BASIC PROVISIONS RELATING TO WORKS CONTRACT & TDS

Transcription

1 BASIC PROVISIONS RELATING TO WORKS CONTRACT & TDS Presented by CA Vijay Shroff August 18, 2012 At Study Group Meeting of J. B. Nagar CPE Study Circle Andheri, Mumbai V J SHROFF & Co Agenda Definition of Works Contract Types of Contract Examples of Various Works Contract Determination of SP of Works Contract Set-off Provisions relating to Works Contract Sub-contracting TDS Provisions Issues 2 V J SHROFF & Co CA Vijay Shroff 1

2 Definition of Works Contract 3 V J SHROFF & Co Definition of Works Contract Normal Sales & Works Contract Works Contract is defined under the MVAT Act, 2002 Explanation (b) to section 2(24) Deemed Sales a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract including Building, construction, manufacture, processing, fabrication, erection, installation, filling out improvement, modification, repair or commissioning of any moveable or immoveable property. 4 V J SHROFF & Co CA Vijay Shroff 2

3 Definition of Works Contract (Contd..) Works Contract is defined under the CST Act, 1956 Section 2(ja) a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property. 5 V J SHROFF & Co Types of Contracts 6 V J SHROFF & Co CA Vijay Shroff 3

4 Types of Contract Contracts can be divisible or indivisible. Where the value of materials can be identified separately, it is a Divisible Contract - e.g. Sales and after sales service contract When Contract awarded for a lump sum amount, it is an Indivisible Contract - e.g. turnkey contract There can be more than one contractors involved in the job. Even Contractors can further pass on the job to other contractors. Known as sub-contractors 7 V J SHROFF & Co Examples of Various Works Contract 8 V J SHROFF & Co CA Vijay Shroff 4

5 Examples of Works Contracts Construction of civil structures and repairs, maintenance, etc. thereof Repairs and maintenance of contracts including Annual Maintenance Contracts for computers, air-conditioners, etc. Printing contracts such as printing of stationery, brochures, pamphlets, etc. Tailoring contracts for staff uniforms, dresses, etc. Electrical contracts Photocopying contracts Waterproofing contracts Interior decoration contracts 9 V J SHROFF & Co Determination of SP of Works Contract 10 V J SHROFF & Co CA Vijay Shroff 5

6 DETERMINATION OF SP FOR WORKS CONTRACTS RULE 58 - Gannon Dunkerly & Co. v/s. State of Rajasthan (1993) 88 STC 204 (SC) Total Contract Value (Value of Entire Contract) 100 Less: Allowable Deductions: 1. Sub Contract Value paid to Registered Contractor XX 2. Labour Charges for execution of WC subsequent to trf XX 3. Planning, Designing & Architect s fees XX 4. Hire Charges or otherwise, for obtaining Machinery & Tools for WC XX 5. Cost of Consumables in which there is no transfer of property e.g.: Water, Electricity, Fuel, etc. 6. Cost of Establishment relatable to supply of labour & services XX 7. Similar other expenses relatable to supply of Labour & Services XX 8. Profit relatable to supply of Labour & Services 33 Balance sales Price Deemed Sale Value of Goods involved in execution of WC, in which transfer of property takes place 11 V J SHROFF & Co XX XX 67 DETERMINATION OF SP FOR WORKS CONTRACTS (contd..) If accounts not maintained or Commissioner do not accept accounts lump sum deductions Total contract value 100 Less: sub contract Less: Lump sum deduction rule 58 proviso Balance taxable The value of goods so arrived at shall be the SP relating to the transfer of property in goods involved in execution of WC, for the purposes of levy of tax@ 0 / 1% /4%/5% / 12.5%, as applicable XX XX XX 12 V J SHROFF & Co CA Vijay Shroff 6

