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Multi state vat on works contract


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This presentation discusses the intricacies involved and the modifications in the taxation of works contract in various VAT Regimes. It highlights the critical issues to be asked when a project company enters into any state for its operations.

Published in: Economy & Finance, Business

Multi state vat on works contract

  1. 1. Multi State VAT on Works Contracts By Consult Construction
  2. 2. Consult Construction is a consulting firm with all governance, compliance and IT related services related to the construction sector under one roof. Focus Areas :Corporate Governance Management Audit Project Budgeting and Monitoring Indirect Tax Compliances Corporate Training Information Technology and Allied Services ISO Implementation
  3. 3. Indirect Tax Optimisation Services Advice on the applicability and levy of Service Tax, CST and State VAT on Contracts entered into or proposed to be entered into by the company. Assistance in the structuring of transactions and agreements in relation to inter-state and intra-state sales to optimise the tax incidence Conduct tax based health checks to determine the service tax & Multi State - VAT implications on the operations, Giving Multi State VAT opinions
  4. 4. Subscribe to our E-Bulletin Call at 9426024975 email - • VAT and Service Tax updates for the construction / Project sector companies. • Legislative changes and major case laws under the State VAT Laws and under Service Tax law affecting the construction /Project Sector. • In addition our brief analysis and comments on the varios developments
  5. 5. Multi State VAT • • • • Basics of Works Contract Understanding of Issues State Specific Provisions and Case Laws Conclusion
  6. 6. Key Information • First two digits of TIN represent the state – Jammu – 01, Delhi – 07, Gujarat – 24 and so on • National VAT Dealer
  7. 7. Basics • Definition – Sale / Services / Manufacture • Valuation – Rate Schedule – Actual / Standard Labour Deduction – Composition • Procedure • Restrictions • • • • • • Inter-State/Import Unregistered dealer Purchases Sub-Contractors TDS Builders Entry Tax / Permits / Way Bills
  8. 8. Important Judgements Gannon Dunkerley (SC) L&T – AP (SC) Kone Elevators (SC) K Raheja (SC) Indure (SC) BSNL (SC) SAIL (SC) – TDS NM Goel (SC) - FIM
  9. 9. Lets discuss State Specific Provisions Gujarat Andhra Pradesh Delhi Maharashtra Rajasthan Tamil Nadu Others
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  11. 11. Gujarat • Wide Definition • Registration – Limit – Non Resident • Works Contract chargeable at scheduled rates • Composition Scheme – – – – – at 0.6% - 2% Permission Required Deductions Available Yearly and Contract Specific – Different Forms Restrictions – No ITC/No OGS/No claim in Invoice
  12. 12. Gujarat • Subcontractor – Liable to VAT – Contractor eligible to take deductions • TDS – Applicable to all – 2% or as per composition – No Lower Rate provisions • Builders – No specific provision
  13. 13. Gujarat – Typical Issues • • • • • • No definition of Labour and Other Charges Concept of Form 702 Standard Deduction – No specific rate of tax TDS deduction on specified price Subcontractor – Registered vs Unregistered Restrictions on Input of Capital Goods for Works Contract Determinations u/s 80 - Gujarat VAT • Transformers and Rectifiers – VAT on Installation • Paharpur Cooling Towers – SEZ (TN has a contrary circular) • Sale of RMC
  14. 14. Gujarat High Court BSCPL Infrastructure Limited (vs.) Commercial Tax Officer And Others •The petitioner was engaged in the business of executing infrastructure projects, principally of construction of roads and was permitted for composition of tax under section 14A of GVAT Act, 2003. •The dealer leased mines from where It procured grit, which was used for construction of roads. •On the ground that use of the grit was not duty paid and therefore they breached the conditions of permission for composition of tax. •The show cause notice was issued by the department on March 8, 2013 calling upon the dealer to show cause why permission for composition of tax should not be cancelled.
