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Commercial aspects of civil construction


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This ppt is a comprehensive presentation on various aspects for the entities working in the construction domain. Starting from Tendering to Budgeting and going on to indirect tax aspects like VAT and service Tax.

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Commercial aspects of civil construction

  1. 1. [Agenda for the Day]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  2. 2.
  3. 3. Which Indian corporate today is not connected with<br /> the construction ?<br />
  4. 4. Started his careear as a <br />Civil Engineer building roads, dams.<br />
  5. 5. [Tendering]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  6. 6. You have received a tender from the Client / consultant M/s XYZ for making a 500 MW Thermal Power Plant in Gujarat.See Sheet Code 1 from the Case Studies<br />
  7. 7. Lets see how to approach the job<br />Of :-<br /><ul><li>Study of Tender Terms
  8. 8. Planning – Budgets, Funds, Project Timeline through PERT, CPM
  9. 9. Lining up various functions
  10. 10. Engineering
  11. 11. Stores
  12. 12. HR
  13. 13. Accounts
  14. 14. Safety and Quality</li></li></ul><li>
  15. 15. Understanding the conditions of the tender<br />
  16. 16. Cont...<br />
  17. 17.
  18. 18. [Accounting and Tax]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  19. 19. Some Income Tax & ACCOUNTING ISSUES – cont…<br />Theoretical Scenario – <br />Value of Work order is Rs.100 cr. <br />Estimated Completion Cost is Rs.80 cr<br />Cost Incurred till date is Rs. 20 cr<br />Percentage Completion is 25% (20/80)<br />Revenue to be booked is Rs. 25 cr. (Thus profit booked is Rs 5 cr)<br />
  20. 20. In response to a query on applicability of revised AS 7 to a real estate developer, before the Expert Advisory Committee (EAC) formed by the ICAI:- <br /><ul><li>the EAC observed that the pre-revised AS 7 covers real estate developer. However, the revised AS 7 is applicable only to Contractors.
  21. 21. The Percentage Completion Method is not an inappropriate method for accounting for the real estate developers. </li></li></ul><li>Guidance Note – Real Estate Accounting<br />The purpose of issuing the GN was to bifurcate the construction activity which was being carried out by the developer / builder on their own account.<br />GN asks you to determine the point at which significant risks and rewards with regard to the property get transferred on the basis of following criteria:-<br /> Transfer of ownership by way of deed<br />Transfer of possession.<br />
  22. 22. Guidance Note – Real Estate Accounting<br />3. Transfer by way of an enforceable agreement to sale subject to fulfillment of additional conditions :-<br /> a) Price Risk is transferred<br /> b) Buyer has legal right to sell or transfer his interest in the property without any conditions hampering such transfer<br />Once the risk and rewards are transferred the revenue needs to be recognisedas per :-<br />a) POCM prescribed under AS-7, if substantial acts with regard to construction are pending to be performed.<br />b) In other cases as per AS-9<br />
  23. 23. Booking Future Losses...<br />Another point worth noting for civil contractors is regarding foreseeable losses as per the judgement of Jacobs Engineering vs. ACIT (ITAT Mumbai) – <br />The assessee was engaged in the business of executing works contracts and was following the mercantile system of accounting and the “percentage completion method”. <br />It claimed a deduction for “foreseeable losses” on incomplete projects which was disallowed by the AO and CIT (A) on the basis that it was merely an anticipated loss based on an estimate. <br />
  24. 24. On appeal by the assessee, It was HELD,<br />(i) Para 13.1 of Accounting Standard 7 (AS-7) mandates accounting of foreseeable losses <br />(ii) The fact that AS-7 has not been notified by the Central Government as an accounting standard for purposes of s. 145 (2) is not relevant; <br />Thus anticipated losses on incomplete projects are allowable as a deduction subject to their being calculated as per AS-7. <br />
  25. 25. During the year 2010-11 construction of some bungalows and of common facilities has been started for a scheme of 200 bunglows.<br /> As on 31/03/2011 work of some bungalows was completed at plinth level and of some bungalows at first floor level. Also construction of club house was completed at first floor level. How the valuation of inventory, WIP should be done as on 31/03/2011.<br />Whether Land is to be seen as purchase and as a closing stock as on 31/03/2011. The club house and all common facilities are to be handed over to the society of members after completing the whole scheme. <br />How the accounting of completed work of common facilities should be made as on 31/03/2011 and at the time of handing over to the society of members.<br />
  26. 26. Lets put in some figures<br />Estimated Cost of Construction of one unit – Rs. 20 Lacs<br />Estimated Cost of Common construction (including cost of Land) allocable to each unit – Rs. 10 Lacs<br />Actual Cost Incurred Till 31/03/2011 –<br />On Flats – Rs. 10 Lacs per flat<br />Common – Rs. 5 Lacs per flat<br />Hence Percentage completed is 50%<br />Out of 200 units, agreement to sell transferring substantial risks have been made for 50 units at Rs. 100 Lacs<br />
  27. 27. Revenue / Inventory<br />So 50 units shall be valued at Rs. 50 Lacs (booking 50% of revenue) – Contract WIP<br />The balance 150 units shall be valued at Rs. 15 Lacs (At Cost) – Inventory of Flats under Construction<br />At the end of the project, the Complete Contract WIP is transferred to Society A/c along with all the Customer Receipts. <br />
  28. 28. Tax Incentives<br />Infrastructure – Sec 80IA(4)(i)<br />Housing projects – Sec 80IB(10)<br />SEZ development – Sec 80IAB<br />
  29. 29. There is a difference between developer and contractor.<br />Developer designs and conceives new project and the contractor executes the same without any risk on his own account.<br />Benefit is available only for the developer.<br />
  30. 30. Section 44AD : Presumptive Taxation<br />Deemed income under the head " Profits and gains of business or<br />profession"<br />- 8 percent of the total turnover / gross receipts<br />- Higher sum as declared by the assessee in his ROI<br />Applicable only if gross receipts paid or payable does not exceed sixty<br />lakhsrupees<br />Depreciation deemed to have been calculated<br />All deductions under Section 30 to 38 be deemed allowed<br />Salary and interest to partner to be deducted from income computed<br />Tax Audit required only if income lower than 8%.<br />
  31. 31. Other Points to remember<br />No cash payments in a day to a single person > 20,000<br />Creditor Confirmations from local creditors<br />Delay in Statutory Payments including TDS beyond return filing period is added back to income.<br />
  32. 32. Problem given to Jinee<br />
  33. 33. [VAT]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  34. 34. VAT – The Three words which have really tormented the construction sector<br />
  35. 35. VAT for Civil Construction<br /> Bird’s eye view:-<br />Registration – When and how?<br />VAT Compliance at a Glance<br />Definition of Works Contract<br />Valuation Options – Regular vs Composition<br />Inter-State Works Contracts<br />Overall lap in Service Tax and VAT<br />TDS Rate under GVAT<br />VAT Input<br />Audit of Accounts<br />VAT Planning Tips<br />
  36. 36. Registration Requirement<br />REGISTRATION:<br />Turnover Threshold – <br />Casual dealer<br />or auctioneer Turnover of taxable sales of Rs.10,001 or more.<br />All Others Total Sales or Purchase turnover of Rs.5,00,001 or <br /> more <br /> AND turnover of taxable goods of Rs.10,001 or <br /> more.<br />
  37. 37. What isWorks Contract ?<br /><ul><li>46th amendment to the constitution does not provide any definition of works contract.
