Circular No.

138/07/2011 – Service Tax

 
   F. No. 137/57/2011 – Service Tax
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
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New Delhi, the May 2011
 
To
 
 
Chief Commissioners of Central Excise & Customs (All)
Chief Commissioners of Central Excise (All)
Director General of Central Excise Intelligence
Director General of Audit & DGST
Commissioners of Service Tax (All)
 
Madam/Sir
 
Subject: Representation by Jaiprakash Associates Limited, Noida, in terms of
Judgement dated 14.02.2011 in W.P. No. 7705 of 2008 – regarding
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The Works Contract service (WCS) in respect of construction of Dams, Tunnels, Road,
Bridges etc. is exempt from service tax. WCS providers engage sub-contractors who
provide services such as Architect’s Service, Consulting Engineer’s Service,
Construction of Complex Service, Design Services, Erection Commissioning or
Installation Service, Management, Maintenance or Repair Service etc. The
representation by Jaiprakash Associates Limited seeks to extend the benefit of such
exemption to the sub contractors providing various services to the WCS provider by
arguing that the service provided by the sub contractors are ‘in relation to’ the exempted
works contract service and hence they deserve classification under WCS itself.
 
2.       The matter has been examined.
 
(i)        Section 65A of the Finance Act, 1994 provides for classification of taxable services,
which mentions that classification of taxable services shall be determined according to the terms
of the sub-clauses (105) of section 65.  When for any reason, a taxable service is prima facie,
classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be
effected under the sub-clause which provides the most specific description and not the sub-
clauses that provide a more general description.
 
(ii)       In this case the service provider is providing WCS and he in turn is receiving various
services like Architect service, Consulting Engineer service, Construction of complex, Design
service, Erection Commissioning or installation, Management, maintenance or repair etc., which
 are used by him in providing output service. The services received by the WCS provider from its
subcontractors are distinctly classifiable under the respective sub clauses of section 65 (105) of
the Finance Act by their description. When a descriptive sub clause is available for classification,
the service cannot be classified under another sub clause which is generic in nature. As such, the
services that are being provided by the sub contractors of WCS providers are classifiable under
the respective heads and not under WCS.
 
(iii) Attention is also invited to CIRCULAR NO 96/7/2007-ST, dated 23rd August, 2007 regarding
clarification on technical issues relating to taxation of services under the Finance Act, 1994. The
relevant portion is reproduced below,-
 
999.03 A taxable service provider A sub-contractor is essentially a taxable
/23.08.07 outsources a part of the work by service provider. The fact that services
engaging another service provider, provided by such sub-contractors are used by
generally known as sub-contractor. the main service provider for completion of
Service tax is paid by the service his work does not in any way alter the fact of
provider for the total work. In such provision of taxable service by the sub-
cases, whether service tax is liable contractor. Services provided by sub-
to be paid by the service provider contractors are in the nature of input
known as sub-contractor who services.
undertakes only part of the whole Service tax is, therefore, leviable on any
work. taxable services provided, whether or not the
services are provided by a person in his
capacity as a sub-contractor and whether or
not such services are used as input services.
The fact that a given taxable service is
intended for use as an input service by
another service provider does not alter the
taxability of the service provided.
 
4.         Therefore, it is clarified that the services provided by the subcontractors / consultants and
other service providers are classifiable as per Section 65 A of the Finance Act, 1994 under
respective sub clauses (105) of Section 65 of the Finance Act, 1944 and chargeable to service tax
accordingly.
 
Yours faithfully
 
 
(Deepankar Aron)
Director (Service Tax)
CBEC, New Delhi