This document provides an overview of TDS provisions under the Delhi VAT for works contracts. It discusses who is liable to deduct TDS as a contractee or contractor, the value on which TDS should be deducted, applicable rates, procedures for payment and filing of returns. Key points covered are determining what constitutes a works contract, exclusions from TDS, deducting TDS on material value only and not advances, and penalties for non-compliance. The document emphasizes being careful in applying TDS only to works contracts and taking necessary precautions to avoid costs of non-compliance.

1. WELCOME
WORKSHOP On TDS
dated the 25th
May 2013 at New Delhi
RaKeSH GaRG, FCaRaKeSH GaRG, FCa
S S a R & aSSOCIaTeSS S a R & aSSOCIaTeS

2. RaKeSHGaRG,FC
2
DVAT-TDS – An OverviewDVAT-TDS – An Overview
TDS COMPLIANCES - STEPS
 To establish, whether it is a works contract. TDS to be
deducted on all WCT including AMC, repair, Furnishing, etc. –
All types of works contracts – Big or small
 If, Yes; Value on which TDS would be deducted ……>…..>
 Time of deduction of TDS –
 If TDS under VAT and Income Tax is deducted at the same time,
there will be least confusion.
 Deposit of TDS in Govt. Treasury/Bank
 Issue of TDS Certificate
 Filing of TDS Return

3. RaKeSHGaRG,FC
3
Deduction of DVAT by Contractee
Sec. 36(1) - Any person, not being an individual or a Hindu
undivided family, who is responsible for making payment to any
dealer (hereinafter in this section referred to as “the contractor”)
for discharge of any liability on account of valuable consideration
payable for the transfer of property in goods (whether as goods
or in some other form) in pursuance of a works contract, for value
exceeding twenty thousand rupees …, shall, at the time of credit
of such sum to the account of the contractor or at the time of
payment thereof in cash or by any other mode, whichever is
earlier, deduct tax thereon at the rate of [four] percent. [6% - if
the deductee is unregistered under DVAT]
DVAT – TDS - PROVISIONSDVAT – TDS - PROVISIONS

4. RaKeSHGaRG,FC
4
Deduction of DVAT by Contractor
Sec.36(1A) - Any contractor responsible for making any payment
or discharge of any liability to any sub-contractor, in pursuance of
a contract with the sub-contractor, for value exceeding twenty
thousand rupees ….., for the transfer of property in goods
(whether as goods or in some other form) involved in the
execution, whether wholly or in part, of the works contract
undertaken by the contractor, shall, at the time of such payment
or discharge, in cash or by cheque or draft or any other mode,
deduct an amount equal to [four] percent of such payment or
discharge, purporting to be part of full amount of the tax payable
under this Act. [6% - if the deductee is unregistered under DVAT]
DVAT – TDS - PROVISIONSDVAT – TDS - PROVISIONS

5. RaKeSHGaRG,FC
5
 Applicable only to the works contracts ------
 Not applicable to pure labour jobs or service contracts, which
do not involve any material
 Not applicable to the contracts where material is not
transferred to the contractee, such as, pest control
 Not applicable to composite contracts, which are not works
contracts, such as,
 Event management, Conventions
 House-keeping
Applicability of DVAT-TDSApplicability of DVAT-TDS

6. RaKeSHGaRG,FC
6
 Divisible only through fiction of law (as against the terms of
the contract).
 Property in the goods is transferred while executing works as
per theory of accretion (Immoble.) or accession (moble.)
 Every Composite Contract is not Works Contract, e.g.,
housekeeping contract.
 Taxable to the extent of material involved.
 Merely job work, e.g., job of blasting, leveling, etc., which
does’t involve any material or transfer of property in goods, is
not taxable in VAT.
 No standard formula. Depends upon facts.
What is Works ContractWhat is Works Contract

7. RakeshGaRG,FC
7
Specification theory has been ruled out by the Courts for
determination of any transaction as WCT except in special
circumstances, to illustrate: -
 Supply of lifts has been held as a sale transaction by the SC in
Kone Elevators [(2005)140 STC 22];
 Supply of ship held as sale by SC in Hindustan Shipyard [(2000)
119 STC 533];
 Hindustan Shipyard vs. Rail. Coach Construction;
 Supply of printed corrugated boxes by Delhi HC in CIT vs. Dabur
India 198 CTR 375 and supply of printed labels by Maharashtra
HC - held as sale for the purpose of sec. 194C of I.T. Act.
Sale vs. Works ContractSale vs. Works Contract

