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WELCOME to Discussion meeting on Tamil Nadu Value Added Tax Act at Hotel Savera, Dr. Radhakrishnan Salai, Chennai-600004 - Mr P R Subramaniyan Head- Indirect Taxes L&T Construction, & Co-Chairman,28th February 2012 Expert Committee on VAT, MCCI
Works contract – Computationof VAT LiabilityComposition SchemeTDS Scheme & ProceduresIssues of ConcernsSuggestions for simplification - Mr P R Subramaniyan Head- Indirect Taxes L&T Construction, & Co-Chairman, Expert Committee on VAT, MCCI
If a contract is awarded for manufacture & supply of Boiler & accessories for agreedprice, -- Transaction construed as SalesInstead the contract is for manufacture, transportation, loading / unloading,installation, commissioning & handing over the installed boiler plant for an agreedcontract price. -- Transaction construed as Works Contract 3
SALE > DEEMED SALES SALE DEEMED SALE (Conventional sale) ( 46th Amendment1. SUPPLY & SALE OF ‘GOODS’ 1. TRANSFER OF PROPERTY IN GOODS - INVOLVED IN WORKS2. SALE – RESALE- RESALE 2. DEEMED SALE - • Buyer & Sellers • Contractor & contractee / client. • Supply of Goods • Project execution – Goods & services. • Transfer from sellers to buyers • Transfer of goods on the theory of • Price agreed by parties for the accretion. Goods • Price agreed for the project execution Art. 366 (29-A)- Tax on sale or purchase of goods
CONSTITUTION OF INDIA Article - 246 VII Schedule LIST 1 LIST - 2 (Union List) (State List) ENTRY 92 A ENTRY 54Taxes on the Sale or Purchase of goods Taxes on the Sale or Purchase of goodsother than news papers. Where such other than news papers, subject tosale or purchase takes place in the provisions of Entry 92 A of List 1course of inter-state trade or commerce. 46th CONSTITUTION AMENDMENT ACT (Art.366 (29-A) DEEMED SALES Controlled Works Hire Right to Supply of Supply toCommodities Contract Purchase use Goods food & Drink in Members Restaurants
SPECIMEN OF WORKS CONTRACT(I) SEPARATE DOCUMENTS Erection Service SUPPLY Installation Including & civil work Commissioning 6
SPECIMEN OF WORKS CONTRACT(II) COMPOSITE CONTRACT Service SUPPLY Including civil work BOQ for Supply BOQ for Service 7
SPECIMEN OF WORKS CONTRACT(III) LUMPSUM CONTRACT PRICE SUPPLY & Service EPC – turnkey • Payment - milestone or • Payment - work done per unit or • Payment - percentage completion 8
COMPOSITE CONTRACT CONTRACTUAL TERMS & CONDITIONS – SUPPLY & SALE OF GOODS Specific schedule for supply & sale of described goods. Clients agreeing to to issue of C-form for above supplies Contract providing for approved List of vendors / manufacturer Inspection by clients at vendor’s premises prior to despatch of goods – pre-despatch Inspection.
COMPOSITE CONTRACT CONTRACTUAL TERMS & CONDITIONS – SUPPLY & SALE OF GOODS Clients providing dispatch instructions eg., Title clause: Transfer of title to goods thro’ transfer of documents of dispatch documents eg., Lorry Way bill / Railway receipt/ entry permit. Invoicing / payment for supply of specific goods as per schedule.
