Service tax on individual work contracts

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Oct 12 2012, 01:37 IST

Our company is into manufacturing. We engage contractors for doing various types of work in our factory premises such as repairs, additions, alterations, etc. These contractors are neither registered under service tax (since their turnover is less than R9 lakh) nor are they paying any service tax. Under the negative list of taxation, are we required to pay tax under reverse charge even if the contractors do not pay any service tax? If yes, then what is the mechanism for computation of tax payable by us?

Under the negative list regime a body corporate receiving works contract services from an individual, Hindu undivided family, partnership, association of person or body of individuals is required to part pay service tax under the reverse charge mechanism. The service recipient is required to discharge 50% of the amount of tax payable on such services.

It has been clarified under the Guidance Paper issued by the Central Board of Excise & Customs that even where the service provider avails of the turnover-based exemption (since his turnover is less than R10 lakh), the service provider is required to discharge the prescribed portion of tax under the reverse charge mechanism.

The service recipient has the option of choosing any of the valuation methods for the purpose of computing the service tax payable by him.

Refund of SAD

We are a partnership firm trading in various goods. Some goods are imported and sold locally. Typically, we claim a refund of the special additional duty of customs paid for all imported goods.

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