8. RakeshGaRG,FC
8
A Risky Proposition – Not to deduct TDS as if there are 2 contractsA Risky Proposition – Not to deduct TDS as if there are 2 contracts
 Ideally there must be two separate contracts;
 As per other terms also, property in the goods must be tfd.
from contractor to contractee before start of execution –
Richardson (1968) 21 STC 245 (SC);
 Goods must be supplied free by contractee to contractor for
execution of works; and to be properly documented;
 Goods must be reflected in the stock of contractee; and
 Care should be taken in drafting of contracts. States VAT
Deptts. have similar provisions/powers to annul the
agreement, if prejudicial to the interest of the Revenue.
Supply + Labour From Same PersonSupply + Labour From Same Person

9. RakeshGaRG,FC
9
Computation of Value, subject to TDSComputation of Value, subject to TDS
 Ideally TDS should be deducted only on the material value;
 Labour & Service Charges and Inter-State Sales to be excluded
Nathpa Jhakri JT. Venture vs. State of H.P. (2000) 118 STC 306 (SC);
followed the case of Steel Authority of India Ltd. vs. State of Orissa
(2000) 118 STC 297 (SC); State of Chhattisgarh vs. VTP Constructions
(2007) 12 VST 14 (SC)
 Amount of Tax (DVAT) and Service Tax to be excluded
 If the invoice does not give the bifurcation of goods and
labour, TDS to be deducted on the total value
Value on which TDS to be deductedValue on which TDS to be deducted

10. RakeshGaRG,FC
10
Computation of Value, subject to TDSComputation of Value, subject to TDS
 After due consideration of the rival stands, we find that the
proposal made on behalf of the petitioners as an alternative to
striking down statutory provisions being in consonance with
the judgments of the S.C. has to be accepted. This is so as the
States propose to do their duty of providing an appropriate
mechanism to give effect to the law laid down by the Supreme
Court. Accordingly, we hold that impugned provisions for
deduction of tax at source will apply only to the taxable
turnover, i.e., after deducting service component and turnover
relating to sales outside State, in the course of inter-State sales
or in the course of import. Larsen & Toubro Ltd. vs. State of Haryana
(2011 ) 37 VST 428 (P&H)
Value on which TDS to be deductedValue on which TDS to be deducted

11. RakeshGaRG,FC
11
Computation of Value, subject to TDSComputation of Value, subject to TDS
 The petitioners, being works contractors, entered into
separate agreement with Railways for supply of boulders in
connection with construction of bridge in Assam. The boulders
were to be procured from various sites in the State of
Arunachal Pradesh and the same was in the knowledge of
Railways. It was held that supply of boulders from Arunachal
Pradesh to Assam was an inter-State sale and the turnover in
relation thereto was to be excluded while deducting tax (VAT)
at source by Railways. [Rock International vs. State of Assam
(2007) 11 VST 111 (Gau)]
Value on which TDS to be deductedValue on which TDS to be deducted

12. RakeshGaRG,FC
12
Computation of Value, subject to TDS –Advance PaymentComputation of Value, subject to TDS –Advance Payment
 Tax cannot be deducted by the contractee on the advance
payments made to the contractor. [CTT vs. New Holland
Traders India (P) Ltd (2009) 22 VST 444 (All)]
 Provision of TDS does not apply to all payments; but applies
only to those payments, which are for the discharge of any
liability on account of valuable consideration payable for
transfer of property in goods. [Delhi Electric Supply
Undertaking vs. CST (2006) 146 STC 72 (All)]
 No TDS on mobilization advance against bank guarantee,
repayable with interest. [Hindustan Construction Company Ltd.
vs. State of Haryana (1998) 109 STC 660 (P&H)]
Value on which TDS to be deductedValue on which TDS to be deducted

