basic provisions relating to works … ca vijay shroff 1 presented by – ca vijay shroff august 18,...

8/18/2012

CA Vijay Shroff 1

Presented by – CA Vijay ShroffAugust 18, 2012

At Study Group Meetingof J. B. Nagar CPE Study CircleAndheri, Mumbai

BASIC PROVISIONS RELATING TO WORKS CONTRACT & TDS

V J SHROFF & CoChartered Accountants

Agenda

Definition of Works Contract Types of Contract Examples of Various Works

Contract Determination of SP of Works

Contract Set-off Provisions relating to

Works Contract Sub-contracting TDS Provisions Issues

2 V J SHROFF & CoChartered Accountants

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Definition of Works Contract


Definition of Works Contract Normal Sales & Works Contract Works Contract is defined under the MVAT Act,

2002 –Explanation (b) to section 2(24) – Deemed Sales –“a tax on the transfer of property in goods (whetheras goods or in some other form) involved in theexecution of a works contract including Building,construction, manufacture, processing, fabrication,erection, installation, filling out improvement,modification, repair or commissioning of any moveableor immoveable property.”


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Definition of Works Contract (Contd..) Works Contract is defined under the CST Act,

1956 –Section 2(ja) –“a contract for carrying out any work which includesassembling, construction, building, altering,manufacturing, processing, fabricating, erection,installation, fitting out, improvement, repair orcommissioning of any movable or immovableproperty.”


Types of Contracts


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Types of Contract

Contracts can be divisible or indivisible. Where thevalue of materials can be identified separately, it is aDivisible Contract - e.g. Sales and after sales servicecontract

When Contract awarded for a lump sum amount, itis an Indivisible Contract - e.g. turnkey contract

There can be more than one contractors involved inthe job. Even Contractors can further pass on the jobto other contractors. Known as sub-contractors


Examples of Various Works Contract


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Examples of Works Contracts

Construction of civil structures and repairs, maintenance,etc. thereof

Repairs and maintenance of contracts including AnnualMaintenance Contracts for computers, air-conditioners,etc.

Printing contracts such as printing of stationery,brochures, pamphlets, etc.

Tailoring contracts for staff uniforms, dresses, etc. Electrical contracts Photocopying contracts Waterproofing contracts Interior decoration contracts


Determination of SP of Works Contract


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DETERMINATION OF SP FOR WORKSCONTRACTS –

Total Contract Value (Value of Entire Contract) 100Less: Allowable Deductions: XX1. Sub – Contract Value paid to Registered Contractor XX2. Labour Charges for execution of WC – subsequent to trf XX3. Planning, Designing & Architect’s fees XX4. Hire Charges or otherwise, for obtaining Machinery & Tools for WC XX5. Cost of Consumables in which there is no transfer of property e.g.: Water, Electricity, Fuel, etc.

XX

6. Cost of Establishment relatable to supply of labour & services XX7. Similar other expenses relatable to supply of Labour & Services XX8. Profit relatable to supply of Labour & Services 33Balance sales Price ----- Deemed Sale Value of Goods involved in execution of WC, in which transfer of property takes place

67

RULE 58 - Gannon Dunkerly & Co. v/s. State of Rajasthan (1993) 88 STC 204 (SC)


DETERMINATION OF SP FOR WORKSCONTRACTS (contd..) –

Total contract value 100Less: sub contract XXLess: Lump sum deduction rule 58 – proviso XXBalance taxable XX

If accounts not maintained or Commissioner do notaccept accounts – lump sum deductions

The value of goods so arrived at shall be the SP relating to thetransfer of property in goods involved in execution of WC, forthe purposes of levy of tax@ 0 / 1% /4%/5% / 12.5%, asapplicable


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DETERMINATION OF SP & PP FOR WORKS CONTRACTS (Contd.)