  38. 38. Works Contract is generally defined under CST and various State Acts, as:</li></ul> “Works Contract means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property.”<br /><ul><li>Predominant intention of the parties to the contract is not to sale or purchase the goodsbut to carry out certain work for a lump sum price</li></li></ul><li>The works contracts are not normal sales. <br />For example, at the site of construction of a building, before the Construction (works contract) commences, the goods like cement, steel, sand etc. are lying but after the Construction a building (immovable goods) comes to an existence. This is the difference between the ` Normal” sale and the “deemed sale” in the indivisible works contract .<br />
  39. 39. VAT Basics<br />Different acts for different states<br />VAT a cost to most clients unlike service tax<br />VAT is payable in all Works Contracts which involve transfer of property in goods. <br />Since the value of the Contract is indivisible, various issues are involved with respect to offering the VAT Liability.<br />
  40. 40. Valuation Options under VAT<br />
  41. 41. Valuation options under <br />Works Contract<br /><ul><li>Composition
  42. 42. Actual Labour</li></ul>deduction <br /><ul><li>Standard Labour</li></ul> deduction <br />
  43. 43. Basic Modes available in each state:-<br />Composition – Pay flat rate of tax on the turnover towards civil contracts, for e.g. 0.60% in Gujarat (No out-state purchases allowed), 4% in Orissa, 3% in Rajasthan, 2% in Madhya Pradesh. Advisable in case of Turnkey Contracts with significant material portion.<br />Actual – Identify the material consumed against the Running Account Bills raised during the period. Advisable when major materials like Cement / Steel are being supplied by the client.<br />For Ex. Value of Work is Rs. 20 Crores. <br /> Expected cost of Transferable materials (VAT Rate – 4%) is 4 crores. <br /> GP Rate is expected to be 20%.<br />VAT under Composition (M.P) – 2% of Rs.20 cr = Rs. 40 Lacs<br /> under Normal Scheme – 4% of (Rs 1 cr) = Rs. 4 Lacs<br />Where 1 cr is the allocable GP to Transferable Purchases <br />
  44. 44. Composition of Contracts <br /> ?<br />In other cases the rate is 2%.<br />
  45. 45. Types of composition<br />For complete contract <br />within 30 days of commencement of Work<br />For Complete year<br />Application within 30 days of commencement of Work<br />No condonation for delay – Matter Pending before Tribunal<br />Non receipt is assumed as granted<br />
  46. 46. Deduction in composition scheme - <br />Deduction of amount of entire sub-contract shall be made, if any<br /> - If under complete composition then even for unregistered contractors deduction is available<br /> - If composition contract to contract then only for registered sub- contractors. <br />No Labour deduction in Works Contract, if composition is opted<br />?<br />
  47. 47. Conditions for the composition Scheme:-<br />Dealer must be Registered Dealer<br />Conditions attached to Tax credit depending on state to state<br /> Tax Invoice shall NOT be issued to the client<br /> Tax shall NOT be charged from the client<br /> Conditions attached with regard to making Interstate / OGS Purchases<br />?<br />?<br />
  48. 48. 21 May 2011<br />41<br />TAXABILITY UNDER COMPOSITION METHOD<br />
  49. 49. Continued…<br />Once Application for composition is made and is not rejected by the department, the acceptance is presumed .<br /> Option shall be final and is IRREVOCABLE. <br /> (Rule 28(8)(i) )<br />Suggestion –<br /> 1. If you are applying a fresh registration, then its advisable to apply for composition at the same time. (Permissible period of 90 days is likely to lapse)<br /> 2. OGS items as Free Supply from the contractee.<br />?<br />
  50. 50. Regular Mode<br />The practical scenario is not so easy. In an unorganised sector, it is very difficult to obtain the relevant details.<br />Since the Sales Invoices are raised on a progressive basis, the VAT liability also has to be discharged on a progressive basis. <br />Identification of material transferred in each of the sales invoices is required. But which is a big task if the inventory has not been maintained in order.<br />Further if you are working with a client like Reliance, when you have 10-12 orders from 10-12 different group companies for the same plant, the situation can be very tricky.<br />Bifurcation of material into transferable and non-transferable may not be easy.<br />
  51. 51. 21 May 2011<br />44<br />Supreme Court Judgement in the case ofGannon Dunkerley & Company (88 STC 204)<br />Total Contact Value : xxxxx<br /> Less : Prescribed deductions: <br /> a) Labour charges for execution of Works Contract xxxxx<br /> b) Amount paid to sub-contractor for labour and services xxxxx<br /> c) Charges for planning, designing & Architect’s fees xxxxx<br /> d) Charges for acquiring machines, tools etc. on hire or xxxxx<br /> otherwise <br /> e) Cost of consumable in which property does not pass <br /> to contracteexxxxx<br /> f) Cost of establishment relating to supply of labourxxxxx<br /> and sevices<br /> g) Other expenses relating to supply of labour and services xxxxx<br /> h) Profit of contractor relating to labour & services xxxxx<br /> -----------<br /> BALANCE = Taxable Amount xxxxx<br /> ----------- <br />
  52. 52. 21 May 2011<br />45<br />WORKS CONTRACT TURNOVER- NON COMPOSITION METHOD<br />Analysis of prescribed deductions:<br />a) Labour charges for execution of Works Contract:<br />The value consists of mobilisation of men and material and <br /> establishment of site office etc. As these are preliminary expenses <br /> not involving value goods cannot be subjected to tax. <br /> b) Amount paid to sub-contractor for labour and services:<br /> Value relatable to sub-contractors turnover where sub-contractor is <br /> engaged only for labour and services not involving supply of goods<br /> c) Charges for planning, designing & Architect’s fees:<br /> Value for planning, designing and architects fees relating to<br /> construction of building or plant. As the expenses are in the nature<br /> of services hence eligible for deduction <br />
  53. 53. 21 May 2011<br />46<br />WORKS CONTRACT TURNOVER- NON COMPOSITION METHOD<br />Analysis of prescribed deductions:<br /> d) Charges for acquiring machines, tools etc. on hire or otherwise<br /> These goods are either taken on hire or purchased as assets for use in the<br /> process of execution of works contract. However, since the goods are neither<br /> incorporated in works contract nor sold to the customer there is no transfer of<br /> property in them and hence excluded for the levy of VAT. Nevertheless, Lease tax<br /> or VAT is payable to the vendor from whom they are acquired. <br /> e) Cost of consumable in which property does not pass to contractee<br /> These are the items such as water, electricity, fuel, lubricating oils, electrodes etc, <br /> which are getting consumed in the process of execution of works contract and<br /> hence the property therein is not transferred to the contractee and hence are<br /> excluded for the purpose of levy of tax.<br />?<br />
  54. 54. 21 May 2011<br />47<br />WORKS CONTRACT TURNOVER- NON COMPOSITION METHOD<br />Analysis of prescribed deductions<br /> f) Cost of establishment relating to supply of labour and services <br /> This cost is relatable to facility given to labor such accommodation and other <br /> facilities to make them available at job site for purpose of carrying out labour<br /> and rendering of services in connection with execution of works contract. <br /> g) Other expenses relating to supply of labour and services<br /> These are expenses in the nature of overheads, rent, salary, electricity,<br /> telephone charges expended relating to works contract job. <br /> h) Profit of contractor relating to labour & services<br /> This is the profit earned by the contractor over the cost of labour and services <br /> expended by him i.e. difference between the value recovered from the employer<br /> and the cost incurred by the contractor <br />