7 DETERMINATION OF SP & PP FOR WORKS CONTRACTS (Contd.) RD can collect the tax separately, to the extent payable, on any sale of goods [Sec. 60(2)] Where RD has not collected the tax separately, the tax element can be reduced from the `Sale Price for the levy of tax [Rule 57(1)] 13 V J SHROFF & Co COMPOSITION SCHEME FOR WORKS CONTRACTS [Sec. 42(3)] Option to contractors contract-wise Total contract value Less: sub contract Balance contract value Such composition sum can be collected separately, to the extent payable by a registered dealer, on any sale of goods [Sec. 60(2)] XX XX XX If Composition Sum is not collected separately - it is payable on the contract value without any reduction of composition element, as per Rule 57(1), however if contract provides that contract value is inclusive of taxes and duties then it is payable after reduction as per rule 57(1) 14 V J SHROFF & Co CA Vijay Shroff 7

8 Composition scheme u/s 42(3A) for Builders & Developers For builders & developers issued u/s 42(3A) of the MVAT Act, 2002 vide notification dt Features of composition scheme - Available only to the registered dealer Composition amount payable of the aggregate amount specified in the agreement or the values specified for stamp duty in respect of agreement, whichever is higher Agreements registered on or after covered by the scheme Composition amount to be paid by making E-payment & include turnover of sale in the sales tax returns 15 V J SHROFF & Co Composition scheme u/s 42(3A) for Builders & Developers (Contd..) No set off in respect of the purchases. Concessional interstate purchase agst Form C is not allowed if composition is opted. Developers cannot issue Form 409 to subcontractor but charge applicable on its billing to the developers. Developers to not to issue tax invoice. Once the methods of computation of tax liability in respect of the contract is opted, the same cannot be changed 16 V J SHROFF & Co CA Vijay Shroff 8

9 Set-off Provisions relating to Works Contract 17 V J SHROFF & Co Set-off Provisions relating to Works Contract Where the dealer has opted to pay composition at 5% on Notified Construction Contracts, Setoff shall be reduced by 4% (u/r 53(4)(b)) of such Purchase price Notified Construction Contract (Not No. VAT- 1506/CR-134/Taxation-1 w.e.f. 20/06/2006) Buildings, Roads, Runways, Bridges, Railway over bridges, Dams, Tunnels, Canals, Barrages, Diversions, Rail Tracks, Causeway, Subways, Spillways, Water Supply Schemes, Sewerage Works, Drainage, Swimming Pools, Water Purification Plant and Jettys - Incidental or Ancillary to the contracts 18 V J SHROFF & Co CA Vijay Shroff 9

10 Set-off Provisions relating to Works Contract (Contd..) For other WCs covered under composition (Rule 53(4)(a)) - Corresponding Setoff be reduced by 36% (No reduction on Capital Assets and on goods in which Property is not transferred) Full set-off in case of Rule 58(1) Rule 58 (1) as well as Proviso to 19 V J SHROFF & Co Ineligible Set-off Rule 54 Rule 54(g): No set-off in respect of purchases effected by way of works contract which results in immovable property Under this sub-rule, the set-off is denied to purchaser of goods; i.e., contractee. The contractor will get the set-off as per the provisions of law Sub-rule (g) is substituted from it shall not be disallowed in case of plant and machinery Rule 54(h): No set-off on purchases of any goods in which property is not transferred (either in same form or any other form) to any person and which are used in erection of immovable property other than plant and machinery This is corollary of earlier clause 20 V J SHROFF & Co CA Vijay Shroff 10

11 Subcontracting 21 V J SHROFF & Co Sub-contracting Main contractors & Sub contractors - Relationship shall be deemed to be that of the Principal & Agent [Sec.45(4)] Their liability to pay tax shall be joint & several Main Contractor not liable on corresponding turnover of sales if sub-contractor has paid taxes Forms 407 & 408 Sub-contractor not liable if Main Contractor has paid taxes Forms 406 & V J SHROFF & Co CA Vijay Shroff 11

