Works contract in maharashtra, MVAT act, section 42(3), rule 58, builder's Association, silpi construction, sujata painters, VAT on builders, VAT and developers in mkaharashtra.
Works contract provisions in maharashtra and MVAT Act
1. WORKS CONTRACT
• Definition of Sale : Section 2(24)
• Explanation : b (ii) The transfer of property
in goods (whether as goods or in some
other forms) involved in the execution of a
works contract including an agreement for
carrying out for cash, deferred payment or
other valuable consideration, the building,
construction, manufacture, processing,
fabrication, erection, installation, fitting out,
improvement, modification, repair or
commissioning of any movable or
immovable property.
2. EXAMPLES OF WORKS
CONTRACTS
• Composite contract for maintenance &
service, repairs, improvements ,
alteration , amendment , mixing ,
blending, processing , servicing of any
immoveable or moveable property.
• Construction work like Building, road,
dam, canals, jetty, treatment plants ,
etc.
3. METHODS OF COMPUTATION
OF TAX
• There are two methods for computation of tax
liability in respect of Works Contract
transaction.
1. Determination of sale price of goods (u/r 58):
a) Actual Expenses
b) Fixed Percentage (Table)
2. Composition u/s 42(3) & (3A):
a) Construction or Non-construction contract
b) Builder / Developer.
4. SALE PRICE OF GOODS
USED IN W.C. u/r 58(1)
ENTIRE VALUE OF CONTRACT LESS:-
a)Labour & Service charges for the
execution of works;
b)Amounts paid by way of price for
sub-contract, if any to sub-
contractors;
c) Charges for planning, designing, &
architect`s fees;
5. d) Charges for obtaining on hire or
otherwise, machinery & tools for the
execution of the works contract;
e) Cost of consumables such as water,
electricity, fuel used in the execution of
the contract, the property in which is not
transferred in the course of execution of
the works contract;
f) Cost of establishment of the contractor
to the extent to which it is relatable to
supply of the said labour & services;
6. • g) other similar expenses
relatable to the said supply of
labour & services, where the
labour and services are
subsequent to the said transfer
of property;
• h) Profit earned by the
contractor to the extent it is
relatable to the supply of labour
& services:
7. SALE PRICE OF GOODS: FIXED
PERCENTAGE (Table U/R 58)
• Where proper evaluation of such expenses [a to h of
Rule 58(1)] is not possible, fixed percentage of
deduction is prescribed from 15% to 40%
• various activities enlisted in the table,
e.g.Installation of Plant & Machinery – 15%, Painting
– 20%, Pipeline – 20%, other works contracts-25%.
• Either dealer or department may chose lump-sum
deductions if books are not intelligible.
• Construction contracts of flats: cost of land is also
allowed as deduction. Ready reckoner rates on 1st
Jan of the year in which the agreement to sell the flat
is signed.
8. COMPOSITION METHOD
U/S 42(3) & (3A)
• 8% for all contracts up-to 20.06.2006.
• 8% for All contracts except Construction
contract. ( w.e.f. 21.06.2006)
• 5% for notified construction contracts
w.e.f. 21.6.2006, (Notifi- dt.- 30.11.2006),
• 1% for construction of flats / buildings, etc.
w.e.f. 01.04.2010. (Notifi dt.- 09.07.2010)
9. • Construction contracts are
notified by Government vide
notification no. VAT-1505/CR-
134/Taxation-1 DT.30.11.2006,
• e.g. Buildings, Roads, Dams,
Swimming Pool, Canals,
Drainage, Jetty, etc.
10. On Going Works Contract (S -96)
• Provisions of old Works Contract Act are
applicable if works started prior to
1.4.2005 and continued thereafter.
• Works Contracts started prior to VAT Act –
If tax was paid under composition scheme
under old Act before 01.04.2005 , then tax
is payable at the same rate under VAT, if
contract continues.
• No set off is allowable for such ongoing
contract.
11. SET OFF (ONLY FOR - RD)
• Normal Method: U/R 58(1) = Full set off
Subject to conditions U/R 55, 54, 53 & 52
• Composition :
Tax @ 8% = 64% of set off [Rule – 53(4)]
Tax @ 5% = 4% Reduction [Rule – 53(4)]
Tax @ 1% = no set off (As per notification)
• On Going Contracts :
No set off is allowed for RD purchases.
