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HISTORICAL BACKGROUND : HISTORICAL BACKGROUND Provincial legislature Tax on sale of goods & advertisement List-II-entry 48.Government of India Act,1935. Slide 3: Madras was the first state to bring within its Tax Net the transaction of “ Works Contract”. Slide 4: The Terms “ Goods ”, ‘Sale’ & ‘Turnover’ were amended in Madras General Sales Tax Act, 1939. Slide 5: Assessing Authorities Started Taxing works Contracts. Slide 6: This levy was challenged in the case of M/S Ganon Dunkerly & co.Ltd V/S State of Madras [AIR 1954 Mad. 1130] Slide 7: The High Court of Madras in its verdict held that the assessee were not liable to pay Sales Tax. Slide 8: Supreme Court Affirmed the same view taken by Madras High Court . Slide 9: In addition to the building contracts other kind of transaction like lease, Food & drink supply in Hotel were also held to be not Sales liable to payment of Tax. Slide 10: The Various Problems arose due to above decisions were referred to the Law Commission & its advise is sought. Slide 11: The Law Commission considered these matters in 61st Report & recommended certain amendments to the Constitution. Slide 12: Based on these recommendations, Parliament passed 46th Amendment amending Constitution. Slide 13: Many of the transaction in which property in goods passed but not considered as Sales were brought in Tax net. Slide 14: A new clause (29 A) was introduced in article 366 of the Constitution. Slide 15: Consequential to this amendment various State Governments formulated their laws to include all these transaction for the purpose of Tax. Slide 16: Maharashtra State enacted two separate Acts for Works contract & lease transactions. THESE ACT WERE AS UNDER : THESE ACT WERE AS UNDER The Maharashtra Sales Tax on the transfer of property in goods involved in the execution of Works Contract Act, 1989. B)Maharashtra sales Tax on the transfer of the right to use any goods for any purposes Act,1985. Slide 18: Both the enactment were operative before VAT to tax works contracts & lease Transactions. Slide 19: These enactments are now merged in MVAT ACT, 2002. WORKS CONTRACT : WORKS CONTRACT Definition of Sale : Section 2(24) Explanation : b (ii) The transfer of property in goods (whether as goods or in some other forms) involved in the execution of a works contract including an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. WORKS CONTRACT DEFINITION UNDER CST ACT. : WORKS CONTRACT DEFINITION UNDER CST ACT. “Works Contract” means a contract for carrying out any work which includes assembling, construction, building, altering , manufacturing, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. THERE ARE TWO IMPORTANT COMPONENTS OF ‘ SALE ’ IN WORKS CONTRACT : THERE ARE TWO IMPORTANT COMPONENTS OF ‘ SALE ’ IN WORKS CONTRACT It should be executed in the State of Maharashtra. There must be transfer of property in goods (whether as goods or in some other form). INDIVISIBLE CONTRACTS : INDIVISIBLE CONTRACTS Ordinarily all types of Indivisible contracts for supply of material and application of labour is a works contracts. Slide 24: The contract that is merely for supply of goods or only labour is not a works contracts. EXAMPLE OF WORKS CONTRACTS : EXAMPLE OF WORKS CONTRACTS All types of contracts for constructions, repairs, improvements, fixing, paintings etc. Contract for fixing tiles, windows, grills, electric installation, sanitations & plumbing has also been held as works contracts. EXAMPLES OF WORKS CONTRACTS (contd) : EXAMPLES OF WORKS CONTRACTS (contd) Composite contract for manufacture, supply installation & erection of moveable properties like machineries, cranes, air conditioners, cooling equipments etc. EXAMPLE OF WORKS CONTRACTS (contd) : Composite contract for maintenance & service, repairs, improvements , alteration , amendment , mixing blending, processing , servicing of any immoveable or moveable property. EXAMPLE OF WORKS CONTRACTS (contd) EXAMPLE OF WORKS CONTRACTS (contd) : Contract for Galvanizing electro plating, gold platting & chrome decoration. EXAMPLE OF WORKS CONTRACTS (contd) METHODS OF COMPUTATION OF TAX : METHODS OF COMPUTATION OF TAX There are two methods for discharging the tax liability in respect of Works Contract transaction. Slide 30: METHODS OF COMPUTATION OF TAX : METHODS OF COMPUTATION OF TAX Second method : Composition Slide 32: Value of goods which are used in the works Contract is alone taxable under MVAT ACT, 2002.The state government has no right to tax the cost of labour, consumables etc. SALE PRICE OF WORKS CONTRACT U/R 58(1) : SALE PRICE OF WORKS CONTRACT U/R 58(1) ENTIRE VALUE OF CONTRACT LESS:- A) Labour charges for execution of works contract. B) Amount paid by way of price for the entire sub-contract to sub-contractors. C) Charges for planning, designing, & architects fee. Slide 34: D) Charges for obtaining on hire machinery & tools used for the execution of works contract. E) Cost of consumables such as water, electricity, fuel etc. used in the execution of the contract, the property in which is not transferred in the course of execution of the works contract. F) Cost of establishment of the contractor to the extent to which it is relatable to the supply of labour & services to the works contract. Slide 35: G) Other similar expenses relatable to the supply of labour & services. H) Profit earned by the contractor to the extent it is relatable to the supply of labour & services. NORMAL METHOD : FIXED PERCENTAGE (Table U/R 58) : NORMAL METHOD : FIXED PERCENTAGE (Table U/R 58) Where proper evaluation of such expenses [a to h of Rule 58(1)] is not possible, fixed percentage of deduction have been prescribed from 15% to 40% Depending upon the activity (The table is separately given), Installation of Plant & Machinery – 15%, Painting – 20%, Pipeline – 20% COMPOSITION METHOD U/S 42(3) & (3A) : COMPOSITION METHOD U/S 42(3) & (3A) 8% for all contracts up to 20.06.2006. 8% for All contracts except Construction contract. ( w.e.f. 21.06.2006) 5% for notified construction contracts w.e.f. 21.6.2006, (Notifi- dt.- 30.11.2006), 1% for construction of flats / buildings, etc. w.e.f. 01.04.2010. (Notifi dt.- 09.07.2010) Slide 38: Construction contracts are notified by government vide notification no. VAT-1505/CR-134/Taxation-1 DT.30.11.2006, e.g. Buildings, Roads, Dams, Swimming Pool, Canals, Drainage, Jetty, etc. On Going Works Contract (S -96) : On Going Works Contract (S -96) Provisions of old Works Contract Act are applicable if works started prior to 1.4.2005 and continued thereafter. Works Contracts started prior to VAT Act – If tax was paid under composition scheme under old Act before 01.04.2005 , then tax is payable at the same rate under VAT, if contract continues. No set off is allowable for such ongoing contract. SET OFF : SET OFF Normal Method, U/R 58(1) = Full set off Subject to conditions U/R 55, 54, 53 & 52 Composition Tax @ 8% = 64% set off [Rule – 53(4)] Tax @ 5% = 4% Retention [Rule – 53(4)] Tax @ 1% = no set off (As per notification) On Going Contracts No set off is allowed. Service Tax is Part of Sales Price under Works Contracts : Service Tax is Part of Sales Price under Works Contracts DDQ of Hon`ble CST in case of M/s. Sujata Painters dt. 20.01.2012 may be referred. Service Tax forms part of Sales Price. ISSUE OF TAX INVOICE : ISSUE OF TAX INVOICE The contractor who opts for Composition scheme can issue Tax invoice & recover tax @ 1% , 5% or 8% in the Tax invoice. Composition Amount is included in the definition of Tax [2(29)] Interstate Works Contract : Interstate Works Contract As per section 2(g)(ii) of CST Act, Interstate Works Contract is treated as sale. Hon`ble Supreme Court decision, M/S Mahim Patram Private Ltd vs Union Of India & Others (dt- 23.02.2007) Provisions of the State Act can be used for assessment under CST Act [Section 9(2)]. TDS ON WORKS CONTRACT (Section 31) : TDS ON WORKS CONTRACT (Section 31) Any person or dealer (employer) is required to deduct the tax at certain percentage at the time of making payment to works contractor to whom he has awarded the works contract. TDS : TDS Deduction is to be made on the date of Payment or Credit. Amount of TDS not to exceed amount of Tax Payable. TDS is not applicable on amount of Tax. NO TDS on subcontracts. Payment of TDS - within 10 days from the expiry of the month of deduction Interest @1.25% p.m. for late payment of TDS. NOTIFICATION - TDS : NOTIFICATION - TDS No.VAT-1505/CR-123/Taxation 1 dated 1.4.2005. No. VAT- JC(HQ)1/VAT/2005/97 dated 29.08.2005 04.04.2012 regarding URD TDS Rates of TDS : Rates of TDS 2% TDS - Registered dealers / contractors. 