Query No. 1

My client is a dealer reselling paints and building chemicals. While purchasing paints he has paid VAT @ 12.5% to the vendor.

In one case my dealer's customer requests him to apply above paint to his house. Dealer charged him Rs. 20/- per square foot (for cost paint, labour charges and his margin of profit). On this
sale amount he also recovers VAT @ 12.5% in the Tax Invoice he has issued to this customer.

My query is whether the dealer is eligible to claim full set off of VAT paid on purchase of paint used in the aforesaid transaction.

Please give me your precious opinion on this query and oblige.

C. T. Gujar

Reply

Yes, in given case you will get full set off. Though issue not raised in your query, we add that in given circumstances your transaction is a works contract transaction. Being a works contract you are entitled to deduction for labour charges from total contract value and you are liable to pay tax on the remaining value which will be value of goods. You can determine labour portion in light of Rule 58 of MVAT Rules, 2005. If you pay tax on such value of goods; i.e., after reduction of labour portion, still you will be entitled to full set off.