12 TDS Provisions 23 V J SHROFF & Co TDS UNDER VAT [ Sec. 31 / Rule 40] TDS provisions applicable to payments made for Works Contracts, or other purchases, as notified Persons/employers as notified [VAT-1505/CR-123/Taxation/dt ] No TDS: on Sub-Contracts On contract covered u/s 8 viz; Interstate works contract etc. [8(5) Not No. VAT-1507/CR-93/Taxation-1 dt. 31/03/08 and 8(3c) Not. No. VAT- 1507/CR-70/Taxation -1 dt. 25/09/08] Advance payments liable to TDS only when it is adjusted against the amount payable No deduction if amount payable in a year is less than Rs. 5 lakhs If it exceeds deduct in case of RD and 4% upto 31/03/2012 and 5% w.e.f. 01/04/2012 in case of URD Co-op. Housing Societies to deduct if contract awarded exceeds Rs lakhs V J SHROFF & Co CA Vijay Shroff 12

13 TDS UNDER VAT [ Sec. 31 / Rule 40] (Contd..) Contractor may apply to Authority for either No TDS or lower TDS, in prescribed manner If Tax is not deducted, still TDS is payable. Interest is payable for late payment of TDS TDS important due dates TDS E-payment in MTR 6 by 21st of next month TDS certificate (form 402) issue immediately on deduction / payment Maintain register (form 404) Yearly TDS Return has to be filed in Form 405 within 3 months from the end of Financial year 25 V J SHROFF & Co Issues 26 V J SHROFF & Co CA Vijay Shroff 13

14 Issues Whether VAT is payable on material supplied by Contractee to Contractor at a value or free of cost? N.M. Goel & Co 72 STC 368(SC) Rastriya Ispat Pvt. Ltd. 109 STC 425 (SC) Works contract delay due to non-availability of site compensation received for loss of overheads, idle machineries and loss of profit- whether form part of sale price and liable to VAT? 27 V J SHROFF & Co Sub-contracting Main contractors & Sub contractors -Relationship shall be deemed to be that of the Principal & Agent [Sec.45(4)] - liability to pay tax shall be joint & several deductions will be given to either, based on producing prescribed certificates Can a dealer award work contract against form 406/409 no tax for a future anticipated contract? 28 V J SHROFF & Co CA Vijay Shroff 14

15 Set-off Is Set off available if supplier 12.5% instead of 4%/5%? Is set off available even if TIN no. of Purchasing Dealer not mentioned on Purchase Invoice? Is full set off available to sub-contractor who charges and pays full tax through Principal Contractor opts for 5%/8%? 29 V J SHROFF & Co Inter-state Works Contract What is it? When is works contract said to be covered by CST Act? SC Builders Assoc. [88:STC:248] 20th Century [119 STC 182] Inter-state movement of Raw material/processing material / components Finished goods not requiring to work upon Is in transit sale possible in inter-state Works Contract? Very controversial Is sale in the course of imports possible? Is deduction u/r 58(1) table deduction available? Mahim Patrem (6:VST:248) (SC) Is composition scheme available for a inter-state Works Contract? 30 V J SHROFF & Co CA Vijay Shroff 15

16 Composition Scheme Is VAT payable on service tax element? Sujata Painters DDQ /Adm-3/16/B-1 dt. 20/01/12 Nikhil Comforts - SA No. 30 of 2010 dt. 31/03/ MSTT Is deduction u/r 57(1) available? Painterior LB SA no to 1056 of 06 dt V J SHROFF & Co Adhoc deduction as per proviso to Rule 58(1)(a) Is it upon the dealer to justify such a deduction? Is it that the Business Auditor to attempt to calculate rule 58(1) deduction & then compare with adhoc deduction? Is depreciation on plant & machinery used at site available as deduction u/r 58(1)? refer L & T [34 VST 53 (kar)] 32 V J SHROFF & Co CA Vijay Shroff 16

17 Works contract - TDS Claim of credit TDS certificates formats For earlier periods amended sec 31(4) If on sale/supply contract TDS is deducted? Deduction of TDS Indivisible contracts Notification employer Interstate W/C no TDS deductible 33 V J SHROFF & Co Works Contract TDS Non Deduction by Employer What is the fall out? Levy of interest & penalty If contractor has paid tax. Can it be said that no further liability on employer? [Refer Hindustan Coca Cola Beverages P Ltd (SC) 293 ITR 226] 34 V J SHROFF & Co CA Vijay Shroff 17

18 THANK YOU!! V J SHROFF & Co CA Vijay Shroff 18