The document announces a discussion meeting on the Tamil Nadu Value Added Tax Act to be held at Hotel Savera in Chennai on February 28, 2012. The meeting will cover topics like computation of VAT liability in works contracts, the composition scheme, TDS procedures, and issues and suggestions for simplification. It will be addressed by Mr. P R Subramaniyan, Head of Indirect Taxes at L&T Construction and Co-Chairman of the Expert Committee on VAT for MCCI.

1. WELCOME
to
Discussion meeting on
Tamil Nadu Value Added Tax Act
at
Hotel Savera, Dr. Radhakrishnan Salai,
Chennai-600004
- Mr P R Subramaniyan
Head- Indirect Taxes
L&T Construction, &
Co-Chairman,
28th February 2012 Expert Committee on VAT,
MCCI

2. Works contract – Computation
of VAT Liability
Composition Scheme
TDS Scheme & Procedures
Issues of Concerns
Suggestions for simplification
- Mr P R Subramaniyan
Head- Indirect Taxes
L&T Construction, &
Co-Chairman,
Expert Committee on VAT,
MCCI

3. If a contract is awarded for manufacture & supply of Boiler & accessories for agreed
price,
-- Transaction construed as Sales
Instead the contract is for manufacture, transportation, loading / unloading,
installation, commissioning & handing over the installed boiler plant for an agreed
contract price.
-- Transaction construed as Works Contract
3

4. SALE > DEEMED SALES
SALE DEEMED SALE
(Conventional sale) ( 46th Amendment
1. SUPPLY & SALE OF ‘GOODS’ 1. TRANSFER OF PROPERTY IN GOODS
- INVOLVED IN WORKS
2. SALE – RESALE- RESALE
2. DEEMED SALE -
• Buyer & Sellers
• Contractor & contractee / client.
• Supply of Goods • Project execution – Goods &
services.
• Transfer from sellers to buyers
• Transfer of goods on the theory of
• Price agreed by parties for the accretion.
Goods • Price agreed for the project
execution
Art. 366 (29-A)- Tax on
sale or purchase of
goods

5. CONSTITUTION OF INDIA
Article - 246
VII Schedule
LIST 1 LIST - 2
(Union List) (State List)
ENTRY 92 A ENTRY 54
Taxes on the Sale or Purchase of goods Taxes on the Sale or Purchase of goods
other than news papers. Where such other than news papers, subject to
sale or purchase takes place in the provisions of Entry 92 A of List 1
course of inter-state trade or commerce.
46th CONSTITUTION AMENDMENT ACT (Art.366 (29-A)
DEEMED SALES
Controlled Works Hire Right to Supply of
Supply to
Commodities Contract Purchase use Goods food & Drink in
Members
Restaurants

6. SPECIMEN OF WORKS CONTRACT
(I)
SEPARATE DOCUMENTS
Erection Service
SUPPLY Installation Including
& civil work
Commissioning
6

7. SPECIMEN OF WORKS CONTRACT
(II) COMPOSITE CONTRACT
Service
SUPPLY Including
civil work
BOQ for Supply BOQ for Service
7

8. SPECIMEN OF WORKS CONTRACT
(III) LUMPSUM CONTRACT PRICE
SUPPLY &
Service
EPC – turnkey
• Payment - milestone or
• Payment - work done per unit or
• Payment - percentage completion
8

9. COMPOSITE CONTRACT
CONTRACTUAL TERMS & CONDITIONS – SUPPLY & SALE
OF GOODS
 Specific schedule for supply & sale of described
goods.
 Clients agreeing to to issue of C-form for above
supplies
 Contract providing for approved List of vendors /
manufacturer
 Inspection by clients at vendor’s premises prior to
despatch of goods – pre-despatch Inspection.

10. COMPOSITE CONTRACT
CONTRACTUAL TERMS & CONDITIONS – SUPPLY & SALE
OF GOODS
 Clients providing dispatch instructions eg.,
 Title clause: Transfer of title to goods thro’
transfer of documents of dispatch documents eg.,
Lorry Way bill / Railway receipt/ entry permit.
 Invoicing / payment for supply of specific goods
as per schedule.

