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Some services of subcontractors can qualify as input services

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SummaryQueries on taxation and service tax liabilities, addressed by Amit Bhagat and Jayanta Kalita of EY

We are a contractor firm and we provide various erection, commissioning and installation services to our customers. We have been engaged by our customer to provide certain works contract services. The scope of work under the contract has been subcontracted by us to another company. The subcontractor is charging us a service tax on the invoice @ 4.944% (after claiming abatement). We are further invoicing the client at the same tax rate. We have been advised that with respect to works contract services, there is a specific exclusion in the Cenvat Credit Rules, 2004 and we would not be eligible to claim credit of service tax paid to the subcontractor. Kindly advise.

As per the Cenvat Credit Rules, 2004 (Credit Rules), input service has been defined to mean: ‘any service used by a provider of taxable service for providing an output service...but excludes service portion in the execution of a works contract and construction services. . . so far as they are used for:

(a) Construction or execution of works contract of a building or a civil structure . . except for the provision of one or more of the specified services…’

On the basis of the above, works contract services used in the construction of a building or civil structure is specifically excluded from the definition of ‘input service’ except where such service is used in further providing works contract or construction services.

In the present case, since the works contract services received from the subcontractor will be further used for provision of works contract services to the awarder, the services provided by subcontractor should qualify as ‘input service’ as per the Credit Rules.

Accordingly, you should be eligible to take Cenvat credit of the service tax charged by subcontractor and utilise the same against your output service tax liability.

VAT rate in the absence of Form C

We are a manufacturer and seller of various household items in Haryana. Our customers are located all over India so we have both local as well as inter-state sales. Our inter-state sales consist of both sales against Form c and sales directly to the end consumers. Further, often there are cases where we do not receive Form C from our dealers. In this regard, we wish to know at what rate should we charge VAT to the end customer located outside Haryana or to our dealers who do not give us Form C. Should the

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