. WORKS APPLICABLITY OF INTER STATE SALES CONTRACT IN WORKS CONTRACT TRANSACTION AS PER CST ACT 1956 U/s 3(a) or (b) of CST Act, 73 STC / 370 read with section 6 (2) (b). - Builders Association case “SUPPLY OF GOODS” 88 STC / 204“SERVICES” 132 STC / 272 – (AP – HC) - PAGE 235 L&T’s case Gannan Dunkerly Dept.’s SLP & Co case (civil) 22445-22447/2003 dismissed
Sec 5 of TN VAT Act – levy of tax on transfer of goods involved in works contract Tax is payable on taxable turnover relating to transfer of property in goods involved in the execution of works contract- either in same form or some other form Tax payable at such rates as specified in the first schedule
Total ACTUAL BASIS Contract Material Labour Part Part VAT Ser. Tax Payable Payable VAT on transfer of property - on the theory accretion - WCT Transferrable Value Landed Cost + Profit.Example (Figure in Rs.)Material Landed Cost Profit(10%) Value Tax rate TaxCement 100 10 110 14.5% 15.95Steel 200 20 220 5% 11.00
Deemed as BAI Vs. Union of India State not to Tax sale and (SC) 73 STC / 370 on Gross Value subject to sales tax of goods“……….. after the 46th Amendment under which by a legal fictionthe transfer of property in goods involved in a works contract wasmade liable to payment of sales tax that they are not governed byarticle 286 while levying sales tax on sale of goods involved in aworks contract? They cannot do so. When the law creates a legalfiction such fiction should be carried to its logical end. Thereshould not be any hesitation in giving full effect to it. If the powerto tax a sale in an ordinary sense is subject to certain conditionsand restrictions imposed by the Constitution, the power to tax atransaction which is deemed to be a sale under article 366(29-A) ofthe Constitution should also be subject to the same restrictionsand conditions. ------------------------. The contractor becomes liableto pay the sales tax ordinarily when the goods or materials are soused in the construction of the building and it is not necessary towait till the final bill is prepared for the entire work……..” ( page 400)
Rule 8 (5) of TNVAT Rules prescribes method for arriving at “Taxable Turnover” Taxable Turnover to be arrived after deducting the following amounts from total turnover a) All amounts in respect of goods in the course of export or in the course of import or in the course of inter-State trade or commerce; b) All amounts towards goods specifically exempted from tax under the Act; …contd.,
c) All amounts paid to subcontractors for execution of works contract whether wholly or partly;d) All amounts towards labour charges and other charges not involving any transfer of property actually incurred or at rate specified under the Rules if not ascertainable from books of accountse) All amounts including the tax collected from customer, refunded to customer or adjusted towards any amount payable by the customer.
COMPUTATION MECHANISM - issues of concernI. Specific priceII. Cost PlusIII. Composite price As per the State Act - generally adopting SC guidelines of 88 STC/ 204 – !!!! Inter State sale - Sec. 13(aa) of CST Act- ???? Subcontractors turnover - conditions? Labour & Other like charges _-complexity Profit element –for dealers having multiple operations
COMPUTATION OF TAX LIABILITY Alternate method in computing tax liability – works contract. Pre-VAT & Post VAT period
COMPOSITION SCHEME Scheme differs from State to State Composition once opted, same for contract period Dealers cannot issue tax invoice to their customers. ITC benefit generally not accorded except Maharashtra State.
Sec 6 of TNVAT Act deals with payment of tax at compounded rate by Works contractor. This scheme is available only for the dealers, who do not purchase /procure any materials from outside TN. In other words, this scheme will not apply to a dealers procures goods from outside the State including stock transfer.
The dealer to apply to the assessing authority along with the first monthly return his option to remit tax on composition basis. The above scheme for a financial period The dealers exercising above option shall not avail ITC and shall not issue tax invoice. No need to keep books of accounts.
There is no clarity on the availability of exemption on sub-contractor’s turnover when main contractor pays WCT u/s 6 of TNVAT Act. Dealer to discharge liability on the entire contract value at 2% in case of civil works & 4% in all other works contracts.
i. Scheme does not allow inter-State purchase or importsii. Scheme is for all the works executed in the State – Job to Job basis not availableiii. Input tax credit denied on purchases.iv. Scheme is for the financial yearv. Works contractor shall not collect any amount by way of tax
i. Suggesting to adopt erstwhile 7C of TNGST Act for simplification and to achieve the object of the scheme Payment of tax on composition basis shall be allowed on job to job basis at the discretion of dealers. Restriction on inter-State purchase or imports to be removed Restriction on collection of tax from contractee shall be removed.