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  16. 16. Andhra Pradesh • Wide Definition • Registration – Limit – Works Contract – Rs. 7.5 Lacs (Govt/Comp Scheme) , Others – Rs. 5-50 Lacs – Non Resident – No specific provisions • Works Contract chargeable at scheduled rates – (1% till Rs. 50 Lacs) Mention of Prorata calculation • Composition Scheme – – – – – 5% Permission Required – VAT 250 Deductions Available Yearly and Contract Specific- Same Form No Restrictions except Input Credit
  17. 17. Andhra Pradesh • Subcontractor – Exempt when main contractor is in composition – Contractor eligible to take deductions subject to proof • TDS – Applicable to specified persons – 1.75% (Road/Canal) / 3.5% – Lower Rate provisions exist • Builders – Specific provision and composition – 1.25%
  18. 18. Andhra Pradesh – Typical Issues Most Exhaustive Provisions and a very active state Specific Inclusion of Transport Cost of Goods Standard Deduction – specific rate of tax – 12.5% No Purchase Tax when in Composition Scheme No cascading effect of TDS- Form 501 B Labour and Other Charges Defined (Rule 17) Also mention about finalisation of accounts - Rule 17(1)(d) – Adhoc and later Actual • Circulars • • • • • • • – Negative calculation after taking labour deduction – No VAT on excavation contracts – VAT is not applicable on service tax portion
  19. 19. Case Laws Andhra Pradesh High Court – 2013 – 62 VST 325 (AP) Bharat Heavy Electricals Limited (vs.) Commercial Tax Officer, Kakapa II Circle and Another Summary:- The company was engaged in erection and commissioning of power plants in several states which were labour jobs not involving any transfer of material. The petitioner although registered under Andhra Pradesh VAT, but paid service tax on monthly basis. The contractee has deducted 2.8 percent WCT TDS on bills payable to the petitioner. When the petitioner claimed the TDS amount, there was no response from the department. The petitioner filed all the supported material to claim for refund. The assessing authority passed assessment orders, assessing the petitioner to nil turnover, but forfeited the TDS collections under Rule 18(3)(b) of AP VAT Act, 2005 . Therefore the orders of the assessing authority were liable to be quashed. (Provision where the contractee is adding up VAT to the estimated contract value) Gammon India Ltd - Andhra Pradesh High Court – 2013 – 63 VST 216 (AP) Rectification for three year old issue in computation of working as per actual deduction method, where certain overheads were not claimed as deduction.- Writ Admitted
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  21. 21. Delhi • Wide Definition • Registration – Limit – 10 Lacs – Non Resident – No specific provisions • Works Contract chargeable at twin rates (Declared goods trf in same form – 4% and others – 12.5% • Composition Scheme – Permission Required Choose any one for whole year (Old Dealers to apply within one month from 1/4/2013):Nature of Works Scheme A Scheme B 1.Civil Contractors 2.Repair and maintenance of movable property (AMC) 3.Others 4.Builders selling units before completion (including the value of land) 5.Specified works such as printing , textile processing, re-treading of old tyres 3% 6% 1% 3% 2% 3%
  22. 22. Delhi • Subcontractor – Liable in all cases except Composition (MC can pass TDS credit to SC and not turnover deduction as earlier) – Both are independent – L&T case – Input Credit – Contractor not eligible to take any deduction • TDS – – – – Very low threshold – Rs. 20,000 – Rate - 2% Lower Rate /Nil Rate provisions exist No TDS on value of goods supplied as it is Registered Dealer – 4% or lesser as per Comp and URD – 6% • Builders – Specific provision
  23. 23. Delhi – Typical Issues • Labour and Other Charges Defined (Rule 3) • Specific permission to bring capital goods from outside state even under Scheme A – Composition • Restriction of sale of capital goods against Form C • Very strict provisions for claim of WCT-TDS • Unregistered Dealer purchase threshold limit defined – 2% or Rs. 25 Lacs • Ever Changing provisions
  24. 24. Delhi High Court Case Laws Persys Punj Lloyd Joint Venture (vs.) Commissioner of VAT and Others – Sales Tax Works Contract TDS - Two companies constituting a Joint Venture, however separately awarded contracts by DMRC. The JV acted as a conduit for passing on monies from DMRC to venturers. Under the MOU, each member of JV had to raise its independent bill and the payment was to be received by the JV. Department alleged that the JV at the time of making the payment to members was required to deduct WCT. However as the JV did not effect any sales and had not received any amount of sale price from the sub-contractors in respect of any transfer of property in goods involved in execution of any works contract. On these and other administrative grounds the reassessment orders for both the years were considered without jurisdiction and were thus quashed. Further the court also directed the department to issue refunds for the WCT deducted by DMRC at the time of making payments to JV.
