Rule 6 Confusion - Will Option for Works Contract Composition Scheme be regarded as Exempted Service
IN the amended version of Rule 6 of the CENVAT Credit Rules, 2004, the word ‘value' for the purpose of sub-rules 3 and 3A was defined in Explanation I (b) under sub-rule 3D of Rule 6 as follows:
“(b) in the case of a taxable service, when the option available under sub-rules (7), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, or the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 has been availed, shall be the value on which the rate of service tax under section 66 of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed;”
A concerned netizen read this definition in the context of amended definition of ‘exempted services' in Rule 2(e) of CENVAT Credit Rules, 2004 and wondered if service providers engaged in providing ‘works contract service' and opting for composition scheme in terms of Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007, would be regarded as providers of ‘exempted service'.
In this regard, TRU in its D.O. Letter D.O.F.No.334/3/2011-TRUdated 28.03.2011 at paragraph 1.15 of Annexure C thereto clarified that the value in respect of services covered by a composition scheme will be tax amount divided by the rate of service tax applicable under section 66 read with any general exemption. As the prevalent rate is 10% the value shall be ten times the amount of service paid or payable.
So, the definition of ‘value' w.r.t to taxable service where composition scheme is availed is only for the limited purpose of its application in terms of sub-rule (3) and (3A) of Rule 6 of CENVAT Credit Rules, 2004. It does not in any way connote that 'work contract service' would also be regarded as 'exempted service' when composition scheme is availed because 'works contract composition scheme' itself provides for availment of CENVAT credit on capital goods and input services subject to restrictions imposed in sub-rule 2A of Rule 3 of Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007.