Services provided by sub-contractors to a works contract service (WCS) provider engaged in infrastructure projects will not have to pay service tax - if they are independently classifiable under the WCS - if they are in relation to the infrastructure projects undertaken by the main contractor.
The CBEC (Central Board of Excise and Customs) clarified this recently.
Currently works contracts services on construction of dams, tunnels, roads and bridges are exempt from service tax. In 2011 May the Finance Ministry had said that sub-contractors will have to pay service tax on all “taxable services” provided by them to a WCS provider engaged in construction of infrastructure projects.
The infrastructure and construction Industry had protested that the service tax will be applicable on input services availed of by a WCS provider and lead to increased project cost as sub-contractors would pass on the service tax burden to the WCS provider.
This had led to doubts on whether the exemption available to the WCS providers in respect of projects involving construction of roads, railways, airports, transport terminals, bridges, dams & tunnels would also be available to the sub-contractors who provide Works Contract Service to these main contractors in relation to those very projects.
The latest circular issued makes it clear that service tax exemption benefit will also be available to sub-contractors where the services rendered to the main contractor are independently classifiable under WCS.
According to CBEC circular , “Thus, it may happen that the main infrastructure projects of execution of works contracts in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams is sub-divided into several sub-projects and each such sub-project is assigned by the main contractor to the various sub-contractors. In such cases, if the sub-contractors are providing works contract service to the main contractor for completion of the main contract, then service tax can obviously not be levied on the works contract service provided by such sub-contractor."
The CBEC circular clarifies that if services provided by a sub-contractor are exempt from service tax, it would continue to enjoy the exemption, even if the services are provided to the main contractor. This is helpful for the infrastructure industry.
The CBEC (Central Board of Excise and Customs) clarified this recently.
Currently works contracts services on construction of dams, tunnels, roads and bridges are exempt from service tax. In 2011 May the Finance Ministry had said that sub-contractors will have to pay service tax on all “taxable services” provided by them to a WCS provider engaged in construction of infrastructure projects.
The infrastructure and construction Industry had protested that the service tax will be applicable on input services availed of by a WCS provider and lead to increased project cost as sub-contractors would pass on the service tax burden to the WCS provider.
This had led to doubts on whether the exemption available to the WCS providers in respect of projects involving construction of roads, railways, airports, transport terminals, bridges, dams & tunnels would also be available to the sub-contractors who provide Works Contract Service to these main contractors in relation to those very projects.
The latest circular issued makes it clear that service tax exemption benefit will also be available to sub-contractors where the services rendered to the main contractor are independently classifiable under WCS.
According to CBEC circular , “Thus, it may happen that the main infrastructure projects of execution of works contracts in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams is sub-divided into several sub-projects and each such sub-project is assigned by the main contractor to the various sub-contractors. In such cases, if the sub-contractors are providing works contract service to the main contractor for completion of the main contract, then service tax can obviously not be levied on the works contract service provided by such sub-contractor."
The CBEC circular clarifies that if services provided by a sub-contractor are exempt from service tax, it would continue to enjoy the exemption, even if the services are provided to the main contractor. This is helpful for the infrastructure industry.
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