RD can collect the tax separately, to the extentpayable, on any sale of goods [Sec. 60(2)]

Where RD has not collected the tax separately, thetax element can be reduced from the `Sale Price’ forthe levy of tax [Rule 57(1)]


COMPOSITION SCHEME FOR WORKSCONTRACTS –[Sec. 42(3)]

Total contract value XXLess: sub contract XXBalance contract value Tax @8% or @5% XX

Option to contractors – contract-wise

Such composition sum can be collected separately, to theextent payable by a registered dealer, on any sale of goods[Sec. 60(2)]

If Composition Sum is not collected separately - it is payableon the contract value without any reduction of compositionelement, as per Rule 57(1), however if contract provides thatcontract value is inclusive of taxes and duties then it ispayable after reduction as per rule 57(1)


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Composition scheme u/s 42(3A) for Builders & Developers

For builders & developers issued u/s 42(3A) of theMVAT Act, 2002 vide notification dt. 9.7.2010

Features of composition scheme - Available only to the registered dealer Composition amount payable is @1% of the aggregate

amount specified in the agreement or the values specifiedfor stamp duty in respect of agreement, whichever is higher

Agreements registered on or after 1.4.2010 covered by thescheme

Composition amount to be paid by making E-payment &include turnover of ‘sale’ in the sales tax returns


Composition scheme u/s 42(3A) forBuilders & Developers (Contd..)

No set off in respect of the purchases. Concessional interstate purchase agst Form C is not

allowed if composition is opted. Developers cannot issue Form 409 to subcontractor

but charge applicable VAT @5% on its billing to thedevelopers.

Developers to not to issue tax invoice. Once themethods of computation of tax liability in respect ofthe contract is opted, the same cannot be changed


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Set-off Provisions relating to Works Contract


Set-off Provisions relating toWorks Contract

Where the dealer has opted to pay composition at 5% onNotified Construction Contracts, Setoff shall be reducedby 4% (u/r 53(4)(b)) of such Purchase price

Notified Construction Contract (Not No. VAT-1506/CR-134/Taxation-1 w.e.f. 20/06/2006)– Buildings,Roads, Runways, Bridges, Railway over bridges, Dams,Tunnels, Canals, Barrages, Diversions, Rail Tracks,Causeway, Subways, Spillways, Water Supply Schemes,Sewerage Works, Drainage, Swimming Pools, WaterPurification Plant and Jettys - Incidental or Ancillary tothe contracts


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Set-off Provisions relating toWorks Contract (Contd..)

For other WCs covered under composition (Rule53(4)(a)) - Corresponding Setoff be reduced by 36% (Noreduction on Capital Assets and on goods in whichProperty is not transferred)

Full set-off in case of Rule 58(1) as well as Proviso toRule 58 (1)


Ineligible Set-off – Rule 54

Rule 54(g): No set-off in respect of purchases effected by wayof works contract which results in immovable property Under this sub-Rule, the set-off is denied to purchaser of goods;

i.e., contractee. The contractor will get the set-off as per theprovisions of law

Sub-rule (g) is substituted from 8.9.2006 it shall not be disallowedin case of plant and machinery

Rule 54(h): No set-off on purchases of any goods in whichproperty is not transferred (either in same form or any otherform) to any person and which are used in erection ofimmovable property other than plant and machinery This is corollary of earlier clause


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Sub-contracting


Sub-contracting

Main contractors & Sub contractors - Relationshipshall be deemed to be that of the Principal & Agent[Sec.45(4)] Their liability to pay tax shall be joint & several Main Contractor not liable on corresponding ‘turnover of

sales’ if sub-contractor has paid taxes – Forms 407 & 408 Sub-contractor not liable if Main Contractor has paid taxes

– Forms 406 & 409


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TDS Provisions


TDS UNDER VAT – [ Sec. 31 /Rule 40]

TDS provisions applicable to payments made for Works Contracts, orother purchases, as notified

Persons/employers as notified [VAT-1505/CR-123/Taxation/dt.1.4.05] No TDS:

on Sub-Contracts On contract covered u/s 8 viz; Interstate works contract etc. [8(5) Not No.

