The full form of WCT is Works Contract Tax.

“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.

1. There is a transfer of property in goods involved in the execution of such contract, and

2. Such transfer of property in goods is leviable to tax as sale of goods (such as sales tax, VAT or WCT, etc.).

It must be noted that the words which are used here are “leviable to tax as sale of goods’, therefore, it is not necessary that VAT has been actually paid on the transfer of property involved in such contract. It is enough if transfer of property is leviable to tax as sale of goods for determining whether such contract is a works contract or not.

3. Such contract is for the purpose of carrying out:

(a) Construction,

(b) Erection,

(c) Commissioning,

Service Tax is only applicable on the service portion of a service. There are many services which include the sale of goods as integral part of it since these goods are used in providing the services.  To remove the confusion of separating the service portion & goods portion, a concept of declared services is introduced in service tax. Under declared services, a list of various services is given and there explanation to separate the service portion from the total service is provided in Service Tax(Determination of Value) Rules, 2006. Work contract is also part of these declared services and service tax on work contract is determined accordingly.

As per section 66E(h) of the Finance Act, 1994 service portion in execution of works contract is a declared service.

Section 65B(54) provides the meaning of work contract. Work contract means:

• A contract wherein transfer of property of 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, in or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.