11. . WORKS APPLICABLITY OF INTER STATE SALES
CONTRACT IN WORKS CONTRACT TRANSACTION
AS PER CST ACT 1956
U/s 3(a) or (b) of CST Act, 73 STC / 370
read with section 6 (2) (b). - Builders
Association case
“SUPPLY OF
GOODS”
88 STC / 204
“SERVICES” 132 STC / 272 – (AP – HC) - PAGE 235
L&T’s case Gannan Dunkerly
Dept.’s SLP & Co case
(civil) 22445-22447/2003
dismissed

12.  Sec 5 of TN VAT Act – levy of tax on transfer of
goods involved in works contract
 Tax is payable on taxable turnover relating to
transfer of property in goods involved in the
execution of works contract- either in same form or
some other form
 Tax payable at such rates as specified in the first
schedule

13. Total ACTUAL BASIS
Contract
Material Labour
Part Part
VAT Ser. Tax
Payable Payable
VAT on transfer of property - on the theory accretion
- WCT Transferrable Value Landed Cost + Profit.
Example (Figure in Rs.)
Material Landed Cost Profit(10%) Value Tax rate Tax
Cement 100 10 110 14.5% 15.95
Steel 200 20 220 5% 11.00

14. Deemed as BAI Vs. Union of India State not to Tax
sale and (SC) 73 STC / 370 on Gross Value
subject to
sales tax
of goods
“……….. after the 46th Amendment under which by a legal fiction
the transfer of property in goods involved in a works contract was
made liable to payment of sales tax that they are not governed by
article 286 while levying sales tax on sale of goods involved in a
works contract? They cannot do so. When the law creates a legal
fiction such fiction should be carried to its logical end. There
should not be any hesitation in giving full effect to it. If the power
to tax a sale in an ordinary sense is subject to certain conditions
and restrictions imposed by the Constitution, the power to tax a
transaction which is deemed to be a sale under article 366(29-A) of
the Constitution should also be subject to the same restrictions
and conditions. ------------------------. The contractor becomes liable
to pay the sales tax ordinarily when the goods or materials are so
used in the construction of the building and it is not necessary to
wait till the final bill is prepared for the entire work……..”
( page 400)

15.  Rule 8 (5) of TNVAT Rules prescribes method for arriving at
“Taxable Turnover”
 Taxable Turnover to be arrived after deducting the following
amounts from total turnover
a) All amounts in respect of goods in the course of export or in the
course of import or in the course of inter-State trade or
commerce;
b) All amounts towards goods specifically exempted from tax
under the Act;
…contd.,

16. c) All amounts paid to subcontractors for execution of works
contract whether wholly or partly;
d) All amounts towards labour charges and other charges not
involving any transfer of property actually incurred or at rate
specified under the Rules if not ascertainable from books of
accounts
e) All amounts including the tax collected from customer,
refunded to customer or adjusted towards any amount payable
by the customer.

17. COMPUTATION MECHANISM
- issues of concern
I. Specific price
II. Cost Plus
III. Composite price
 As per the State Act - generally adopting
SC guidelines of 88 STC/ 204 – !!!!
 Inter State sale - Sec. 13(aa) of CST Act- ????
 Subcontractors turnover - conditions?
 Labour & Other like charges _-complexity
 Profit element –for dealers having multiple operations

18. COMPUTATION OF TAX LIABILITY
 Alternate method in computing tax liability – works
contract.
 Pre-VAT & Post VAT period

19. COMPOSITION SCHEME
 Scheme differs from State to
State
 Composition once opted, same
for contract period
 Dealers cannot issue tax invoice
to their customers.
 ITC benefit generally not
accorded except Maharashtra
State.

20.  Sec 6 of TNVAT Act deals with payment of tax at
compounded rate by Works contractor.
 This scheme is available only for the dealers, who
do not purchase /procure any materials from
outside TN.
 In other words, this scheme will not apply to a
dealers procures goods from outside the State
including stock transfer.

21.  The dealer to apply to the assessing authority
along with the first monthly return his option to
remit tax on composition basis.
 The above scheme for a financial period
 The dealers exercising above option shall not avail
ITC and shall not issue tax invoice.
 No need to keep books of accounts.

22.  There is no clarity on the availability of exemption
on sub-contractor’s turnover when main
contractor pays WCT u/s 6 of TNVAT Act.
 Dealer to discharge liability on the entire contract
value at 2% in case of civil works & 4% in all
other works contracts.

23. i. Scheme does not allow inter-State purchase or imports
ii. Scheme is for all the works executed in the State – Job to
Job basis not available
iii. Input tax credit denied on purchases.
iv. Scheme is for the financial year
v. Works contractor shall not collect any amount by way of
tax

24. i. Suggesting to adopt erstwhile 7C of TNGST Act for
simplification and to achieve the object of the scheme
 Payment of tax on composition basis shall be allowed on job to
job basis at the discretion of dealers.
 Restriction on inter-State purchase or imports to be removed
 Restriction on collection of tax from contractee shall be
removed.