  55. 55. Basic Step is to sit with the Site Engineer and bifurcate all the purchases into Transferable and Non-Transferable. For Ex- Wooden Materials which are used for Shuttering activity, are not transferred to the client and are consumed and booked as “Consumables, Stores and Spares”. <br />You can then mark up the Purchases of Transferable with GP rate and offer the relevant rate on a monthly basis. <br />
  56. 56. Calculation sheet<br />Further you need to make sure that Non-Transferable Purchases of Rs. 40 has been Shown under the Head of Consumables, Stores and Spares in P&L Account. <br />
  57. 57. When no records are maintained<br />Adhoc deduction is available in each of the state – <br />In Gujarat under Rule 18AA – Deduction of 20% is available<br />
  58. 58. Deductions under Maharashtra VAT<br />21 May 2011<br />51<br />
  59. 59. 21 May 2011<br />52<br />Client’s material<br />Client can issue his material for use in execution of works contract awarded to the contractor where:<br /> a) Material can be issued as free supply not resulting in either recovery or<br /> sale to contractor or<br /> b) Material can be supplied on recovery basis or can be sold to the<br /> contractor .(N.M. Goel 72 STC 368 (SC) )<br />Value of material supplied not resulting in either recovery or sale, is outside the scope of works contract turnover and hence not liable for tax.<br />Value of material supplied on recovery basis or sold to the contractor will be included in the scope of works contract turnover and hence liable for tax <br />
  60. 60. 21 May 2011<br />53<br />Client’s material<br />To avoid litigation and tax being levied on value of the clients material, the dealer should ensure to incorporate the following clauses in the contract. <br /> a) The employer to issue his material free of cost to the contractor for use in the<br /> execution of works contract.<br /> b) The free issue material supplied by the employer shall be held in the custody of the<br /> contractor as bailee and the title/ownership in such material will always remain with<br /> the employer<br /> c) Contractor to provide periodical statement of reconciliation of the material consumed<br /> and balance stock held by the contractor on behalf of the employer<br /> d) The material in possession of the contractor shall not be diverted for any other use <br /> e) The cost of the free issue material supplied by employer will be outside the scope of<br /> contract and shall not be the part of consideration to be paid to the contractor. <br />
  61. 61. Is VAT applicable to Builders / Developers?<br />VAT<br />
  62. 62. When is a job established as a Works Contract – <br />FACTS IN THE CASE OF SUPREME COURT JUDGEMENT<br />OF K. RAHEJA DEVELOPMENT CORPORATION<br /><ul><li>Appellants were carrying on business as real estate developer.
  63. 63. They entered into Development agreement with owners of land.
  64. 64. The agreement was for carrying out construction on behalf of somebody else. </li></li></ul><li>Facts Contd….<br /><ul><li>The land owner transferred only the ownership of land to the purchaser and the appellant transferred structure by a separate agreement for construction.
  65. 65. The appellants were carrying out construction as developers for the prospective purchaser.
  66. 66. Agreement entered into before the completion of the unit, was considered as Works Contract.
  67. 67. Agreement entered into after the flat or unit already constructed would not be within the ambit of works contract.</li></li></ul><li>Latest……<br />However Supreme Court on Aug 19, 2008 has referred the judgment for reconsideration to a larger bench considering the Writ Petetion filed by L&T on the count that the judgement has adversely affected the entire construction industry.<br />
  68. 68. A small e.g. for Builders<br />
  69. 69. TDS Rate under GVAT<br />Person responsible for payment exceeding Rupees 1 crore for<br /> works contract is responsible for deduction of tax at prescribed rates <br />?<br />
  70. 70. VAT Input for Works Contracts<br />VAT Credit is available when goods purchased are used for the purposes such as:<br /> SaleResale<br /> Interstate saleExport<br />Transfer to Branch or sent to consignment agent. – <br />Reversal Rule introduced.<br />Input not available on P&M used in Work Contracts.<br />?<br />
  71. 71. Audit of Accounts us 63<br />A reg. dealer whose turnover exceeds Rs. 100 lacs(Taxable turnover – Rs.20 Lacs) in any particular year needs to get his accounts audited by a specified authority within nine months from the end of the year.<br /> A dealer should submit the audit report within 30 days from the obtaining such report to the concerned commercial officer.<br />?<br />
  72. 72. Some Tips :-<br />Free Supply vs Price Deduction by Contractee<br />If the client in his WO mentions VAT – Extra, WCT – Extra<br />Unregistered sub-contractor is making any taxable purchases, <br />Compare outstate suppliers’ with CST rates with the Gujarat suppliers’ before & After VAT rate.<br />In case of stock transfer, if VAT reversal rate comes more than 2% go for CST sales in place of stock transfer.<br />VAT on Concrete is 15%, but VAT on Sand/Aggregate is 5%, so what you transfer is important. – Cement is Free issue.<br />?<br />
  73. 73. Back to Back Contracts<br />L&T Judgement – <br />Property passes on from the Sub-contractor to the Client and contractor is just an agent.<br />Impact - <br />Mr X has awarded contract to Mr Y at Rs.100 cr.<br />Mr Y has sublet the complete job to Mr Z at Rs.80 cr.<br />Mr Y does not need to pay any tax on the portion of Rs.20 cr as there is no element of transfer of property as per Sale of goods Act.<br />Suggestion – Projects with huge margins can be subletted to any sister concern to reduce VAT implications.<br />?<br />
  74. 74. Any queries on VAT<br />
  75. 75. Contractors lead a very tough life….<br />
  76. 76. [Service Tax]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  77. 77. Service Tax for Civil Construction<br />Bird’s eye view:-<br />Basics<br />Registration – When and how?<br />Concept of Centralised Registration<br />Chapters and significant definitions<br />Schemes / Options available <br />Invoice Structuring<br />Concept of Cenvat Credit<br />Concept of GTA <br />Exemptions – SEZ / Road<br />Construction of Residential Complexes<br />Transfer of Right to use<br />How to handle Service Tax Audits<br />Penalties for Non-Compliance<br />
  78. 78. Basics <br />Service Tax Applies to whole of India except J&K.<br />Normal rate of Service Tax is 10.3%<br />Service Provider is normally the person liable to pay service tax upon crossing the turnover of Rs. 10 Lacs p.a.<br />Service tax is to be deposited only when payment is received.<br />Export of services is exempted for payment of service tax.<br />
  79. 79. Applicable rates<br />Period Rate<br />Upto 13.05.2003 5%<br />14.05.2003 to 09.09.2004 8%<br />10.09.2004 to 17.04.2006 10.20%<br />18.04.2006 to 10.05.2007 12.24%<br />11.05.2007 to 23.02.2009 12.36%<br />24.02.2009 onwards 10.30%<br />
  80. 80. Entities involved<br />Consultants – Architects, Real Estate Agents, Project consultants<br />Contractors – Civil, Mechanical<br />Builders and Developers <br />Land Owners – Own lands for further sale/lease<br />