13. RakeshGaRG,FC
13
 Contractee: Every person, other than an individual and Hindu
undivided family, responsible for making any payment to any
contractor for discharge of any liability on account of valuable
consideration payable for the transfer of property in goods
(whether as goods or in some other form) in pursuance of a
works contract.
 Contractor : Every contractor, whether an individual or H.U.F.
or otherwise, responsible for making any payment to any sub-
contractor for discharge of any liability on account of valuable
consideration payable for the transfer of property in goods
(whether as goods or in some other form) in pursuance of a
works contract.
Who is liable to deduct TDSWho is liable to deduct TDS

14. RakeshGaRG,FC
14
 Contractee: At the time of credit of such sum to the account of
contractor or at the time of payment thereof in cash or by any
other mode, whichever is earlier, on account of valuable
consideration payable for the transfer of property in goods.
 Contractor: At the time of such payment or discharge, in cash
or by cheque or by draft or any other mode to the sub-
contractor for transfer of property in goods.
When to deduct TDSWhen to deduct TDS

15. RakeshGaRG,FC
15
 Under DVAT, TDS Rates are very high. In a chain of sub-
contracts, it might be 4% + 4% + so on
 Powers to issue lower deduction of TDS vests with the
Commissioner only
 Circumstances:
(i) Where any works contract involves both transfer of
property in goods and labour and service, and
commissioner is satisfied that the deduction of tax on a part
of the sum in respect of the works contract is justified; and
(ii) Where any works contract involves only labour and
service and the commissioner is satisfied that no deduction
of tax is justified.
Lower TDS CertificateLower TDS Certificate

16. RakeshGaRG,FC
16
RATE OF TDSRATE OF TDS
RATE OF TDS
From
1.2.11 to
15.1.13
From
16.1.13 to
31.3.13
From
1.4.13
If contractor or sub-contractor, as
the case may be, to whom
payment is made, -
- is registered under DVAT Act 2% 4% 4%
- is not registered under DVAT Act 4% 4% 6%

17. RakeshGaRG,FC
17
 Pay TDS within 15 days of the end of the month in which tax
was deducted – (pay Electronically - other than Govt.
deductor)
 Issue TDS Certificate in DVAT-43 in quadruplicate:
 Two copies to the deductee (One will be attached with
DVAT Return)
 One copy to be filed by deductor with quarterly TDS return
 One copy to be retained by deductor
 Credit for TDS can be claimed only when TDS certificate is
received by the contractor along with Challan
Payment of TDS & TDS CertificatesPayment of TDS & TDS Certificates

18. RakeshGaRG,FC
18
 Penalty for non-deduction of TDS or non-payment
 A sum not exceeding twice the amount deductible, besides
the tax deductible but not so deducted and, if deducted,
not so deposited into Govt. Treasury.
 Interest for non-deduction of TDS or non-payment
 Liable for simple interest at the rate of 15% per annum on
the amount deductible under this section but not so
deducted, and if deducted, not so deposited.
 Interest shall be calculated from the date on which such
amount was deductible to the date on which such amount
is actually deposited.
Payment of TDS & TDS CertificatesPayment of TDS & TDS Certificates

19. RakeshGaRG,FC
19
 Apply for TAN within 7 days from the date when tax was
deductible in DVAT-45
 File Quarterly TDS Return within 28 days from end of quarter
in Form DVAT-48
 Preserve TDS return for 7 years
 Penalty for late application of TAN or late filing of TDS
Return: A sum of Rs. 200/- per day from the day on which
requirement arose until the failure is rectified; Maximum -
Rs. 20,000/-
TAN and TDS ReturnTAN and TDS Return

20. RakeshGaRG,FC
20
 Be careful in determining the nature of activity – TDS
is deductible in works contract only
 Compare the rate of WCT vs. Sale before awarding an
contract to minimize the impact
 Since rate of TDS are high – Non-compliance of
provisions would be a costly proposition.
 Otherwise, also penalty provisions are strict.
 Be careful, and Take care.
Precautions – To SummarizePrecautions – To Summarize

21. ThaNk YOU
Rakesh GaRG, FCaRakesh GaRG, FCa
s s a R & assOCIaTess s a R & assOCIaTes
Ph: (011) 65960912-13, 9810216270Ph: (011) 65960912-13, 9810216270