Works Contract

Write-back | Email | Discuss | Print | | | | Works Contract Composition Scheme - Restriction on input credit for certain input services MARCH 01, 2011By Santosh HatwarWORKS Contract (Composition Scheme for Payment of Service Tax Rules, 2007 provides that a service provider engaged in provision of ‘works contract service' has an option to pay an amount of 4% of the gross amount charged for the works contract.For this purpose the ‘gross amount charged for the works contract' means an amount which includes the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise and also the value of all the services that are required to be provided for the execution of the said works contract.However, the VAT or Sales tax paid on the transfer of property in goods involved in the execution of such works contract and the cost of machinery and tools used in the execution of the said works contract (except for the charges for obtaining them on hire) are excluded from the purview of service tax levy.Further, sub-rule (2) of Rule 3 of the said Rules provide that the service provider shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract , under the provisions of CENVAT Credit Rules, 2004. In other words there was no restriction on availment and utilization of CENVAT credit of service tax paid on input services.Now, the Government has brought in an amendment to this Rule 3 to restrict certain amount of service tax paid on certain input services. In this regard, a new sub-rule (2A) is introduced in Rule 3 of the said Rules which reads as follows:“(2A) The CENVAT credit of tax paid on taxable services as referred to under sub-clauses (zzd), (zzq) and (zzzh) of clause (105) of section 65 of the Finance Act, 1994, shall be available only to the extent of 40% of the service tax paid when such tax has been paid on the full