Page 96 - GSTL_16 April 2020_Vol 35_Part 3

310 GST LAW TIMES [ Vol. 35
DEPARTMENTAL CLARIFICATION CITED
C.B.E. & C. Letter D.O.F. No. 334/13/2009-TRU, dated 6-7-2009 ................................................ [Paras 1, 4]
REPRESENTED BY : Shri Vishal Agarwal, Advocate, for the Appellant.
Shri A.V.L.N. Chary, Superintendent (AR), for the
Respondent.
[Order per : P. Venkata Subba Rao, Member (T)]. - This appeal has been
filed against Order-in-Original No. HYD-EXCUS-002-COM-014-15-16, dated 26-
8-2015. The facts of the case in brief are that appellant was engaged in providing
services and obtained Service Tax Registration under “Works Contract Services”
(Composition Scheme for Payment of Service Tax) Rules, 2007. These rules were
amended from 7-7-2009 vide Notification No. 23/2009-S.T., dated 7-7-2009. As
per the works contract composition scheme, the service provider is required to
pay a tax of 4% on the gross amount charged for the works contract. The service
provider need not bifurcate the value of the services provided. On 7-7-2009, Rule
2 of these Rules was amended by introducing an explanation to the effect that the
gross value of the works contract includes the value of all goods used in relation
to execution of works contract whether received free of cost or for consideration
under any other contract. The purpose of this amendment was explained by
C.B.E. & C in its D.O.F. No. 334/13/2009-TRU, dated 6-7-2009, para 5.1 of which
reads as follows :
“5. Amendments in Rules (pertaining to service taxpayers) :
5.1 Changes in the Works Contract (Composition Scheme for Payment of
Service Tax) Rules, 2007 : These rules provide a simplified procedure for
working out the tax liability by the service providers providing works con-
tract service. Instead of working out the service element from the value of
works contract and paying Service Tax at full rate (i.e. 10%) the service pro-
vider is allowed to pay 4% on the ‘gross amount charged’ for the works
contract. The reason for prescribing the lower rate under the scheme is that
the service provider need not bifurcate the gross value of works contract. It
was expected that the gross value should be shown to include the total val-
ue of materials as well as services used in providing the taxable services.
However, it has been reported that in certain cases, the taxpayers are not
including the full value of the goods required for execution of works con-
tract for working out Service Tax liability under the Composition Scheme
by either excluding the value of goods received free of cost from their client
or splitting the contract into a sale contract (for a portion of goods required
to execute the works contract) and works contract (for only a portion of the
total value of goods and the labor charges), thus reducing the value of
works contract for the purposes of calculating Service Tax. In order to plug
this loophole, the Explanation appearing in sub-rule (3) is being amended
to provide that the composition scheme would be available only to such
works contracts where the gross value of works contract includes the value
of all goods used in or in relation to the execution of works contract wheth-
er received free of cost or for consideration under any other contract. This
condition would not apply to those works contracts, where either the exe-
cution of works contract has already started or any payment (whether in
part or in full) has been made on or before the date of the amendment, i.e.
7-7-2009, from which the said amendment becomes effective (refer Notifica-
tion No. 23/2009-S.T., dated 7-7-2009).”

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