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  26. 26. Maharashtra • Wide Definition • Registration – Limit – 5 Lacs (Same as Gujarat) – Separate form for Registration – Non Resident – specific provisions • Works Contract chargeable at scheduled rates • Composition Scheme – 1% / 5% / 8% – Deduction of sub-contractor is available – Can be claimed as a part of Tax Invoice – Peculiar method of claiming ITC – Nil / >4%/ 64%of ITC
  27. 27. Maharasthtra • Subcontractor – Joint and Several Responsibility - MC- Form 406,409 / SC - Form 407,408 (Similar Provisions in MP state) • TDS – – – – – Threshold – Rs. 5Lacs No TDS on Mobilisation Advances Rate - 2% for Reg / 5% URD No cascading effect Lower Rate /Nil Rate provisions exist • Builders – Specific provision
  28. 28. Maharashtra – Typical Issues • No requirement to intimate for composition / Nor any form • State very harsh on Builders (1% w.e.f 1/4/10) • VAT on BOT Projects • Land Deduction at Jantri Rates • Labour and Other Charges Defined
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  30. 30. Rajasthan • Wide Definition • Registration – Limit – 10 Lacs – Non Resident – specific provisions – Permission from AC • Works Contract chargeable at scheduled rates • Exemption Fees (Not Composition) – New rates from 1.4.2012 - 0.25% / 1% / 3% (Old Rates – 0.25%/1.5%/2.25%/3%) – – – – – No Deduction of sub-contractor is available as he is exempt Can not be claimed in Invoice Contract specific application No ITC No restriction on OGS purchases
  31. 31. Rajasthan • Very Detailed List under Standard Deduction Method • Subcontractor – Exempted only if client is in Exemption Scheme – No form / declaration specified • TDS – Rate - 3% / Less if under exemption • Builders – No Specific provisions
  32. 32. Rajasthan – Typical Issues • Condonation in Exemption Appl. – upto 2 yrs • Computerised Application of Exemption w.e.f 1-10-2012 • Rejection of E-1 Transactions in Works Contract • Lot of time in obtaining approval under exemption fee method – Prone to Litigations • Lot of exemptions for Infrastructure Projects being awarded to incentivise industrialistion
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  34. 34. Tamil Nadu • Wide Definition • Registration – Limit – 10 Lacs / 5 Lacs (OGS) – Separate form for Registration – Non Resident – specific provisions – Within 24 hrs from entry in state • • • • • Works Contract chargeable at scheduled rates Labour Charges not defined Liability to Pay Purchase Tax Compact Std Deduction Scheme Composition Scheme – 2% / 4 – – – – Prior Permission Deduction of sub-contractor is not available Restriction to make OGS Purchases Non-Revocable Option
  35. 35. Tamil Nadu • Subcontractor – Deduction available to contractor subject to production of proof – No exemption to the sub-contractor • TDS – – – – – Threshold – Rs. 1 Lacs Rate - 2% for Civil Contract / 5% for others Proprietorship / Partnership not to deduct TDS Contractor to also deduct TDS of Sub-contractor Lower Rate /Nil Rate provisions exist • Builders – No Specific provision
  36. 36. Madras High Court Kone Elevator India Pvt. Ltd. (vs.) Commercial Tax Officer, Mandaveli Assessment Circle, Chennai and Others Sales Tax - Central Sales Tax - Branch transfers - Manufacturers of Lifts Parts and Accessories manufactured in State and transferred to branches outside state - Clarification by Commissioner that transfer not to be taxed as inter-state sale if dealer produced form F from branch in other state Writ petitions against notice disallowing exemption - Direction to dealer to file objections before authority and to authority to consider objections Central Sales Tax Act (74 of 1956), s. 6A - Tamil Nadu General Sales Tax Act (1 of 1959), s. 13(2) - Central Sales Tax (REgistration and Turnover) Rules, 1957, r. 12(7).
