Multi state vat on works contract

Multi State VAT on Works
Contracts
By Consult Construction

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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
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& Multi State - VAT implications on the operations,
Giving Multi State VAT opinions

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• VAT and Service Tax updates for the construction / Project
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developments


Multi State VAT
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•
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•

Basics of Works Contract
Understanding of Issues
State Specific Provisions and Case Laws
Conclusion


Key Information
• First two digits of TIN represent the state –
Jammu – 01, Delhi – 07, Gujarat – 24 and so
on
• National VAT Dealer Registrationwww.tinxsys.com


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

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

Lets discuss State Specific Provisions
Gujarat
Andhra Pradesh
Delhi
Maharashtra
Rajasthan
Tamil Nadu
Others

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

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


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


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.


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

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%

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


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


Delhi
– 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%


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

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

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.

Maharashtra
– Limit – 5 Lacs (Same as Gujarat)
– Separate form for Registration
– Non Resident – specific provisions

• 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


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

• Builders – Specific provision

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

Rajasthan
– Limit – 10 Lacs
– Non Resident – specific provisions – Permission from AC

• 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

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

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


Tamil Nadu
– 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

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

• Builders – No Specific provision

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).


Certain Issues pertaining to
Other States


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.


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

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.


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.


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.


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).

What is now expected in GST ?

Consult Construction
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Multi state vat on works contract

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