  81. 81. Registration<br />Time – Within 30 days<br />Application to Jurisdictional Sp of Central Excise.<br />Docs – Address and Identity Proofs in ST-1<br />Each Location should be registered.<br />PAN Based Registration No. within 7 days<br />Penalty – Rs.5,000/- or Rs.200/- per day which is higher<br /> Intimation for changes within 30 days<br />Transfer / Cancellation<br />
  82. 82. Centralised Registration<br />Object – Several Premises for rendering services.<br />Optional<br />CCE grants the registration<br />Centralised Billing / Centralised Accounting<br />Zonal Centralised Registration<br />Modification<br />Concept of Input Service Distributor<br />Advantages<br />Time<br />No information to any other jurisdiction<br />Audit / Correspondence at one place<br />
  83. 83. Chapters and significant definitions – From Consultant’s perspective<br />Consultant Engineer<br />Architect<br />Interior Decorator <br />Real Estate Brokers<br />Management Consultancy<br />
  84. 84. Chapters and significant definitions – From Workmen’s perspective<br />Erection, Commissioning and Installation services.<br />Commercial and Industrial Construction<br />Construction of Complex<br />Management, Repair and Maintenance<br />Site Formation<br />Work Contract Service<br />
  85. 85. Chapters and significant definitions – From Resource supplier’s perspective<br />Renting of property services<br />Supply of Goods (without VAT) services<br />
  86. 86. When to pay<br />When does he pay?<br />Only at the time of Receipt<br />Consider TDS as deemed receipt<br />In case of transactions with associated enterprises, at the time of invoicing itself<br />Reconciliation - a major pain<br />Individuals, Proprietory & Partnerships pay on quarterly basis<br /> Others pay on monthly basis<br />
  87. 87. Option for Discharge of ST<br />
  88. 88. Sheet Code 2 – Work Order<br />Sheet Code 3 – Abstract<br />Sheet Code 4 – Invoice<br />Sheet Code 5 – Various Scenarios<br />Sheet Code 6 - FIM<br />
  89. 89. Financial Express Posted: Tuesday, Aug 11, 2009Amendment in works contract major concern for infra industry<br />The object of the amendment is to include the value of goods received free of cost from the client as also to plug the loophole of splitting a contract into sale contract and works contract. Thus revenue may also seek to include the value of materials procured by the client from third parties and supplied to the contractor on free of cost (FOC) basis. <br />It is further provided that this condition will not apply to those works contracts, where either the execution of works contract has already started or any payment (whether in part or in full) has been made on or before the date of the amendment, i.e. 07.07.09, from which the said amendment becomes effective.<br />
  90. 90. Basics on Cenvat Credit<br />Documentation<br />Invoice with ST/Excise no. Of the party<br />Credit of Excise Duty can be taken for purchases directly from the manufacturer / first stage dealer / second stage dealer.<br />Cenvat on input services is allowed only on payment basis.<br />Giving both taxable and exempt services – <br /><ul><li>Either Maintain Separate Books of Accounts for taxable and exempt services</li></ul> OR<br /><ul><li>Pay 5% of value of exempted servicesOrPay an amount equivalent to Cenvat Credit attributable to input services used in relation to providing exempt services. </li></ul> Once an option is exercised it shall remain so during the year. If you wish to avail the option in red, you need to intimate the same to the dept. in specified format.<br />
  91. 91. Cenvat on Capital Goods – 50% utilised and 50% carry forward in the Service Tax Returns by availing the same in the same year<br />
  92. 92. Budget Amendments 2011<br />Point of Taxation Rules<br />Goods / Service that shall not constitute input - Any goods / services used for construction of a civil structure unless it is provided by a sub-contractor to the main contractor.<br />Similarly the definition of exempted services shall include taxable services which are partially exempted with the condition that no credit of input and input service shall be availed. Moreover it has been clarified that exempted service will include trading service. <br />38.1 A tariff rate of 5% excise duty is being prescribed on Ready-mix concrete (RMC). However these goods would attract the concessional 1% duty without CENVAT credit facility. <br />
  93. 93. Budget Amendments 2011<br />The Works Contract Rules, 2007 have been amended <br />To provide for restriction in availment of CENVAT credit to 40% of service tax paid on services relating to erection, commissioning and installation services, commercial or industrial construction services and construction of residential complex services in case service tax has been paid, without availing the abatement benefit under notification 1/2006.<br />
  94. 94. Pain of Taxation Rules<br />Intention of the Government<br />3. Rule 3 has been amended to provide that the point of taxation shall be as follows:<br /> (a) Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service.<br /> (b) Date of completion of the provision of service or payment, if the invoice is not issued within the prescribed period as above.<br />No provision for Bad Debt – It only mentions if amount is refunded when service is not provided.<br />Cenvat Credit shall be allowed on booking basis, provided payment is made in 90 days.<br />
  95. 95. Pain of Taxation Rules<br />Concept of CSOS – Contract Exceeds 90 Days – <br /> Point of Taxation shall be the date of completion of the specified event stated in the contract which obligates payment.<br /> For example, in the case of construction services if the payments are linked to stage-by-stage completion of construction, the provision of service shall be deemed to be completed in part when each such stage of construction is completed.<br />Existing contracts to be covered under POT Rules from 1st July, 2011.<br />
  96. 96. Sheet Code - 7<br />
  97. 97. Small Scale Sector Benefits<br />Individual and sole proprietor assessees with a turnover upto ` 60 Lakhs shall not be subject to audit;<br />Interest rate for all assessees (including firms and corporate) upto a <br /> turnover of ` 60 Lakhs shall be 3% less than the prescribed rate of 18% (w.e.f. 01-04-2011).<br />The period for making the payment in order to avail the benefit of <br /> reduced penalty under the second proviso to Section 78 shall be 90 days for assesses (including firms and corporate) having turnover upto ` 60 Lakhs.<br />
  98. 98. Concept of GTA<br />Service tax registration is required if you make payment to a goods transport agency, in relation to transport of goods by road in a goods carriage <br />
  99. 99. Exemptions<br />32/2004 Dt. 03/12/2004 - Abatement 75%. [As amended by 1/2006 ST Dt. 01/01/2006]<br />33/2004 Dt. 03/12/2004 –Exempts transport of Fruits, Vegetables, Eggs or Milk <br />34/2004 Dt.03/12/2004- Exemption [ The gross amount charged on consignments transported in a goods carriage does not exceed rupees one thousand five hundred; or the gross amount charged on an individual consignment transported in a goods carriage does not exceed rupees seven hundred fifty.]<br />
  100. 100. Construction of complex services <br />
  101. 101. Chronology of Judgements<br />Karnataka High Court - K Raheja - 2006<br />Allahabad HC - Assotech Reality – 2008 (Set Aside by SC in<br />Advance Ruling – Hare Krishna - 2008<br />Guahati HC – Magus Construction Pvt Ltd – 2008<br />CBEC Circular Dated 29.1.2009<br />
  102. 102.