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  38. 38. Certain Issues pertaining to Other States
  39. 39. Orissa VAT Act: Writ under Constitution – Value Added Tax – Inter-State sale or local sale – Dealer of Maharashtra supplying goods under works contract to party in Orissa – Whether goods moved as result of contract – Not to be decided by court in writ jurisdiction – dealer failing to apply to assessing authority in Orissa for certificate of non-deduction of tax at source – Court will not direct Government to refund tax deducted by contractee and paid over to Government – Not a case of unjust enrichment – Orissa Value Added Tax Act, 2004 (4 of 2005), s. 54–Constitution of India, art. 226.
  40. 40. Karnataka VAT KVAT Act, 2003-Clarification under section 94-whether the works contracts for powder coating, anodizing can be compounded or notThe clarification order no. C3.2318/08/CT dated April 17, 2009 contends that the process of powder coating has been regarded as works contract, but the said clarification order is silent on the compounding of such works contract. As the works contract is not in the form of goods, the works contract for powder coating/anodizing should be able to be compounded. In Associated Cement Companies Ltd. Vs. Commissioner of Customs [2001] 124 STC 59 (SC), the apex court has held that in dyeing , etc. since there is incorporation of material involved there is works contract and the transfer value of material is eligible to tax. The same principle will be applicable in the case of anodizing and powder coating also, under section 8 of the Kerala Value Added Tax Act, 2003
  41. 41. Tripura VAT Tax deduction at source on works contract: Clarification thereof. No. F.I-7(11)-TAX/87/Part-II, dated 8th January, 2013. The section 5(2){c} of the Tripura Value Added Tax, 2004 provides for deduction of charge towards labour, services and other like charges while determining the taxable turnover in respect of works contract. It further provides that in case where the amount of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract, the amount of such charge shall be calculated at the prescribed percentage. It is clarified to all the authorities, having the responsibility conferred upon them under section 4(3) of the TVAT Act, 2004 for making deduction of tax at source at the time of making payment, that they will deduct tax at source in respect of works contract at eight per cent (8%) from the taxable turnover in respect if running bills determined after deducting labour charges, service charges and other like charges.
  42. 42. Chhattisgarh VAT The amount to be deducted by the person letting out works contracts towards the tax payable shall be at the rate of composition if it is less than two per cent with a condition that dealer obtained the permission to make payment in lump sum by way of composition against the payable tax under section 10 of Act.
  43. 43. Assam VAT Clarification No. CTS-2/2009/315, dated the 12th March, 2013. Work of Welding by using own Mobile Flash Butt Welding on nonrunning lines/running lines or on cess or well consolidated formation or ballast Bed” is labour oriented work and there is no involvement of transfer of property in goods in such execution. Hence, tax is not liable under the provision of the AVAT Act, 2003.
  44. 44. Assam VAT 1).Clarification No. CTS-21/2005/340, dated the 16th October, 2012. M/s. Badri Rai & Co., Station Road, Duliajan has applied for clarification under section 105 of the Assam Value Added Tax Act, 2003 seeking clarification on the following issues:Increase in rate from 1/4/2012 What is the point of taxation for works contract tax under the AVAT Act, 2005 for a works contractors who submits running bills as and when the milestone determined by the contractee is reached? 2) Provisions requiring production of documentary evidence of payment of tax with a declaration from Sub-Contractor for obtaining the deduction of amounts paid to sub-contractor from the taxable turnover - Not illegal Assam Value Added Tax Act, 2003 (8 of 2005), s. 69(2) - Assam Value Added Tax Rules, 2005, r. 36(1).
  45. 45. What is now expected in GST ? Consult Construction 9426024975 / 079 - 40032950