Ruling under section 85 of DVAT Act, 2004 in respect of Horticulture Contracts. - 327A/CDVAT/2012/129-134 - Delhi Value Added Tax

(TO BE PUBLISHED IN PART IV OF THE DELHI GAZETTE EXTRAORDINARY) GOVERNMENT OF NATIONAL TERRITORY OF DELHI DEPARTMENT OF TRADE AND TAXES, COMMISSIONER, VAT VYAPAR BHAWAN, I.P. ESTATE, NEW DELHI-110002 No. 327A/CDVAT/2012/129-134 Dated: 29/04/2013 NOTIFICATION Ruling under section 85 of DVAT Act, 2004 in respect of Horticulture Contracts. VATO (Special Zone), Department of Trade Taxes, has filed an application under section 85 of the DVAT Act, 2004 (herein after called the said act ), seeking clarification/ruling on the following point:- Whether VAT is applicable on Horticulture composite contracts wherein goods involved/used for execution of such works contract are covered under Schedule I of the DVAT Act, 2004 and are exempted from levy of VAT? The said application has generic ramification as regards the legal position in respect of taxability of exempted goods when used in the execution of works contract, both to the authorities subordinate to the Commissioner, VAT, Govt. of NCT of Delhi and the entities/dealers who are carrying on or who may undertake such transactions. 2. While explaining the nature of transaction, the applicant in his application dated 20.12.2012 has stated that many departments/organizations/companies award horticulture contracts, which may include development of lawns/parks/roadsides and their maintenance. 3. It is worthwhile to examine the relevant provisions and definitions given under the Delhi Value Added Tax Act, 2004 and DVAT Rules, 2005 are as under: - (i) Relevant Definitions: Section 2 (1) (m) goods means every kind of moveable property (other than newspapers, actionable claims, stocks, shares and securities) and includes - (i) livestock, all materials, commodities, grass or things attached to or forming part of the earth which are agreed to be severed before sale or under a contract of sale; and (ii) property in goods (whether as goods or in some other form) involved in the execution of a works contract, lease or hire-purchase or those to be used in the fitting out, improvement or repair of movable property; Section 2 (1) (zc) sale with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the central government or of any state government, to another) and includes- (i) . (ii) . (iii) (iv) (v) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; Section 2 (1) (zo) works contract includes any agreement for carrying out for cash or for deferred payment or for valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property; (ii) Relevant Provisions of the DVAT Act section 4 Rates of tax (1) The rates of tax payable on the taxable turnover of a dealer shall be- (a) in respect of goods specified in the Second Schedule, at the rate of one paisa in the rupee; (b) in respect of goods specified in the Third Schedule, at the rate of four paise in the rupee; (c) in respect of goods specified in the Fourth Schedule, at the rate of twenty paise in the rupee; (d) in respect of the goods involved in the execution of the works contract, at the rate of twelve and a half paise in the rupee; and Provided that tax shall be paid at the rate of five paise in the rupee of the turnover of the dealer pertaining to declared goods, as defined from time to time in the Central Sales Tax Act, 1956 (74 of 1956), involved in the execution of works contract if such goods are transferred from the contractor to the contractee in the same form in which they were purchased by the contractor: Provided Further that in respect of the works contracts which are in the nature of printing works, the rate of tax shall be five paise in the rupee.] (e) in the case of any other goods, at the rate of twelve and half paise in the rupee. section 5 Taxable turnover sub-sec tion(2) In the case of turnover arising from the execution of a works contract, the amount included in taxable turnover is the total consideration paid or payable to the dealer under the contract excluding the charges towards labour, services and other like charges, subject to such conditions as may be prescribed: PROVIDED that where the amount of charges towards labour, services and other like charges is not ascertainable from the books of accounts of the dealer, the amount of such charges shall be calculated at the prescribed percentages. (iii) Relevant Provisions of the DVAT Rules Rule 3. Works contract . -(1) In case of turnover arising from the execution of the works contract, the amount representing the taxable turnover shall be the value at the time of transfer of property in goods (whether as goods or in some other form) involved in the execution of work contract and shall exclude - (i) the charges towards labour, services and other like charges; and (ii) the charges towards cost of land, if any, in civil works contracts; 4. It is relevant here to mention that in the Horticulture Contracts involving development of lawns/parks/roadsides and their maintenance, there may be use of taxable goods such as bricks, stones, cement and exempted goods such as plants, fertilizers, etc. However, in exclusive horticulture contracts, the tax-free goods such as seeds, saplings, plants, organic manure, fertilizers, bio-inputs like bio-fertilizers, micronutrients and plant growth promoters etc. are used. Accordingly, if the contract given is composite in nature meaning thereby that the amount involved for supply of material and labour is not divisible, then the said transactions are covered under the definition of work contract as per its definition as provided in section 2(1) (zo) of DVAT Act, 2004 . As per the scheme of the Act, presently there are four schedules containing goods ranging from 0% to 20%, besides residual items taxable @12.5% as per section 4 (1) (e) of the said Act . Further, section 4 (1) (d) of the said Act is exclusively related to rate of tax applicable in respect of the goods involved in the execution of the works contract which is 12.5%. Hence, the rate of tax on goods involved in the execution of works contract is not governed by the Schedules appended to the Act but is governed by the specific section 4 (1) (d) of the said Act . In brief, all goods involved in execution of works contract are taxable @12.5%, except the declared goods and printing material used in printing works that are taxable @5%, irrespective of the fact whether such goods pertains to Schedule I, Schedule II, Schedule III of the said Act . 5. After careful examination of the nature of the Horticulture Contracts as explained in the application filed by the VATO (Special Zone) and keeping in view the provisions of DVAT Act, 2004 and DVAT Rules, 2005 referred to above, the ruling on the question raised by the applicant in his application filed under section 85 of Delhi Value Added Tax Act, 2004 is given as follows: The rate of tax in respect of the goods involved in the execution of all types of works contracts, irrespective of the fact under which schedule such goods are covered, are taxable @12.5% under section 4 (1) (d) of the Delhi Value Added Tax Act, 2004 . But the declared goods (as defined in the Central Sales Tax Act, 1956 ) and used in the same form are taxable @5% (earlier it was 4%) w.e.f. 01.10.2011. This ruling is only clarificatory in nature and hence shall be in force from retrospective effect i.e. with effect from 01.04.2005, the day, the DVAT Act and DVAT Rules came into force. (Prashant Goyal) Commissioner, VAT VATO (Special Zone) Department of Trade Taxes Vyapar Bhawan, I.P. Estate New Delhi-110002 No. 327A/CDVAT/2012/ Dated: 29/04/2013 Copy for information and necessary action to: The Secretary (GAD) with the request to get the ruling published in the official gazette urgently All Special/Addl./Joint Commissioners, Department of Trade Taxes, Vyapar Bhawan, I.P. Estate, New Delhi The President, Sales Tax Bar Association, Department of Trade Taxes, Vyapar Bhawan, I.P. Estate, New Delhi Value Added Tax Officer (Policy Branch), Department of Trade Taxes, Vyapar Bhawan, I.P. Estate, New Delhi Guard File. (Prashant Goyal) Commissioner, VAT