work contracts and accordingly the options of Standard deduction and Composition Tax Rates are available under the VAT. IT may be noted that for levy of Service Tax in composition cases no separate deduction(s) is allowable to the Contractor, except for the specified rate of abatement in taxable value, i.e. the abated / concessional rate of service tax shall be applied on the full value of the composite contract price.
The Abatements are available under the Service Tax law for specific Taxable Services towards the value of material / goods involved in the same. Like 75% Abatement from the contract value is available under the Construction Services.