Query No. 1
My client is scrap dealer and purchases old machinery from
Companies at @12.5% VAT. Thereafter dismantling machine to bifurcate steel,
copper and aluminium metal separately. The dealer sells steel, copper and
aluminium as scrap charging VAT @ 4% in Tax Invoice, whether it is correct to
claim input credit of VAT @ 12.5% under MVAT Act and claim refund of VAT @
8.5%.
Mehul R. Khona
Reply
The set-off quantum under MVAT Act depends upon the tax
paid on purchases and not restricted by tax paid on sale side as such, of
course subject to retention and negative list. In my opinion on given facts
your case is not affected by any of above negative or retention list and hence
you will be entitled to set off @ 12.5%. You can claim refund of VAT @ 8.5%.
Query No. 2
On 1-4-2005 M.S.E.B. (registered under VAT Act) has
allotted one civil contractor to a principal contractor (who is also
registered under VAT Act). The condition of the contract was that the cement
and steel will be supplied by the employer and the cost of the same will be
deducted from the bill. The cement & steel purchased by the MSEB after paying
separate Vat on cement & steel.
The principal contractor has given entire contract to the
subcontractor (registered under VAT Act) as it is after retaining 5% margin
from the entire gross bill. The subcontractor has executed actual work and
admitted in the agreement to pay the VAT on above the works contract. MSEB has
deducted 2% VAT from the entire gross bill from the principal now the query is
as under.
-
In Respect of MSEB:
-
Whether the purchases made on employer’s name should be
shown as purchases in the VAT return of MSEB.
-
Whether the goods supplied to the main contractor
should be shown in the return of MSEB as a sale.
-
Whether separate VAT can be charged in the sale bill
against such supply made to the main contractor.
-
Whether the set off against said purchases supplied to
the main contractor should be claimed in the VAT return of MSEB.
-
Whether TDS certificate should be given in the name of
main contractor or subcontractor.
-
Whether the employer should consider and should show in
VAT return the trasaction of works contract bill of which is raised on the
name of employer by subcontractor as a purchases by way of works contract.
-
Whether tax charged in the bill by subcontractor by way
of works contract is eligible for set-off in the hands of MSEB.
-
In Respect of Principal Contractor:
-
Whether the goods supplied by the employer can be shown
as a purchases in the return of a main contractor.
-
Goods supplied to the sub-contractor can be claimed as
a sale to the sub contractor and the VAT can be charged separately on such
goods like cement & steel.
-
What should be done of TDS certificate issued by
employer in the name of principal contractor? Can the principal contractor
ask for refund of such TDS in his VAT return or whether he should handover
that TDS certificate to the subcontractor with some endorsement?
-
What shall be the position of margin retained by
principal contractor which is retained without doing anything? Who is
liable to pay tax on such fixed margin retained by principal contractor?
(In agreement entire liable is accepted by sub-contractor)
-
Whether the principal contractor can deduct by way of
TDS any tax from subcontractor.
-
In respect of Subcontractor.
-
Whether the goods supplied by the principal contractor
are the purchases of subcontractor. Can he show the same as purchases in
his return?
-
How the subcontractor should take the benefit of TDS
deducted by MSEB from principal contractor and the TDS certificates which
are issued by MSEB in the name of principal contractor.
-
How should the sub-contractor take the benefit of
set-off of cement & steel supplied by MSEB in the name principal
contractor?
Vilas Paul, Advocate, Akola
Reply
The query is complicated requiring examination of
agreements and other related documents etc.. However on prima facie position I
opine as under.
-
a) The purchases should be reflected in the purchases of
employer.
b) The goods supplied to contractor will be sale.
c) Yes, VAT can be charged.
d) You can take set-off as per MVAT Rules, 2005.
e) The TDS certificate will be in the name of Main
Contractor.
f) How subcontractor will directly raise bill on employer
is not clear from query and hence no observations can be given.
g) The reply to above is same as (f). The fact of
subcontractor raising bill on employer is not clear.
-
a] Yes, they are purchases for main contractor.
b] There is no sale/purchase between main contractor and
subcontractor. Their relationship is deemed to be of principal and agent by
section 45(4) of MVAT Act, 2002.
c] Either you can ask for refund or can handover
certificate to subcontractor for taking credit with proper clarification.
d] In my opinion the principal contractor will be liable
to discharge liability to the extent of margin.
e] No TDS applicable between main contractor and
sub-contractor.
3. a) No purchases in hands of sub-contractor as
discussed in 2.b above.
b) By obtaining certificate from principal contractor of
non claim of credit by him, sub-contractor can take credit in his return.
c) If the principal contractor gives certificate of non
claim of set-off by him as well as if required original of Tax Invoices are
available to sub-contractor for supporting claim of set-off, the
sub-contractor can take set-off of such purchases in his returns.
Query No. 3
A delaer holding sole-selling agency on all India basis for
sale of particular product, appoints Super Distributors throughout India.
Super Distributors store goods and dispatch it to Distributors as per
instructions of the dealer. Distributors in turn sale goods on behalf of the
dealer and after deducting expenses and commission, remit the balance amount
to the dealer. Any unsold goods are returned to Super Distributors.