  103. 103. Service tax levied on consideration earned by developer<br />• Prior to amendment in 2010, concept of ‘self-service’ existed<br />“construction of a complex (a new building) - intended for sale, -before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder before the grant of completion certificate by the competetent authority) shall be deemed to be service provided by the builder to the buyer”<br />Abatement scheme for builders also introduced.<br />Option to pay Service tax at the applicable rate on 25% of the Agreement value, provided no deduction of land is availed and no CENVAT credit is claimed<br />
  104. 104. Other points – Con. Of Complex<br />Parking Slots  or Garage of Properties - Along with the apartment or flat, builders also sell parking slots to buyers. No service tax would be applicable for the amount paid for such parking slots.<br /> <br />Preferential Location Services - Builders many times will build internal roads, pavements, or maintain gardens for the development of the property complex. Such services would attract a service tax. Also any additional amount paid for a floor rise, an apartment with a specific number or a specific direction, apartment facing either a park, pool or sea , would cost the buyer a service tax.<br />Low Cost Housing Segment - In recent months, the real estate industry has developed various affordable properties worth less than Rs 20 Lakhs for the lower and middle income group. Properties belonging to this low cost housing segment would be exempt from service tax.<br />
  105. 105. Exemptions under Service tax for the construction sector<br />SEZ<br />Export of services<br />Road<br />Airport<br />Port<br />Bridges, Tunnels, Railways<br />Services to government<br />
  106. 106. Construction vs Repair of Road<br />16/6/2005 - Services relating to maintenance or management of immovable property have also been covered under the purview of service tax. <br />Several demands were raised on contractors involved in road repair work.<br />In the latest Circular - No. 110/4/2009-ST Dated: February 23, 2009, the Board had clarified that repair of roads' is taxable.<br />
  107. 107. Judgement from Vizag<br />APPEAL NO.5/2008(V-I) S.Tax Dated: 16.03.2009<br />ORDER-IN-APPEAL NO.27/2009(V- I) ST<br />PASSED BY Shri P.J.R. SEKHAR, I.R.S., COMMISSIONER (Appeals), VISAKHAPATNAM ]<br />Construction vs Repair of Road<br />
  108. 108. Construction vs Repair of Road<br />Commercial and Industrial construction - <br /> includes <br /> a)construction, b) completion and c) finishing and <br /> d) repair, alteration, renovation or restoration <br /> The definition itself specifically excludes such services provided in respect of roads.<br />From the above it is evident that not only construction services but also repair services provided in respect of roads are exempted from tax. <br />Though the same may also fall under management, maintenance or repair service in terms of Section 65(64) of the Finance Act, 1994, <br /> In view of specific exclusion of repair services provided in respect of roads under Section 65(25b) of the Finance Act, 1994 the same can not be subjected to any tax.<br />
  109. 109. Construction vs Repair of Road<br />EXEMPTION TO MAINTENANCE OF ROADS<br /> NOTIFICATION NO. 24/2009 - SERVICE TAX, DATED 27-7-2009<br />Exemption of taxable services provided to any person by any other person in relation to management, maintenance or repair of roads<br />However from 2005 – 2009 the disputes are still going on?<br />
  110. 110. Also recent circular in response to an application made by Jaiprakash Associates issued in May, 2011<br />Issues :-<br />a) Applicability of ST on sub-contracts of various nature , when main contract is exempted /excluded from preview of services.<br />b) Can a principal contractor take responsibility of tax payment and ask sub contractors not to charge ST ?<br /> Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services.<br /> The fact that a given taxable service is intended for use as an input <br />service by another service provider does not alter the taxability of the <br />service provided.<br />
  111. 111. SEZ<br />If you are working in SEZ and have any queries pertaining to <br />Service Tax<br />VAT<br />
  112. 112. Works Contracts<br /> - Erection, Commissioning and Installation<br />- Commerial and Industrial Construction<br />- Construction of Complex<br />- Repair, Alteration and Renovation of above<br />- Turnkey Projects including EPC<br />Exemption to Road, Airports, Railways, Transport Terminals, Bridges, Tunnels, Ports<br />Purpose of introducing this Chapter – Nail down Daelim Industrial Company Ltd vs CCE 2006 (3) STR 124 (Tribunal)<br />
  113. 113. How to handle service tax audits<br />Keep all cenvat invoices ready.<br />Verify all receipts in your bank account.<br />Prepare the reconciliation as per the format proposed by the department.<br />Dept. normally gives you sufficient time for getting ready.<br />Audit may come for once in 4-5 years, but the complete period would get covered.<br />
  114. 114. Penal consequences<br />Interest on delayed payment of Service tax is 18% & 15% <br /><ul><li>For failure to furnish return
  115. 115. Rs.500 – Rs.2,000 per return</li></ul> The maximum penalty for delay in filing Service Tax return U/s. 70 is <br /> proposed to be enhanced from ` 2,000/- to ` 20,000/-; existing rate of <br /> penalty under rule 7C of the Service Tax Rules, 1994 to be retained.<br /><ul><li>Prosecution Provisions for offences like - </li></ul> a) rendition of services without raising invoices, <br /> b) availment of Cenvat credit without receipt of inputs/ input services, etc.<br /> c) Non-payment of service tax collected but not deposited for more than 6 months. <br />
  116. 116. At this Point in time, the question is whether the charge of VAT and service tax shall be overlapping.<br />The matter to a certain extent has been settled by the SC Judgement in IMAGIC CREATIVE PVT LTD Vs COMMISSIONER OF COMMERCIAL TAXES Appeal (civil) 252 of 2008 wherein it has been held <br />“28. Payments of service tax as also the VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract; irrespective of the element of service provided.“<br />Ideal Thing for us be to clearly bifurcate the charge towards material by way of deemed sales calculations and charge towards labour on the face of the invoice. And Thus Service Tax needs to be charged on the labour portion and VAT needs to be charged on the Material Portion.<br />
  117. 117. [Budgeting]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  118. 118. Lets now come back to Planning<br />
  119. 119.
  120. 120. <ul><li>Cost Oriented Planning – </li></ul> Convincing the EIC to prepare the Budgets is the biggest task. Because the forces are so dynamic, actual scenario is expected to be different from the work orders, hence he is not in a position to do so.<br /> Most of the times he would argue that because of delay in submission of drawings by the client, planning is not very easy. <br /> But to meet the Project Deadline / it is in the best interests of the client to break the work order quantities into monthly quantities.<br /> Further an overall cap is required to be kept on the total quantities to be consumed for the project. Monthly requirements can then be prepared on the basis of monthly budgets. <br />
  121. 121. Budgeting<br />Lets see a sample budget …<br />
  122. 122. Different types of contracts<br />PRW – Through skilled labour<br />Item rate<br />Lumpsum contract<br />Cost-plus contract<br />Turnkey contract – engineering, inspections, erection, electrical.<br />
  123. 123. Congrats!<br />
  124. 124. Human Resource – cont….Understanding the Labour Laws<br />Labour License<br />Minimum Wages<br />PF<br />ESI<br />Workmen Compensation Insurance<br />Labour Welfare<br />LabourCess<br />Child Labour / Maternity Benefit<br />
  125. 125. Manual for Compliance Verification – Whenever a new site is about to begin:-<br />E:SMA_ Officeproject construction seminarModule 4 - Internal ControlManual For Compliance Verification<br />
  126. 126. [Mobilisation and Role of Engg Dept]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  127. 127. Mobilisation Checklist<br />Statutory registration numbers / Good Local consultants<br />Resource Mobilisation<br />Equipments – JCB & Loader, Batching plant capacity, Miller, Crane, etc.<br />Vehicles – Staff Bus, Sumo, Utility, Trailer, Tractor & Dumper, Bike etc.<br />IT – Computers/Printer/Scanner/Copier/Internet/Telecom Network <br />Functional Heads – PM / Store / HR / Accounts<br />Office Stationery – Reports / Registers / Blank Slips<br />From client – Power / FIM / Drawings / Work Front<br />Staff Accomodation / Mess / Guest House<br />Onsite office set up<br />Lining up the labour<br />Logistics – Movement to site from various locations<br />Local Survey – Materials and Services<br />
  128. 128. The site is now mobilised and you have to commence the work.<br />