25.  Sec 13 of TN VAT Act – deduction of tax at source
 Any person paying any sum to dealer for execution
of works contract shall deduct TDS
 In case of civil works / civil maintenance works
contract – 2% of total amount payable
 In other works contracts – 4% of total amount
payable
….contd.,

26.  TDS deduction shall not be made where
a) no transfer of property in goods is involved in the execution of such
works contract or;
b) Transfer of property in goods is involved in the execution of works
contract in the course of inter-State trade or commerce or in the course
of import or;
c) The dealer produces a certificate in Form S from the assessing
authority concerned that he has not liability to pay or has paid tax u/s .
5
 Rule 9 of TNVAT Rules prescribes that tax deducted shall be deposited
with the A.O having jurisdiction over the person or to any other authority
authorised by DC to receive such payment, on or before 20th of succeeding
month with Form R
…contd.,

27.  Certificate for deduction of tax shall be issued in Form T within 15
days of such deposit and a copy of certificate shall be sent to A.O
having jurisdiction over the said dealer
 Amount mentioned in certificate shall be adjusted against tax
liability of the dealer u/s. 5 or 6
 Burden to prove that the amount is deposited already lies with
dealer claiming the deduction.
 Any person who fails to deduct or deposit TDS, shall in addition
pay interest at one and a quarter percent per month of such
amount.
.contd.,

28.  Dealer on proving A.O that he is not liable to pay tax u/s
5, the A.O shall refund the amount deposited after
adjusting arrears of tax if any due
 Tax deducted or interest shall become due without any
notice of demand
 If any person contravenes the provision in deduction or deposit of
TDS, same shall be recovered along with penalty and interest and the
dealer is treated as assesee

29. i. TDS is effected even on advance payment
ii. Form S – certification that the dealer has no liability or has
paid tax u/s 5 – contradictory since form is obtained before
start of job – hence not issued
iii. Burden of proof that TDS is deposited lies with dealer claiming
deduction – dealer has to ensure that Tax deducted by client is
transferred to their A.O.

30. Blockage of working capital/duplication of
tax payment
Dealers to claim refund on normal course
In the process refund nullified by arbitrary
demands
Unproductive litigation starts.

31.  Abolition of TDS provision multi-point basis
 TDS waiver certificate – procedure to be simplified

 Waiver certificate to be for the entire contract period and
not for any financial period

Automatic waiver certificate for contractor paying tax
under sec. 5 and files return regularly with tax payment..

33. INTER STATE SALES & IMPORT SALES
Intra State Inter State Import
sales sales sales
Thomson Press (I) Ltd. Vs. Indure Ltd. and another
GDC Vs. State of Rajasthan
State of Haryana ( P&H) (FB) V. Commercial Tax Officer
88 STC / 204 (SC)
100 STC / 417 [[2010] 034 VST 0509(SC)
It is also to be noted
“…. the legislative It does not, however,
that the company
power of the State to ipso facto authorise
had admittedly
impose tax on such the State Legislature
imported the goods
transfers under entry to levy taxes on the
into India for
54 of the State List sale or purchase of
completion of the
will have to be goods where such sale
project on turnkey
exercised keeping in or purchase takes
basis of N.T.P.C.
the view the place in course of inter
Thus, by virtue of
provisions contained State trade and
article 286(1)(b) of
in Section 3, 4 and 5 commerce. The power
the Constitution,
of the Central Sales in this behalf vests
they would not be
Tax Act.……” (p. 228) exclusively in the
taxable.
Parliament,

34. 0ther issues on inter State sales & Import sales
- Judicial support
INTER STATE SALES
• State of AP Vs. Larsen & Toubro Ltd
(132 STC / 272) - State appeal dismissed by SC
• Mahim Patram (6 VST /248) SC –Sec. 13(aa)CST
• Commissioner of VAT, New Delhi Vs State of
Haryana– CST Appellate authority (New Delhi
Bench) 23VST /10
• Mitsubishi Corp. - Delhi HC – 34 VST /417
IMPORT SALES
 Indure Ltd. – SC - 34 VST/509
 BPL Telecom – Kerala HC – 23 VST/264
 Embee Corp. – Bombay SC- 107 STC /196