One of my friends is doing the following activities:
Engineering fabrication and installation of fire protection systems. The work involve supply of material and supply of service. VAT under the state Act has been paid for the entire contract works by opting Works contract compounding provision at 4% on the whole during the financial year 2006-07 and 2007-08.. With respect to the Service portion, the entire labour has been given to one subcontrator. My friend’s service portion is known to him as he has given labour sub-contract to one party. He has taken the SERVICE TAX turnover by adding proportionate Profit Plus the labour charges given to the sub-contractor. He filed Service Tax on the portion of Labour charges paid to sub-contractor plus proportionate profit @10% on the labour charges paid. In effect, the divisible-service portion is computed and tax at the relevant rate for the year 2006-07 and 2007-08 has been paid.
Now Show-cause notice has been given to pay service tax on the entire turnover on 33% of the total receipt at the rate applicable to the relevant years. Whether he is right when he pays tax on the Service portion only and VAT payment was made on the entire turnover?
Rema.