  129. 129. Role of Project Manager<br />Work Planning Daily / Weekly / Monthly:<br /> When we plan for work – we need to keep in mind client priority, availability of resources, availability of drawing & front, weather, Funds etc. <br />Pre planning for FIM / Own Material:<br /> Pre planning (system and procedure) is required for FIM and Own material so as to make it available in time.<br />Complete responsibility to ensure compliance of the functions by all the Dept.: <br />Engineering, HR & Admin, Stores, Accounts<br />Sub Contractor Work Order:<br /> Sub Contractor work order should be prepare, give its copy and take acceptance for office record. Item code and language should as per client work order that can reconciliation become easy, otherwise it can not reconcile with client. <br />Timely submission of bills . If delay reasons need to be submitted to HO.<br />Subcontractor bills are prepared in due time and are paid after pre-audit at HO.<br />
  130. 130. Role of Project Manager – cont…<br />Preparing site performance report and submitting the same to head office.<br />Ensuring proper back up in case if any employee leaves the organization.<br />Weekly meetings with the Core team and ensuring due preparation of minutes for mailing the same to Head office.<br />Checking all the records fortnightly viz. stores inflow, outflow, vehicle logbooks, and HR records.<br />To collect full information about engaging the departmental labour on different site and get them fully utilized.<br />Maintaining morale on site.<br />
  131. 131. Reconciliation – FIM & Principal Material<br />Standard Consumption norms to be defined for every project. <br /> For e.g. – For 1 CUM of M20 - concrete production –<br /> Cement – 140 Kg, Sand – 875 Kgs, Agg – 1100 Kgs<br />Physical verification of Steel, Sand and Aggregate on the same day on which reco is prepared.<br />Material scattered at various locations of the society.<br />Consumption for unbilled extra items to be excluded.<br />Stock records to be updated regularly.<br />Shuttering Repetitions.<br /> If company purchased materials consumption go beyond standard or any misuse of material by the sub contractor, it can be controlled and recovery could be made from the concern sub contractors. <br />
  132. 132. Billing Engineer<br />A. Client & Sub Contractor billing and Certification:<br />Same Billing period for both client & sub contractor <br />Match the Quantities<br />Facilitate preparation of MIS<br />Identification of Extra Items<br />W.O issued to sub contractor to contain same item codes as Client W.O<br />DPR should be generated.<br />RA bill preparation on Time as any delay<br />Affects Fund management<br />MIS<br />
  133. 133. Sub Contractor work orders should be prepared:<br /> - Item code and language should as per client work order <br /> - Project Manager and Project commercial head / Project Director approval signsor mail required.<br />For example: <br />Sub Contractor Work Order:<br />
  134. 134. Engineering MIS<br />
  135. 135. [Procurement]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  136. 136. Commercial Procurementi) Goods and ii) Services. <br />
  137. 137. Sheet Code 8 - 14<br />
  138. 138. Goods:<br /><ul><li>Define a Purchase Policy
  139. 139. Purchases to be sourced by Head office.
  140. 140. Purchases to be sourced locally with approval from Head office.
  141. 141. Purchases to be sourced locally with the approval from Project Manager.
  142. 142. Material required for Project:
  143. 143. Project Manager to calculate total project material requirement through Bill of Quantity (BOQ).
  144. 144. This would be categorized as FIM , Raw / Principle Material, Consumable / Hardware / Tools Material, Capital goods - Plant / Machinery / Equipment
  145. 145. Monthly Requirement </li></ul>Commercial Procurementi) Goods cont…<br />
  146. 146. Commercial Procurementi) Goods cont…<br /><ul><li>Materials Indents:
  147. 147. Authorized person should be allowed to raise an indent. The status about present level of stock should also be given.
  148. 148. Market Survey / Enquiry / Quotation:
  149. 149. Relevant journals, yellow pages, market directories etc.
  150. 150. Company can ask quotation / price list with detailed terms and conditions with its validity from various vendors.
  151. 151. Purchase department can take right decision after comparison and analysis of rate, quality, terms & conditions with price escalation terms and service condition</li></li></ul><li>Commercial Procurementi) Goods cont…<br /><ul><li>Placement of Order (PO): - Purchase order being the last document of procurement process, so it is necessary to take care before placing the order.
  152. 152. Certain details which need to be mentioned
  153. 153. Serially numbered
  154. 154. Time & Place of Delivery
  155. 155. Material Quality Description
  156. 156. Commissioning of Equipments – Time after unloading at site along with
  157. 157. Various manuals and spare kit with equipments
  158. 158. Reference of Supplier Quotation / Price list
  159. 159. Transit Insurance in case of costly / valuable material & long distance & Type of transportation
  160. 160. Material certificate, Quantity & Quality Inspection
  161. 161. Verification and rejection clause
  162. 162. Condition on Excise duty with Gate Pass and Service tax number
  163. 163. Condition on VAT with Tax / Retail Invoice with company TIN number
  164. 164. All Purchase orders should be signed by officer duly authorized by the management except Capital goods which should be signed only after written approval of Top management (Like – Project Director, MD, Chairman) </li></li></ul><li> <br />Equipment / Machinery / Plant / Tools provide by Client:<br />Condition of equipment – Third party can be appointed<br />Maintenance scope<br />Operation of Equipment<br />Round the clock Availability <br />Advisable to clear the commercial aspects for supplies beyond the scope as this might result in recovery from the contractor.<br />Transportation point for FIM & Transit risk within the site.<br />Commercial Procurementi) Services<br />
  165. 165. Equipments - Purchased<br />Advantages of buying - <br /> No dependence on others.<br /> Company’s status & capacity as a contractor will be rated high .<br /> Equipment can be moved from place to place as per requirement. <br />Bigger jobs can be obtained.<br /> <br />Disadvantages of buying – <br />Working capital gets blocked.<br />Repayment in time is big a responsibility.<br />Resell value shall be negligible in case the same is not required<br />Maintenance cost and expertise will be required to run the equipment smoothly. <br />
  166. 166. Equipment - Hired<br /> Hiring Agreement: The user pays fixed hire charges on daily or monthly basis as long as the equipment is held by him, <br /> Hire the equipment & machinery<br />Minimum average commitment required in case of Vehicle and equipment & machinery <br />Rate should be on hours basis excluding lunch / dinner hours to avoid OT over head. <br />Advantages -<br />Need not to invest the FUND <br />Claim as expense for Income Tax purpose <br />If service, maintenance and operational cost is in supplier scope, no any handling issue and cost and that means peace of mind <br />In case of business close down, no headache except to return the equipment<br />Disadvantages -<br />Company totally dependent on others<br />Hired equipment does not enhance company’s status<br />In case of under utilization, it will result in big loss <br />Company will depend for Service / repair & maintenance on supplier<br />Without supplier’s permission, equipment can not be moved to other site <br />
  167. 167. Buying or Hiring<br />Buy – Value * 4 Times should be the turnover.<br />Future Planning – Residential / Commercial / Industrial / Power<br />Debt : Equity ratio should not be more than 2:1.<br />Buy – Own O&M Team, Driver<br />
  168. 168. [Stores]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  169. 169. Stores Location<br />Stores – <br />Door and Window for Lights & Ventilation, <br />House keeping (cleanliness), <br />Fire extinguisher <br />Rack for stacking of material <br />Weight machine (Capacity least 100kg)<br />Power connection <br />Computer system with keyboard, mouse, Printer & UPS.<br />Security guards at various locations across the site.<br />Steel Yard should be nearest to store for supervision and control over theft & misuse of Material (like - Binding Wire) & Machinery (Like Binding & Cutting Machine) & wastage. <br />
  170. 170. Material Inward <br />Following points should be fulfilled for all Inwards - Purchases, Client FIM, Intersite & Loan basis materials:-<br />Documents - Challan / Packing list / Inter-site Transfer Memo / Excise Gate pass / LR / Weight slip / Royalty Challan / Test certificates / PO copy or PO references / Tax Invoice / Statutory forms (If any).<br />Unique document numbers<br />Authorized sign required if overwriting available. <br />Material inward stamp <br />Entry in material gate inward register <br />No material shall be dumped without pre intimation to store and presence of store person.<br />Rejection Policy<br />
  171. 171. Material Outward<br />Codification of materials<br />Divide the materials into Capital Goods / Construction Materials / Consumables and Tools.<br />Codes as per class of material.<br />Material Issue Slip<br />Duplicate<br />Authorised from Site Engg.<br />Basis of Computer Entry<br />Watch on Missing serial numbers<br /><ul><li>Steel, Sand, Agg., etc consumption entry should atleast be passed as per RA Bills certified quantity.
