Question 19:Reg: Determination of value of service portion in the execution of a works contract. Wef 01-07-2012
Rule 2A (i) of Service Tax (Determination of Value) Rules, 2006 provides that Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.
Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006 provides that Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-
(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty percent of the total amount charged for the works contract;
(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract;
(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent of the total amount charged for the works contract
Question
Whether the value of service portion will be determined as per Rule 2A (ii) of Service Tax (Determination of Value) Rules, 2006 in case of
(i) The Service provider has not opted for composition scheme under State VAT Act and paying VAT according to goods used and transferred (say 10% of total contract value) in construction and/or providing related services.
(ii) The Service provider has opted for composition scheme under State VAT Act and paying VAT on 70% of total contract value ( goods used and transferred (say 10% of total contract value) in construction and/or providing related services.

Answer No the Service portion will not be determined as per Rule 2A (ii) where the VAT or sales tax has been paid actual goods transferred because the same value has been taken in Rule 2A (i) and Rule 2A (ii) also specifies that rule 2A (ii) applies only when value has not been determined in Rule 2A (i). This is also specified in explanation (c) of Rule 2A(i) which is reproduced below:-

(c) Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause. (REPLY dt. 01/03/2018)