VAT-1507/CR-93/Taxation-1 dt. 31/03/08 and 8(3c) Not. No. VAT-1507/CR-70/Taxation -1 dt. 25/09/08]

Advance payments liable to TDS only when it is adjusted against theamount payable

No deduction if amount payable in a year is less than Rs. 5 lakhs – If itexceeds deduct TDS @2% in case of RD and 4% upto 31/03/2012 and5% w.e.f. 01/04/2012 in case of URD

Co-op. Housing Societies to deduct if contract awarded exceeds Rs. 10lakhs24 V J SHROFF & Co

Chartered Accountants

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TDS UNDER VAT – [ Sec. 31 /Rule 40] (Contd..)

Contractor may apply to Authority for either No TDS orlower TDS, in prescribed manner

If Tax is not deducted, still TDS is payable. Interest ispayable for late payment of TDS

TDS – important due dates TDS E-payment in MTR 6 – by 21st of next month TDS certificate (form 402) – issue immediately on deduction /

payment Maintain register (form 404) Yearly TDS Return has to be filed in Form 405 within 3 months

from the end of Financial year


Issues


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Issues

Whether VAT is payable on material supplied byContractee to Contractor at a value or free of cost? N.M. Goel & Co – 72 STC 368(SC) Rastriya Ispat Pvt. Ltd. – 109 STC 425 (SC)

Works contract – delay due to non-availability of site –compensation received for loss of overheads, idlemachineries and loss of profit- whether form part of saleprice and liable to VAT?


Sub-contracting

Main contractors & Sub contractors -Relationship shall bedeemed to be that of the Principal & Agent [Sec.45(4)] - liability to pay tax shall be joint & several deductions will be given to either, based on producing

prescribed certificates

Can a dealer award work contract “against form 406/409 –no tax” for a future anticipated contract?


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Set-off

Is Set off available if supplier charged @ 12.5% instead of4%/5%?

Is set off available even if TIN no. of Purchasing Dealer notmentioned on Purchase Invoice?

Is full set off available to sub-contractor who charges andpays full tax through Principal Contractor opts forComposition @ 5%/8% ?


Inter-state Works Contract

What is it? When is works contract said to be covered by CST Act?

SC Builders Assoc. [88:STC:248] – 20th Century [119 STC 182]

Inter-state movement of Raw material/processing material / components Finished goods – not requiring to work upon

Is ‘in transit sale’ possible in inter-state Works Contract? Very controversial Is ‘sale in the course of imports’ possible?

Is deduction u/r 58(1) – table deduction available? MahimPatrem (6:VST:248) (SC)

Is ‘composition scheme’ available for a inter-state WorksContract?30 V J SHROFF & Co

Chartered Accountants

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Composition Scheme

Is VAT payable on service tax element? Sujata Painters DDQ – 11-2007/Adm-3/16/B-1 dt. 20/01/12 Nikhil Comforts - SA No. 30 of 2010 dt. 31/03/52012 - MSTT

Is deduction u/r 57(1) available? Painterior –LB SA no. 1053 to 1056 of 06 dt 8.5.09


Adhoc deduction as perproviso to Rule 58(1)(a)

Is it upon the dealer to justify such a deduction?

Is it that the Business Auditor to attempt to calculaterule 58(1) deduction & then compare with adhocdeduction?

Is ‘depreciation’ on plant & machinery’ used at siteavailable as deduction u/r 58(1)? – refer L & T [34 VST53 (kar)]


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Works contract - TDS

Claim of credit TDS certificates – formats For earlier periods – amended sec 31(4) If on sale/supply contract TDS is deducted?

Deduction of TDS Indivisible contracts Notification – employer Interstate W/C – no TDS deductible


Works Contract TDS –Non Deduction by Employer

What is the fall out? Levy of interest & penalty

If contractor has paid tax. Can it be said that no furtherliability on ‘employer’? [Refer Hindustan Coca ColaBeverages P Ltd (SC) 293 ITR 226]


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THANK YOU !!

V J SHROFF & CoChartered Accountants

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