4% TDS – Unregistered Contractor (up to 30.04.2012) 5% TDS – Unregistered Contractor (w.e.f. 01.05.2012) EXEMPTION FROM TDS : EXEMPTION FROM TDS If the aggregate amount payable to a dealer is less than Rs.5 lakh in a financial year, no tax at source is to be deducted. If pure labour contract then no Tax is to be deducted. Commissioner may issue a certificate in response to application of the dealer that the contract is not a Works contract then TDS is not required. FORMS RELATING TDS : FORMS RELATING TDS Return of TDS deduction Form 405 TDS certificate issued by the employer to the contractor in the Form 402. The register to be maintained by the employer shall be in Form 404. FORMS TO BE ISSUED BY PRINICIPAL CONTRACTOR : FORMS TO BE ISSUED BY PRINICIPAL CONTRACTOR Certificate regarding payment by the principal Contractor Form 406. Declaration by Principal Contractor Form no. 409. FORMS TO BE ISSUED BY SUB-CONTRACTOR : FORMS TO BE ISSUED BY SUB-CONTRACTOR Certificate regarding payment by the subcontractor in Form 407. Declaration by registered Sub-Contractor Form 408. CREDIT OF TDS : CREDIT OF TDS Amendment carried out in sub section (4) of section 31 make it clear that credit for payment may be claimed in the period in which the certificate for payment is furnished to him by the person deducting tax at source. Works Contract - Builders : Works Contract - Builders The taxable event – Agreement to sale the flat before completion of the Building. Period - 20.06.2006 to 31.03.2010 Tax can be paid by : a. composition (u/r 42 (3) @ 5%) b. Actual expense method (u/r 58(1) c. Standard deduction method (u/r 58) Works Contract - Builders : Works Contract - Builders Period : after - 01.04.2010 Tax can be paid by way of : a. composition (u/r 42 (3A) @ 1% b. Actual expense method [u/r 58(1)] c. Standard deduction method (u/r 58) No set off if composition is opted. IMPORTANT JUDGEMENTS : IMPORTANT JUDGEMENTS Builder’s Association (73 STC 370). States can not levy WCT on entire consideration, but only on valuable consideration received in respect of goods transferred. Gannon Dunkerly (88 STC 204). Formula for calculating the value of the goods by deducting the various charges towards labour and services, etc . N M Goel (72 STC 370). Goods supplied by employer to contractor for valuable consideration is treated as transaction of sale. IMPORTANT JUDGEMENTS : IMPORTANT JUDGEMENTS K. Raheja Case (141 STC 298) works contracts include any type of agreement wherein the construction of a building took place for valuable consideration. Mycon Construction (111 STC 322) Validity of composition scheme is upheld. Larsen & Tourbo Ltd. (SC, 2008) There is only one sale, i.e. from subcontractor to employer IMPORTANT JUDGEMENTS : IMPORTANT JUDGEMENTS Silpi Construction (Kerala HC 2009) Timber and plywood are not used in the same form but in other form . Kone Elevators (140 STC 22) Contract of erection and installation of lift is a contract of sale. Matushree Textile (132 STC 539) Property in goods transferred in case of dyeing of textile. L & T Limited V/s State of Karnataka (2009), Depreciation and other expenses are allowed. IMPORTANT JUDGEMENTS : IMPORTANT JUDGEMENTS NCC SMS Unity JV (MSTT , SA No.-127 of 2010, dated 04/02/2012) Composition method , once opted , can not be changed by revised return and pure profit of contractor is taxable under composition, if subcontractor opts for composition. Nikhil Comforts (MSTT , SA No. 3 of 2010, dated 31/03/2012) The amount of Service tax is treated as a part of sale price in case of composition. : Thanks……. Taxtantra –VAT made simple by Taxnova Publishing House……. You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.