Hi Readers In the last post we discussed briefly the types of contracts under the broad category called Nature of Transaction. We discussed that based on the Nature of Transactions; contracts are classified as Supply, Service and Works Contracts. Also we further explained supply contracts and their key characteristics. To read the post again, please click: http://www.rkstrainings.com/difference-among-supply-services-works-contracts-1/
In this post, we are going to discuss other two types: Service Contracts and Works Contracts. Eventually two posts together will bring out the underlying differences among Supply, Service and Works Contracts
Service Contracts
These are the contracts for PROVISION and RECEIPT of SERVICES between the parties. The party who provides the SERVICES is known as Service Provider. Party who receive the services is known as Service Receiver.
The Finance Bill provides the Definition of “Service” under Service Tax Act as follows: Service means any activity carried out by one person for another for consideration but does not includes: a) an activities which constitute merely: 1) transfer of title in GOODS or IMMOVEABLE PROPERTY by way of sale, gift or in any other manner; or 2) a transaction in money or actionable claims; b) a provision of service by an employee to the employer in the course of or in relation to his employment; c) a fee taken by any court or tribunal established under any law for the time being in force
Now the Service Tax Act has been replaced with GST Act
Under service contacts, service provider does something of some value, benefit or advantages to service receiver for money consideration and transaction between them is known as Provision of Services. The key differentiator is that in Service Contracts nothing moves physical from one party to another and there is no transfer of property between the parties.
Services are intangible products rather than physical goods. Services include all such actions, deeds and effort performed by one person for another to satisfy a need/desire (of another person) in the course of business or commerce. Service Contracts involves only the exchange of services between the parties without any involvement of sale or purchase of goods between them
Examples of Service Contracts
We deal with Service Contracts daily sometime consciously or sometime even not know that we are doing so. Few examples of Service Contracts are as follows;
- Receiving transport facility such as cab, bus, train and flight for moving one place from another; requesting someone for installation of AC, rectification of electrical fault or cleaning our house are typical examples of a service contracts in our personal life.
- In our work life, we engage design consultants, manpower consultants, legal advisors, Installation Contractors and Transport Agencies as required. These are good examples of service contracts in work life
- All above examples are pure service contracts which do not involve physical possession or transfer of anything between the parties
Works Contract
Works contracts are nothing but integrated contracts of supply plus services. These are called composite contracts wherein scope involves the supply of goods and provision of services. This is not a third category, but, a combination of supply and services. In certain situation, it may not be possible to divide the scope of work into goods and services. Moreover, sometime one does not intend to break the scope into supply and services. So Works Contract seems ideal type for such situation
Under Work Contracts, the contractor supplies the materials and also render the services to the Owner for money consideration and transaction between the parties is knows as Execution/Performance of Work
Examples of Works Contracts:
We deal with Works Contracts daily sometime consciously or sometime even not know that we are doing so. Few examples of Works Contracts are as follows;
- Repair of a computer along with supply of damaged parts; repair of house-hold electric fault including supply of damaged item; painting the house with supply of required paint are typical examples of Works Contract in personal life.
- Design, supply & installation of a Power Plant on Turnkey Basis and Construction of a Residential Building with supply of all materials and permanent plant are typical examples of Works Contract in our work life
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