Sec 13 of TN VAT Act – deduction of tax at source Any person paying any sum to dealer for execution of works contract shall deduct TDS In case of civil works / civil maintenance works contract – 2% of total amount payable In other works contracts – 4% of total amount payable ….contd.,
TDS deduction shall not be made where a) no transfer of property in goods is involved in the execution of such works contract or; b) Transfer of property in goods is involved in the execution of works contract in the course of inter-State trade or commerce or in the course of import or; c) The dealer produces a certificate in Form S from the assessing authority concerned that he has not liability to pay or has paid tax u/s . 5 Rule 9 of TNVAT Rules prescribes that tax deducted shall be deposited with the A.O having jurisdiction over the person or to any other authority authorised by DC to receive such payment, on or before 20th of succeeding month with Form R …contd.,
Certificate for deduction of tax shall be issued in Form T within 15 days of such deposit and a copy of certificate shall be sent to A.O having jurisdiction over the said dealer Amount mentioned in certificate shall be adjusted against tax liability of the dealer u/s. 5 or 6 Burden to prove that the amount is deposited already lies with dealer claiming the deduction. Any person who fails to deduct or deposit TDS, shall in addition pay interest at one and a quarter percent per month of such amount. .contd.,
Dealer on proving A.O that he is not liable to pay tax u/s 5, the A.O shall refund the amount deposited after adjusting arrears of tax if any due Tax deducted or interest shall become due without any notice of demand If any person contravenes the provision in deduction or deposit of TDS, same shall be recovered along with penalty and interest and the dealer is treated as assesee
i. TDS is effected even on advance paymentii. Form S – certification that the dealer has no liability or has paid tax u/s 5 – contradictory since form is obtained before start of job – hence not issuediii. Burden of proof that TDS is deposited lies with dealer claiming deduction – dealer has to ensure that Tax deducted by client is transferred to their A.O.
Blockage of working capital/duplication oftax paymentDealers to claim refund on normal courseIn the process refund nullified by arbitrarydemandsUnproductive litigation starts.
Abolition of TDS provision multi-point basis TDS waiver certificate – procedure to be simplified Waiver certificate to be for the entire contract period and not for any financial period Automatic waiver certificate for contractor paying tax under sec. 5 and files return regularly with tax payment..
INTER STATE SALES & IMPORT SALES Intra State Inter State Import sales sales sales Thomson Press (I) Ltd. Vs. Indure Ltd. and anotherGDC Vs. State of Rajasthan State of Haryana ( P&H) (FB) V. Commercial Tax Officer 88 STC / 204 (SC) 100 STC / 417 [ 034 VST 0509(SC) It is also to be noted“…. the legislative It does not, however, that the companypower of the State to ipso facto authorise had admittedlyimpose tax on such the State Legislature imported the goodstransfers under entry to levy taxes on the into India for54 of the State List sale or purchase of completion of thewill have to be goods where such sale project on turnkeyexercised keeping in or purchase takes basis of N.T.P.C.the view the place in course of inter Thus, by virtue ofprovisions contained State trade and article 286(1)(b) ofin Section 3, 4 and 5 commerce. The power the Constitution,of the Central Sales in this behalf vests they would not beTax Act.……” (p. 228) exclusively in the taxable. Parliament,
0ther issues on inter State sales & Import sales - Judicial supportINTER STATE SALES• State of AP Vs. Larsen & Toubro Ltd (132 STC / 272) - State appeal dismissed by SC• Mahim Patram (6 VST /248) SC –Sec. 13(aa)CST• Commissioner of VAT, New Delhi Vs State of Haryana– CST Appellate authority (New Delhi Bench) 23VST /10• Mitsubishi Corp. - Delhi HC – 34 VST /417IMPORT SALES Indure Ltd. – SC - 34 VST/509 BPL Telecom – Kerala HC – 23 VST/264 Embee Corp. – Bombay SC- 107 STC /196