  172. 172. Returnable register to be kept separately.
  173. 173. Computer System to have Alternate UOM provision – E.g. Wooden Items, Sand, Aggregate.
  174. 174. Fixation of reorder levels.
  175. 175. Free And Chargeable Materials List with stores.</li></li></ul><li>Physical Stock Verification<br />
  176. 176. Control over Fuel Consumption<br />Following points need to be taken care for Equipments - JCB, Miller, and <br />Crane / Vehicles:- <br />Store should have resources like –<br />Fuel pipe, Filter & pump to fill fuel from one to another can,<br />Two standard size Barrels of 200Ltrs capacity, <br />Fuel small Can of 1ltr, 5Lts, 10Ltrs <br />Scale to measure balance stock of fuel (Rod) <br />Lock and key - Fuel tank <br />All vehicle and equipment Meters should be in working condition.<br />MRN containing authorisation from Project Manager & HR Incharge for fuel issue with vehicle & equipment number.<br />Physical meter reading should be verified and mentioned in log sheet at time of fuel issue.<br />If vehicle permanently work at single location, name of location is compulsory. <br />Vehicle Report - MIS.<br />Tracking fuel given on chargeable / Free issue basis.<br />
  177. 177. Suggestions - Material Handling <br />
  178. 178. Suggestions Other Areas - <br />
  179. 179. [HR]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  180. 180. Human Resource<br />
  181. 181. Master Details of Sub Contractor:<br />Two passport size color photograph<br />Name with firm name <br />Copy of PAN card without which TDS liability shall be @ 20% in place of regular rate<br />Identity poof <br />Address proof (Election Card, Latest light bill or Panchayat certified letter)<br />Communication details (Like, Landline / mobile with contact person & Fax number, mail ID, Web site)<br />Bank name, Branch address, Account type, Account number and RTGS No., cancelled cheque or declaration letter from the bank<br />Specimen signature of authorized person in absence of the main sub contractor . <br />Human Resource – cont….<br />
  182. 182. Labour Over time:<br />There should be proper system to record the duty hours in the labour card:- <br />Contractor name and labour name <br />In time and out time<br />Company supervisor sign for allowing OT who shall also be responsible to reply why OT was allowed.<br />Labour / sub contractor sign required <br />Daily report & Control – Labour:<br />HO must ask for manpower report and work progress report from Site on a daily basis to assess the work performance. <br />Human Resource – cont….<br />
  183. 183. Human Resource – cont….<br />Gate Pass (GP) / Entry Card:<br />Company must issue Gate Pass (GP) / Entry card for control and security purpose to sub contractors and all employees and labours. The same can be cross checked with daily manpower report to catch discrepancy if any.<br /> <br />Following details are required in the gate pass: <br />Unique serial number and area wise color if any <br />Name of labour<br />Sub Contractor name<br />Type of skill (Helper, Carpenter, Mason, Fitter)<br />Date of GP issued and validity (Validity would be three months)<br />Blood Group <br />Color photograph through Web cam and color printer <br />Company may charge some nominal amount for GP <br />Sign required of HR and sub contractor on Gate Pass <br />HR should have details of gate passes issued in the manual register where GP receiver sign is required. HR should have GP wise status (Active, Cancel, Expired)<br />Penalty should be charged If Gate pass is lost, expired but not renewed or not returned at time of leaving the job <br />All Gate Passes should be destroyed which have been returned by workers / sub contractors after proper entry in manual register or system<br />
  184. 184. Human Resource – cont….<br />PF Records and Liability payment:<br />If the sub-contractor is well organized, then he can pay PF and keep proper records and just deliver paid challan with its break up for your record. <br />But where Sub contractor is unorganized, it is necessary to get sub contractor wise wages sheet to calculate PF liability and pay. <br />Labour Colony / Water & Power supply:<br />Labours are asset for the company and it should take care of their basic needs. <br /> <br />This should be the responsibility of HRD <br />to visit labour colony at fixed interval to find out if their living conditions are proper<br />Basic aspects like PCC in flooring of room, <br />Drinking & routine use Water, <br />proper toilets and bath rooms, <br />power supply, cleaning around labour colony to ensure it hygienic, monthly medical check up etc. <br />This will result in improved performance in the labour output. <br />
  185. 185. Human Resource – cont….<br />Employees <br />Salary Structure & Letter of Appointment:<br />Salary Structure: Say <br />Basic – 40% of total salary <br />Other Allowances 60% of total Salary, like: <br />HRA Allowance<br />Uniform<br />PF<br />Bonus <br />Medical Allowance or Group Mediclaim policy <br />Transportation Allowance<br />Telephone / Conveyance Reimbursement<br />Child Allowance<br />Education Allowance<br />Deductions:<br />PF employee contribution – 12% of Basic<br />Professional Tax – Employee, as per salary slab<br />Tax Deduction at Source (TDS) as per Government rules on taxable salary <br />Staff Welfare Fund as per Government rules <br />If any bond amount decided, to deduct from salary on monthly basis <br />
  186. 186. Human Resource – cont….<br />Master Form - Employee:<br />Branch / Site Transfer Letter:<br />Salary Structure<br />O/s Advances and Loans<br />o/s Salary Dues<br />
  187. 187. Human Resource – cont….<br />Daily Attendance - Staff:<br />Daily attendance can be marked by manual records like - Register or Daily Sheet or Card or by Auto systems like Punch card, Thumb or Finger impression or based on any other online software, <br /> <br />Over Time:<br />There should be well structured Policy to regulate and monitor the over time payment. <br /> <br />There are two options to maintain OT records <br />a) Out time to be mentioned in Daily manual attendance sheet <br />b) Separate Sheet to be maintained for OT<br />HR needs to take sign from Project Manager on daily OT sheet or Daily <br />attendance sheet. At the end of the month, OT hours shall be calculated on the <br />basis of this record. <br />
  188. 188. Human Resource – cont….<br />Leave Policy:<br />Leave policy needs to be defined <br />Various types of leave and their number<br />Carry forward or lapse in the year end<br />Encashment<br />Maximum accumulation etc. <br />Further employee needs to fill a leave application form containing following details:<br />Leave application vs. Daily / Monthly Attendance sheet<br />Leave period and number of days <br />Applicant signature required on form <br />Approving authority depending on number of days leave applied <br />Leave utilized mentioning clearly against which category (i.e. Paid Leave - PL, Casual Leave - CL & Sick Leave - SL) on application<br />Status of leave balance category wise as per rules <br />To avoid misuse of sick leave, medical certificate must be required on return from leave if the leave is more than say one or two days<br />Absent should be marked for extension of leave beyond sanctioned <br />HR should verify perfectly about leave balance before action on application <br />
  189. 189. Human Resource – cont….<br />Hired Camp <br />Lease Agreement<br />Distance from the Site<br />Proper Planning to avoid Hotel Expenditure<br />Mess - Staff:<br />Self vs Contracted<br />Fixed Payment to employees<br />Policy should also be defined for other facilities of stay and in house entertainment by way of TV, reading materials, sports and club activities etc. <br />Group Employee Health Insurance Policy:<br />HRD needs to evaluate group medical policy v/s medical allowance. It is advisable to go for mediclaim Insurance for which policy should be well defined. <br />Accordingly all concerned employees and officers should be covered as per policy which should be taken from General Insurance Company with full negotiation. <br />There should be one officer in charge for claim settlement in time so as to get the benefit of the Insurance. <br />
  190. 190. Human Resource – cont….<br />Vehicle Report<br />Admin Assets & Control<br />Laptop<br />Data Card<br />CUG Mobile connections – SIM card<br />Mobile Instrument<br />Camp / Guest House & Mess, Vehicles, Equipment etc. <br />HR should have master data of details of all admin assets and this should be updated on regular basis <br />(Monthly / Quarterly / Half yearly) like<br />Name of asset<br />Asset user name<br />Location<br />Insurance period and Service provider, if applicable <br />Company can take undertaking from employee against asset given for use. There should be well designed policy in place about entitlement to regulate the use of such assets. <br />
  191. 191. HR - MIS<br />Human Resource – cont….<br />
  192. 192. [Site Accounts]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  193. 193. Model of Accounting – Branch / Centralized<br /><ul><li>The model most prevalent, provided you have good team of accountants with you is the HO and Branch Model.
