Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
(Tax Research Unit)
Circular No. 128/10/2010-ST
North Block, New Delhi,
24th August, 2010.
To
Director General (Service Tax),
Director General (Central Excise Intelligence)
Director General (Audit)
Chief Commissioner of Central Excise and Service Tax (All)
Commissioner of Central Excise and Customs (All)
Commissioner of Central Excise and Service Tax (All)
Commissioner of Service Tax (All)
Madam/Sir,
Subject: Service tax on on-going works contracts entered into prior to
01.06.2007 – regarding –
It has been brought to the notice of the Board that the following
confusions/disputes prevail with respect to long term works contracts which were
entered into prior to 01.06.2007 (when the taxable service, namely, Works
contract came into effect) and were continued beyond that date:
- While prior to the said date services like Construction; Erection,
commissioning or installation; Repair services were classifiable under
respective taxable services even if they were in the nature of works contract,
whether the classification of these activities would undergo a change?
- Whether in such cases of continuing contracts, the Works Contract
(Composition Scheme for payment of Service Tax) Rules, 2007 under
Notification
No. 32/2007-ST dated 22/05/2007 would be applicable?
- The matter has been examined. As regards the classification, with effect from
01.06.2007 when the new service ‘Works Contract’ service was made effective,
classification of aforesaid services would undergo a change in case of long term
contracts even though part of the service was classified under the respective
taxable service prior to 01.06.2007. This is because ‘works contract’ describes
the nature of the activity more specifically and, therefore, as per the
provisions of section 65A of the Finance Act, 1994, it would be the appropriate
classification for the part of the service provided after that date.
- As regards applicability of composition scheme, the material fact would be
whether such a contract satisfies rule 3 (3) of the Works Contract (Composition
Scheme for payment of Service Tax) Rules, 2007. This provision casts an
obligation for exercising an option to choose the scheme prior to payment of
service tax in respect of a particular works contract. Once such an option is
made, it is applicable for the entire contract and cannot be altered. Therefore,
in case a contract where the provision of service commenced prior to 01.06.2007
and any payment of service tax was made under the respective taxable service
before 01.06.2007, the said condition under rule 3(3) was not satisfied and thus
no portion of that contract would be eligible for composition scheme. On the
other hand, even if the provision of service commenced before 01.06.2007 but no
payment of service tax was made till the taxpayer opted for the composition
scheme after its coming into effect from 01.06.2007, such contracts would be
eligible for opting of the composition scheme.
- The Board’s previous
Circular No. 98/1/2008-ST dated 04.01.2008 and the ratio
of judgement of the High Court of Andhra Pradesh in the matter of M/s. Nagarjuna
Construction Company Limited vs. Government of India (2010 TIOL 403 HC AP ST)
are in line with the above interpretation.
- Trade Notice/Public Notice may be issued accordingly.
Yours faithfully,
(J.M. Kennedy)
Director (TRU)
Tel: 011-23092634
F.No.354/141/2010-TRU