Works Contract is an agreement between
contractor and contractee to transfer the moveable goods as per section
2(1) (zt). This includes the activities of assembling, construction,
building, altering, manufacturing, processing, fabrication,
installation, fitting out, improvement, repair or commissioning of any
moveable or immoveable property.
Contractee as per section 2(1) (j) is
the person for whom or for whose benefit a works contract is executed
and contractor as per section 2(1) (k) is the person who executes either
himself or through a sub-contractor a works contract. A sub contractor
does not come under the definition of Contractor. Sub contractor is mere
agent of contractor since goods transferred directly to Contractee.
Registration of Contractor/Contractee
Contractor is to get himself registered under the VAT Act either as a
registered dealer under section 11 or lump sum dealer under section 9. A
lump sum dealer is also to submit the details of each contract to the
Assessing Authority within 30 days of the award of the contract as per
Rule 49. A Registered dealer is eligible for the input tax credit as per
section 8 whereas the lump sum dealer is not since as per section
2(1)(w) input tax means the amount of tax paid to the State in respect
of goods sold to a VAT dealer. A lump sum is not a VAT dealer though he
is registered under the Act. A register dealer is to pay the tax on the
goods transferred in the contract as per the rate of tax on the goods
transferred as per section 7 of the Act whereas the lump sum dealer is
to pay the tax @ 4% on the value of the contract as per Rule 49(1).
Filing of Returns
A registered contractor is to file quarterly return on Form R-1 like
other dealers as per Rule 16. A lump sum dealer is to file the return on
Form R-6 as per Rule 49(4). A contractee is to file his return on Form
R4A whether he is registered or not registered under the Act as per Rule
16(1). The return is to be filed by the next of the month after each
quarter i.e. 31 July, 31 October, 31 January, 30 April as per Rule
16(1). An annual return on Form R-2 is to be filed by every registered
contractor by 30 November as per Rule 16(2) but in the case of lump sum
contractor need not to file the Annual Return since R-2 is to be filed
by the registered dealer who file the R-1 as mentioned in Rule 16(1).
Payment of Tax
A registered contractor whose tax liability does not exceed 1 lakh
rupees in a year is to deposit the tax along with return otherwise he
is to deposit the tax monthly by 15th of each month for the previous
month as per section 14(3). A lump sum contractor is to pay the tax
within 30 days of the close of the quarter. A contractee is to deduct
the tax @ 4% before making the payment to contractor as per Rule 33(1)
and the same will be deposited by 15 of the next month for the previous
month as per Rule 33(5) into the appropriate Government Treasury in
challan in Form VAT C-1 separately for each payee.
TDS
A contractee is to deduct the TDS @ 4% from the bill amount of
contractor as per Rule 33. TDS will not be deducted on the Tax amount
included in the Bill. A contractor is also to deduct the tax from the
payment made to subcontractor as per the clarification given by Haryana
Government in the case of DLF Universal Ltd. DLF has taken up the case
with the Haryana Tax Tribunal against this clarification and the
decision is awaited. A provision to deduct the TDS from the payment made
to subcontractor is ultra vires as per decision of Allahabad High Court
reported in 97STC355. Collection of Taxes from both contractor and sub
contractor would be violative of article 14 as per AP High court
decision in the case of M/s Larsen Toubro Limited and another V State of
AP(148 STC 616AP).
Assessment
Assessment of registered dealer is to be completed within three years
of the close of the year as per section 15(3). A notice is to be given
for scrutiny assessment within one year of the last return filed. It
means the notice for scrutiny assessment in the case of registered
dealer is to be given by 30 November 2008 and in the case of lump sum
dealer by 30 April 2008 for the year 2006-07.
Use of declaration Forms
A lump sum dealer/registered dealer is to use the declaration forms
like VAT D-1, VAT D-3 and Central form C as per Rule 49(6). VAT D-3 from
must be used for the movement of goods value exceeding 25000/- from
any place in the State to any other place in or outside the State. In
case of loss of any form, an indemnity bond in Form VAT-B3 will be given
to the Assessing Authority for the sum as the authority determine.
Tax invoice
A registered dealer can issue the sale invoice/tax invoice but the lump
sum dealer can not issue the tax invoice as per Rule 46(5). Tax should
not be charged on the invoice. Tax invoice is used between the two
registered dealers under the VAT Act.
Refund
Contractor can also claim the refund if applicable. Tax collected from
the sub contractor will also be the case of refund but this amount can
not be refunded till the assessment of sub contractor is finalized.
These provisions under the Act make joint or severally liable to
contractor and the sub-contractor. Burden to prove the turnover of
sub-contractor can not be shifted to contractor as per judgment of AP
High Court reported in 105STC227(AP) and 47STC204(AP)
Judicial Guidelines
The Apex Court in Dunkerley had brought a wide impact till the 46th
Constitutional amendment sales tax on indivisible works contracts could
not be levied. The Supreme Court has upheld the validity of the 46th
Amendment and the works contract which was indivisible one is by a
legal fiction altered into a contract which is divisible one for sale of
goods and the other for supply of labour and services. The cost of
consumables used in works contract property in which is not transferred
in the course of execution of the works contract, is to be excluded from
the taxable turnover as nothing is being transferred from contractor to
contractee to be taxed as held in the case of Gannon Dunkerley and Co.
Vs St. of Rajasthan(88STC 204SC).
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