Service portion in execution of a works contract under Declared services [Section 66E] :

Works contract is a contract for the provision of service as well as supply of materials. As decided by Apex Court in BSNL v. UOI 2006 (2) S.T.R. 161 (S.C.), a works contract can be segregated into a contract of sale of goods and contract of provision of service. This declared list entry has been incorporated to capture this position of law in simple terms.

In terms of Article 366 (29A) of the Constitution of India transfer of property in goods involved in execution of works contract is deemed to be a sale of such goods. Prior to insertion of clause (29A) in article 366 of the Constitution defining certain categories of transactions as ‘deemed sale‘ of goods the position of law, as declared by the Supreme Court in Gannon Dunkerley‘s case was that a works contract was essentially a contract of service and no sales tax could be levied on goods transferred in the course of execution of works contract. It is only after the constitutional amendment that VAT or sales tax is leviable on such goods. The remaining portion of the contract remains a contract for provision of service.

Whether the following contracts would be treated as a works contract?

S.No.	Nature of contracts	Whether covered under works contract?
1	Labour contracts in relation to a building or structure	No, labour Contracts do not fall in the definition of works contract. It is necessary that there should be transfer of property in goods involved in the execution of such contract which is leviable to tax as sale of goods. Pure labour contracts are therefore not works contracts and would be leviable to service tax like any other service and on full value.
2	Contracts for repair or maintenance of motor vehicles	Yes, contracts for repair or maintenance of moveable properties are also works contracts if property in goods is transferred in the course of execution of such a contract. Service tax has to be paid in the service portion of such a contract.
3	Contracts for construction of a pipe line or conduit	Yes, as pipeline or conduits are structures on land contracts for construction of such structure would be covered under works contract.
4	Contracts for erection commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise	Such contracts would be treated as works contracts if transfer of property in goods is involved in such a contract.
5	Contracts for painting of a building, repair of a building, renovation of a building, wall tiling, flooring	Yes, if such contracts involve provision of materials as well.

Works contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property [Section 65(54)].