12. ISSUE OF TAX INVOICE
• The contractor who opts for Composition
scheme can issue Tax invoice & recover
tax @ 5% or 8% in the Tax invoice.
• Composition Amount is included in the
definition of Tax [2(29)].
• Subcontractor can issue Tax Invoice,
collect tax, but no set off is allowed to the
contractor in case of immovable property.
13. Interstate Works Contract
• As per section 2(g)(ii) of CST Act,
Interstate Works Contract is treated as
sale.
• Hon`ble Supreme Court decision, M/S
Mahim Patram Private Ltd vs Union Of
India & Others (6 VST 248) (sc)
• Provisions of the State Act can be used for
assessment under CST Act [Section 9(2)].
14. TDS
• Deduction is to be made on the date of
Payment or Credit.
• Amount of TDS not to exceed amount of
Tax Payable.
• TDS is not applicable on amount of Tax.
• NO TDS on subcontracts.
• Payment of TDS - within 21 days from the
expiry of the month of deduction
• Interest @1.25% p.m. for late payment of
TDS.
16. EXEMPTION FROM TDS
• If the aggregate amount payable to a
dealer is less than Rs.5 lakh in a financial
year, no tax at source is to be deducted.
• If pure labour contract then no Tax is to
be deducted.
• JC (Adm) may issue a certificate in
response to application of the dealer that
the contract is not a Works contract then
TDS is not required.
17. FORMS TO BE ISSUED BY
PRINICIPAL CONTRACTOR
• Certificate regarding payment
by the principal Contractor
-Form 406.
• Declaration by Principal
Contractor- Form - 409.
18. FORMS TO BE ISSUED BY SUB-
CONTRACTOR
• Certificate regarding payment by
the subcontractor - Form 407.
• Declaration by registered Sub-
Contractor - Form 408.
19. Works Contract - Builders
• The taxable event – Agreement to
sale the flat before completion of the
Building.
• Period - 20.06.2006 to 31.03.2010
• Tax can be paid by way of :
a. Composition (u/r 42 (3) @ 5%)
b. Actual expense method [u/r 58(1) and 1A]
c. Standard deduction method [u/r 58(1)]
20. Works Contract - Builders
• Period : w.e.f. 01.04.2010
• Tax can be paid by way of :
• a. composition (u/r 42 (3A) @ 1%
• b. Actual expense method [u/r 58(1) / (1A)]
• c. Standard deduction method (u/r 58)
• d. composition u/s 42(3)
• No set off is allowed if composition is
opted u/s 42(3A).
21. IMPORTANT JUDGEMENTS
• Builder’s Association (73 STC 370).
States can not levy WCT on entire consideration, but only
on valuable consideration received in respect of goods
transferred.
• Gannon Dunkerly (88 STC 204).
Formula for calculating the value of the goods by
deducting the various charges towards labour and
services, etc .
• N M Goel (72 STC 370).
• Goods supplied by employer to contractor for valuable
consideration is treated as transaction of sale.
22. IMPORTANT JUDGEMENTS
• K. Raheja Case (141 STC 298)
• works contracts include any type of agreement wherein
the construction of a building took place for valuable
consideration.
• Mycon Construction (111 STC 322)
• Validity of composition scheme is upheld.
• Larsen & Tourbo Ltd. (17 VST 1) (SC)
• There is only one sale, i.e. from subcontractor to
employer and not multiple transactions.
23. IMPORTANT JUDGEMENTS
• Silpi Construction (Kerala HC 2009)
• Timber and plywood are not used in the
same form but in other form .
• Kone Elevators (140 STC 22)
• Contract of erection and installation of lift is
a contract of sale and not works contract.
• Matushree Textile (132 STC 539)
• Property in goods (colour shade) transferred
while the process of dyeing of textiles.
• L & T Limited V/s State of Karnataka (2009),
Depreciation and other expenses are
allowed as deduction.
24. IMPORTANT JUDGEMENTS
• NCC SMS Unity JV (MSTT , SA No.-127 of 2010,
dated 04/02/2012)
• Composition method , once opted , can not be
changed by revised return and pure profit of
contractor is taxable under composition, if
subcontractor opts for composition.
• Nikhil Comforts (MSTT , SA No. 3 of 2010, dated
31/03/2012)
• The amount of Service tax is treated as a part of sale
price in case of composition.
• DDQ- M/s. Sujata Painters, Dt. 20.01.2012 - Service
Tax forms part of sale price and taxed accordingly.