  194. 194. Branches maintain accounts at the construction site itself. Because if we have a smart accountant at the site that would serve as the best internal control measure.
  195. 195. Integration of accounts and Inventory would then be possible.
  196. 196. Complexity involved is you then need a perfect co-ordination between HO and Branches. Reconciliation between the two is required on a regular basis. As many a times HO would directly be making payment to Branch’s creditors without routing the same through the branch.
  197. 197. In case of centralised accounting the certification systems have to be perfect. You would need all the documents to be certified by the Site Incharge and respective area incharge before booking the same in accounts.</li></li></ul><li>Role of Site Accounts<br />
  198. 198. Role of Site Accounts – cont….<br />
  199. 199. Role of Site Accounts – cont….<br />
  200. 200. Accounts MIS <br />Sheet Code 14A - 19<br />Role of Site Accounts – cont….<br />
  201. 201. Concept of ERP <br />Cost Involved<br />
  202. 202. Role of Site Accounts – cont….<br />Onsite Integration Model for a Construction Site <br /><ul><li>Using cloud servers, access can be given to multiple locations without buying any software / hardware.
  203. 203. Stores Material Receipt entry can be passed from the site provided there is a proper internet connectivity.
  204. 204. When the purchase Invoices are received the same are certified by the stores department and the printed MIN is then attached behind the invoices.
  205. 205. Accounts then enters the rates of materials picking up the tracking number. Any deviations are settled by way of Debit / Credit Note.
  206. 206. Materials are then issued by way of Delivery Note to either the client / sub-contractors.</li></li></ul><li>Payment Advice Format<br />
  207. 207. Banking – Whether centralized or Branch wise<br /><ul><li>We are presently in a world where banks are all connected, so we may opt for a Centralized banking system, but then if you have a HO and the Branch Model, you need perfect controls in place before the HO releases funds.
  208. 208. Payment Authorization Vouchers – A system that can be implemented, similar to controls that we have in SAP.
  209. 209. Further if we have to plan the funds and ensure that funds generated from a particular site are available for only that site after HO takes out its share of profit, then it is advisable to have separate accounts for the branches.</li></li></ul><li>Managing the Financing Needs of the business<br /><ul><li>Limits with the Bank – Fund Based / Non-Fund based.
  210. 210. Non-Fund based Limits are of great importance in the construction sector, as for any Project that is about to begin, the client is willing to give Mobilisation Advances against Bank Gaurantees.
  211. 211. Hence as a consultant you can fight hard with the bank to secure best terms in the Non-fund based limits. With a good order book you can get away by giving 25-30% collateral to some of the private banks in the market.</li></li></ul><li>[Project Completion]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  212. 212. Project Completion<br />Checklist for Project Completion <br />Final bill preparation and certification <br />FIM and Raw Material Reconciliation with bill and balance qty. <br />Fulfillment of client work completion procedure <br />Receivable & Liability status & Clearance <br />Statutory compliances <br />Demobilization <br />Delayed in project completion <br />Work completion certificate<br />
  213. 213. Project Completion – cont….<br />Final bill preparation and certification:<br />Cumulative Executed Quantity.<br />All pending extra item claims should be included, if pending.<br />Necessary follow up for W.O amendment if Actual Qty > WO Qty.<br />Release of Qty on Hold for want of various reasons.<br />Fight for the incentive clause.<br />If any company asset is given on rental / hire basis to other party as per instruction from client, the same should be claimed in final bill .<br />If resources like equipment / manpower have remained ideal due to non availability of front, it should be claimed in the final bill.<br />NOC shall have to be obtained from various departments of the client<br />
  214. 214. Project Completion – cont….<br />FIM and Raw Material Reconciliation with bill and balance qty.:<br /> <br />Formula: <br />Total Material Inward <br />Less: Material Returned / Transferred <br />Less: Standard Consumption <br />= Balance Quantity at Site / Store<br /> <br />In case this quantity is not available at site / store, there are following possibilities: <br />Excess consumption as compared to standard <br />Theft / Pilferage during the project <br />In case of excess consumption, some portion can be recovered from measurement contractor if not recovered till date. <br />Proper justifications are required from project manager and appropriate action should be taken in case of abnormal difference between actual balance and standard balance<br />Balance FIM material started to returning and take its documents with receiving sign and stamp from client. <br />
  215. 215. Project Completion – cont….<br />Fulfillment of client work completion procedure:<br /> In case of project completion client have checklist for same so you have to ask same from client and compile each point.<br /> <br /> Receivable & Liability Status & Clearance: <br /> Get status of project liability with break up of nature of creditor and special remark for local creditors. <br />Follow up for payment receivable from client after bill certification <br />Clear local liabilities to avoid any demobilization harassment from them.<br /> <br /> Statutory compliance:<br /> Follow up and get pending WCT & TDS receivable certificates from client.<br />Give all necessary details for VAT return filing to local sales tax consultant and other details, if any required for audit.<br />Get any pending forms like C & F from the department, also reconcile with the forms issued till date.<br />Clear o/s local pending liabilities like Road tax, Entry Tax, Employee Professional Tax etc.<br />
  216. 216. Project Completion – cont….<br />Work completion certificate: <br />Don’t forget to collect the work completion certificate from the client <br /> <br /> Demobilization:<br /> <br />Dehire all types of equipment and machinery.<br />Make proper plan for shifting of own material to other sites / Central Stores.<br />Proper plan to shift staff.<br />Dehire idle camp / mess and do not forget to recover the rent deposit or set off deposit against rent.<br />Check, get and release Bank Guarantee from client after defect liability period is over<br />
  217. 217. Reasons for Delay in preparation of Final RA Bill<br /> <br />
  218. 218. Release of Retention Money<br />Checklistcompliance<br />Certification of Final bill<br />Completion of work upto Defect liability period<br />No local liability<br />Site and area clearance<br />Return of all FIM<br />Against Bank Gaurantee Till Defect Liability <br />
  219. 219. [Internal Audit]<br />pptPlex Section Divider<br />The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.<br />
  220. 220. Lets have a look at an Internal Audit Report<br />
  221. 221. Typical Civil Contractor<br />