Some services of subcontractors can qualify as input services

Updated: Jan 3 2014, 17:36pm hrs
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 VAT charged be inclusive of surcharge or not

As per the Central Sales Tax Act, 1956, interstate sales made by a person shall attract CST at the rate of 2% (against Form C) or at the local VAT rate applicable in the state from which the goods are sold. Further, where the dealer is not in a position to furnish Form C, the local VAT rate as applicable in the state from which sale is made would be applicable.

In this regard, the Haryana Value Added Tax, 2003 (HVAT Act), specifically provides that an additional surcharge at 5% is applicable on the VAT amount payable under HVAT Act. Thus, the local VAT rate applicable in Haryana is the VAT amount plus surcharge amount. Accordingly, in terms of the central sales tax law, the local VAT rate would be the tax including the surcharge.

Further, this position has also been upheld by the Punjab & Haryana High Court in the case of Sidwal Refrigeration Ind. (P) Ltd, wherein it was held that wherever there is a provision for payment of a surcharge in addition to the tax, the applicable CST rate would be the rate as increased by such surcharge. Accordingly, the applicable rate of tax for the purpose of payment of CST would be the local VAT rate and the additional surcharge.

Tax dues paid before May 10 not under VCES

We provide repair and maintenance services to our customers. We were informed about the voluntary compliance scheme which was introduced in this years budget by the finance minister. Intending to avail of the benefit of the scheme, we deposited the amount of tax due for the relevant period on 1 May 2013. However, we have been informed by our consultant that we cannot avail of the benefit of the scheme as we had deposited the tax dues prior to the coming into effect of the same. Please advise.

The Service tax Voluntary Compliance Scheme (VCES) entitles an assessee for waiver of interest, penalty and legal proceedings otherwise leviable/imposable on tax payable for the period 1 October 2007 to 31 December 2012, subject to prescribed conditions.

VCES has been notified with effect from 10 May 2013. Any tax payable for the period 1 October 2007 to 31 December 2012, which has been deposited prior to the coming into effect of VCES i.e. prior to 10 May 2013, cannot be utilised for the purpose of the said scheme. This aspect has been clarified by the finance minister, P Chidambaram and the CBEC chairman, Praveen Mahajan, during an open house session in Delhi.

Accordingly, any amount deposited by you prior to 10 May 2013 towards tax payable for the period 1 October 20007 to 31 December 2012 cannot be utilised for the purpose of the scheme. Thus, you should not be eligible to avail of the benefit of the VCES scheme.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to