Please Help: difference between workcontract service and construction service
Posted Date : 27-Mar-2014 , 09:18:43 am | Posted By: Nikita
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Service Tax | Answers :
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my query is : what is difference between work contract service and construction of residential complex service ? i have read definition of both but i am unable to understand difference between two. so please give your explanation with examples.
second thing is that what is meaning of "TRANSFER OF PROPERTY IN GOODS" as term used in work contract service? |
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| Posted By : |
06-Apr-2014, 01:31:32 |
| Works contract is a composite contract for sale of goods and sale of services. In such a contract, Sales Tax is levied on the value of goods sold, based on the State VAT or CST Act and Service Tax is levied on the sale of services. For eg. if you purchase a flat, you would say that you are purchasing a FLAT. You will never say that you are going to purchase steel, cement, bricks, tiles, etc., being the material used in construction of that flat as your intention was never to purchase such materials as materials itself. Though by purchasing the flat you will become owner of those materials also. So, in a way you purchases the materials used in construction as well as services of labour who worked on that material to build the flat. This is a typical example of works contract. Transfer of property in goods while execution of a works contract, in layman language, would mean sale of goods while rendering of services under a works contract. Suppose, you make an agreement to buy a house before it is constructed, then it is a works contract as the contract involves sale of material viz. cement, bricks, etc. as well as sale of services of labour who will build a house using that material. Now, suppose you make an agreement to purchase a ready made house, it is not a works contract, rather it is a simple sale transaction outside the scope of service tax for the simple reason that at the time of agreement house was already constructed and the property in goods (material) passes (i.e.goods are sold to you) after the execution of works contract (construction). It is important that property in goods must pass while executing the works contract and not before or after its completion. Works contract can be a contract for construction, repair, installation, etc, of both MOVABLE as well as IMMOVABLE property. Now, coming to construction service. First, it is only in relation to civil structures i.e. IMMOVABLE property and that too, for only existing civil structures. Therefore, construction of new flats/building/houses, are always works contract. They can not be classified under construction service. Second, construction does not includes repairs while works contract does. Third, since in construction contracts, property in goods passes only after execution of construction, it is a transaction of simple sale. But then what makes it service? Again, the answer is simple, if consideration i.e. sale price of that constructed building is received by the builder before completion of construction, it would amount to service, otherwise, it will be a simple sale with no service tax implications. Here completion would mean issuing of completion certificate by a competent authority like Architect, Chartered Engineer, etc.
Hope this would clarify. Even if in doubt, it is advisable to go through Section 66E(b) and 66E(h) of FA 1994. You may also refer the judgement of SC in 'Larsen and Toubro v State of Karnataka (2013) 41 STT 113' for clearer understanding.
Best regards |
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