issue regarding rate of tax applicable to work contractor, VAT + CST

[GURPREET SINGH]

hello to everyone,

i want to know the rate of tax to be charged and deposit to the govt under different schemes, if available to the assessee, he is dealing in up, delhi and haryana. he works on civil contractor.

please tell the rate and under all vat act, is assessee liable to register???

please reply.. thanks

gurpreet singh

Posts / Replies

[Pradeep Khatri]

On works contract, Service Tax and WCT is applicable. Since It is a very complicated subject, it is required to know the exact facts pertaining to your matter.

Generally in Haryana, STDS @ 5% is applicable on the entire value of the contract. Under abatement scheme, depending on the nature of contract, a predefined percentage of service charges are to be deducted from the value of the contract and WCT as applicable on the goods involved in the execution of Works Contract is being charged. If the contractor is maintaining the accurate books of accounts in terms of  separating the supply of goods and providing services, then, actual deduction may be availed regarding on the amount involved in the services portion.

Service Tax under reverse charge mode will be applicable on the service receiver w.e.f. 01-07-2012.

----------------------------------------------------------------------------------------------------------------------------------------------

Valuation of works contract under DVAT

Option 1*: When Bifurcation ascertainable from Books

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 –

a. the charges towards “labour, services and other like charges**”; and  b. the charges towards cost of land, if any, in civil works contracts *subject to the dealers maintaining proper records such as invoice, voucher, challan or any other document evidencing payment of referred charges to the satisfaction of the Commissioner.

** Separately defined in Rule 3 of DVAT Rules, 2005 as:

a. labour charges for execution of works;

b. charges for planning and architects fees;

c. charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; d. cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract;

e. cost of establishment of the contractor including cost of marketing, finance expenses and securities deposits to the extent it is relatable to supply of labour and services;

f. other similar expenses relatable to supply of labour and services;

g. profits earned by the contractor to the extent it is relatable to supply of labour and services subject to furnishing of a profit and loss account of the works sites:

Option – 2: When Bifurcation not ascertainable from Books

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 –

a. the charges towards “labour, services and other like charges^”; and  b. the charges towards cost of land, if any, in civil works contracts ^ the amount of such charges shall be calculated at the percentages specified in rule 3 of Dvat Rules, 2005.The general rate being 20% of the total contract value.

How is VAT Applicable on the above Running Bills pursuant to legal provisions applicable?

As per Provisions of DVAT Rules, 2005 the turnover arises in a tax period as per below provisions:

Case	Particulars	When turnover arises
1	Sales by means of an installment sale or hire purchase of goods made in the tax period.	Sale price that will be due and payable under the agreement, including the amount of any option fee paid or that may be payable
2	Sales by the transfer of a right to use goods (other than case above)	Proportion of the sale price that is due and payable during the relevant tax period
3	Sales by means of transfer of property in goods (whether as goods or in some other form) under a works contract executed or under execution in the tax period	Consideration received or receivable by the dealer for such transfer of property in goods (whether as goods or in some other form) during the relevant tax period

(Refer Rule 4 of DVAT Rules….)

Therefore, Applying provisions as detailed above at each above stage of billing where consideration becomes due to be received DVAT shall be Applicable.

Who is Liable to Deduct Tax at Source (WCT)

Contractee: Every person, not being an individual or a Hindu undivided family, who is responsible for making 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 responsible for making any payment or discharge of any liability to any sub-contractor, in pursuance of a contract with the sub-contractor 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.

When to Deduct TDS

Contractee: 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, 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: At the time of such payment or discharge, in cash or by cheque or draft or any other mode, to the sub contractor for transfer of property in goods.

Rate of TDS

Tax shall be deducted at the rate of 2% on the sum paid/payable towards transfer of property in goods.

Basic Exemption

Contracts (including Sub Contracts) for a value upto Rs 20,000/- shall be held exempt.

Few Relevant Aspects:

1) Deduction of TDS under Delhi VAT Act is in addition to the obligation of the contractee or the contractor, as the case may be, to deduct tax u/s 194C of the Income Tax Act

2) TDS is not deductible by contractee on advance payments made to a contractor pursuant to the contract.

3) TDS is not deductible on inter-state sale, sale in course of import or labour and service

4) TDS certificate is to be issued in Form DVAT 43 within 15 days from end of the month in which tax has been deducted in three copies. The same shall be preserved for a period of minimum 7 years.

5) Every deductor shall apply for Tax Deduction Account Number (TAN) within seven days from tax deduction liability in form DVAT – 44.

Computation of Taxable Turnover and Tax

Its a very Broad Aspect but we shall take up the cases with few illustrations to discuss those cases which are general to some soughts.

Case 1:

Total Contract Value –  Rs. 10,00,000/-

VAT – Additional as Applicable

Labour & Services – Not Ascertainable – Specified Percentage – 30%

Then, Taxable Turnover shall be – 10,00,000*70% =  Rs. 7,00,000

And VAT Shall be 12.5% - 87,500/-

Case 2:

Total Contract Value –  Rs. 10,00,000/-

VAT – Inclusive in Contract

Labour & Services – Not Ascertainable – Specified Percentage – 30%

Computation of Taxable Turnover shall be a Complex effort Now, Assume total contract value to be 100.

Lets Assume material to be x, thus VAT would be 12.5% of x and Labour would be 30% of (100 – 12.5x/100). This Shall Create a complex Linear Equation and need to be solved. On Solving you get the VAT of Rs 80,460/- and Material Value of Rs 6,43,678/-