Amendments to Valuation of Taxable Service - N. No. 24/2012

Earlier Valuation of Taxable Service Rules, has been amended by Notification No. 11/2012. However the said Notification is superseded by Notification No. 24/2012-ST dated 06/06/2012. The new amendments to valuations rules are as follows.

Valuation of Taxable Service – Notification No 24/2012:

A simplified manner for determining the value of service portion of a works contract from the total works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006.

In brief the value of the service portion is the gross amount charged for the works contract less Vat and the value of transfer of property in goods involved in the execution of the said works contract.

Gross amount includes	Gross amount does not include
Labour charges for execution of the works	Value of transfer of property in goods involved in the execution of the said works contract. Note: Where Value Added Tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax, shall be taken as the value of transfer of property in goods involved in the execution of the said works Contract
Amount paid to a sub-contractor for labour and services
Charges for planning, designing and architect’s fees
Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract
Cost of consumables such as water, electricity, fuel, used in the execution of the works contract
Cost of establishment of the contractor relatable to supply of labour and services and other similar expenses relatable to supply of labour and services	Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract
Profit earned by the service provider relatable to supply of labour and services

The scheme for determining the value of service portion will be contained in the revised Rule 2A of the Service Tax (Determination of Value) Rules, 2006. As per this scheme the value of the service portion shall be determined in the Manner explained in the table below –

Where works contract is for	Value of the service portion shall be
execution of original works	40% of the total amount charged for the works contract – Under VAT  labour/service general deduction is  30%
works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods	70% of the total amount charged  for the works contract – Under VAT labour/service deduction ranges from 15% to 40%
works contracts, other than contracts for execution of original works, including contracts for completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings.	60%  the total amount charged for the works contract – Under VAT  labour/service deduction is 25%

Important - “total amount” means the sum total of the gross amount charged  or the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services, if any; and

(ii) the value added tax or sales tax, if any, levied thereon:

For the said purpose, original works will include;

(i) all new constructions;

(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

Following is specifically included in valuation of service;

                    i.            Amount realized as demurrage or by any other name for provision of a service beyond the period originally contracted or any other manner related to provision of service.

Following is specifically excluded from valuation of service;

                    i.            Interest on Delayed payment of any consideration for provision of services or sale of property, whether moveable or immoveable,

                  ii.            Accidental damages due to unforeseen actions not relatable to the provision of service and

                iii.            subsidies and grants disbursed by the Government, not directly affecting the value of service

The value of taxable services involved in the supply of goods or drinks for consumption shall be the % age of total amount of value of service;

Description	% age of amount
Service provided in the supply of good or any other article of human consumption or any drink at a restaurant	40%
Services involved in supply of goods or any other article of human consumption or any drink as outdoor catering service	60%

Total amount includes value of all goods excluding vat and goods or services supplied free of cost. If value of FOC is not ascertainable fair market value to be considered.

Cenvat credit on input classifiable under chapter I to 22 of CETA, 1985 not admissible.