-
In these circumstances, who should issue Form ‘F’ Super
Distributors or distributors? Who issues consignment note or "Sale-Patti"?
-
What records should the dealer maintain?
Vasant K. Mange
Reply
The reply to above query depends upon the contents of
respective appointment agreements, which are not available here. From facts
narrated above it appears that Super Distributor is also a consignment agent.
The dealer transfers goods to him which are further transferred to other
distributors. If the dealer and Super Distributors are within the State then
there is no need of ‘F’ form. If the transfer to Super Distributor is in other
state, ‘F’ form should be obtained by dealer from the Super Distributor. When
Super Distributor transfers the goods to distributors in other States, it will
require ‘F’ form and the ‘F’ should be issued to Super Distributors by
Distributors. The sale patti will be by distributor to Super Distributor and
based on same the Super Distributor will issue sale patti to dealer. However,
subject to other understanding it can be from distributors to dealer also. The
records as required in normal course should be maintained. The dealer should
have information about distributors and the stocks lying with them should be
accounted in his accounts at year end. In other words, through Super
Distributors, he should manage the distributors, as ultimate consignment
agents.
Query No. 4
Dealer having two types of sales (1) Resales & (2) Works
Contract
Dealer has not charged Vat separately on both types of
sales.
Dealer has also not opted for any type of composition
scheme.
Suppose total purchases of dealer are (No opening or
closing stocks)
|
|
4% |
|
12.5 |
|
Total |
|
Net |
vat |
Net |
vat |
|
|
|
|
100000 |
4000 |
200000 |
25000 |
329000 |
Proportion of net purchases of 4 % 33.33% and net of 12.5 %
is 66.66%
Supposing sales in which Vat not charged separately are as
under
Resale
4% |
Resale
12.50% |
Works Contract
Sales in which purchase of 4 & 12.5 % both are consumed. |
Total
Sales |
|
23920 |
51750 |
421120 |
496790 |
Here it is assumed that profit margin on resales is 15%
hence Rs. 20,000 Net Value goods of 4 % and Rs 40,OOO of Net value (excluding
Vat) of purchases are conumed for Resales and after adding 15 % margin and Vat
@ 4 or 12.5
20,000+ 3000 = 23,000 + Vat 4 %= 920 total = 23,920
40,000 + 6,000 = 46,000 + 12.5 % Vat =5750 total = 51750
Dealer has not charged these Vat amounts Separately.
Now as regards works contracts sales he is covered under
Entry No.14 of Table under Rule 58 and hence for F.Y.2005-06 gets 20 %
deduction from Taxable sales. Now when sales price of Works Contract is
Rs.100
|
Dealer gets 20 % deduction ( - ) |
Rs. 20 |
|
Balance Taxable = 80 and 4 % Tax is |
Rs. 3.20 |
|
Price inclusive of Vat @ 4% Vat Contract |
Rs.103.20 |
|
On similar lines of @ 12.5 Vat Contract |
Rs.110.00 |
Now applying Rule 57(1) but modified way because of 20 %
deduction u/r 58
Deduction in Sales Price of 4% Contract.
Now since 4 % purchases consumed in above works contract
are 33.33 %
I allocate 33.33% of the total Works Contract = 33.33% of
4,21,120.
= 1,40 359
and 12.5 % part inclusive of Vat------------------ 2,80,
761
Now regarding rate of Vat I will take Modified Rate which
is 80 % of original rate and hence 4 % will become = 3.2 and 12.5 % will
become 10%
By applying the Rule 57 (1) now 1, 40,359 X 3.2/103.2 =
4,352 and 12.5% -------------- 2,80,761 X 10/ 110 =25,524
So Vat collection will be as above
So I have presumed (1) That even in Works Contract Sales
Vat is payable on value addition on Net Purchase price of 4 & 12.5 % and
Taxability ration will be as per Input materials. Since we are left 33.33% of
4 % materials for Works Contracts (After deducting for Resales) 33 .33% of
Total Works Contract is held as libale to 4%.
My next doubt is as to 80 % of the Original Rate assumed
for calculating the sales price under Rule 57(1 ). Is this a correct method?
Kindly answer at earliest because many of Government
Contractors do not charge the vat separateiy. Since section 58 is drafted very
poorly as also amounts involved are usually very large we need your expert
opinion as early as possible.
I am also giving my email address and will be very grateful
if you will mail the answer. My mail address as under <ngskwl@yahoo.com> and <ngskwl@gmail.com>
N.C. Kawale
Reply
The method adopted by you is very difficult to understand.
I will put my method of working and you can compare the same with your method.
It is assumed that no identification is possible. On resale @ 4% & 12.5%,
calculate tax by applying Rule 57(1). (No need to assume any G.P. rate etc.).
In works contract you can work out liability as under.
|
Contract price |
Rs.100 |
|
Less: labour portion as per |
|
|
Table in Rule 58(1) |
Rs. 20 |
|
Taxable Value of goods |
Rs. 80 |
|
Liable to 4% @ 33.33% |
Rs.26.66 |
|
Liable to 12.5% @ 66.66% |
Rs.53.33 |
Apply Rule 57(1) to above amounts of Rs.26.66 and 53.33
which will be tax payable on works contract. The tax will be Rs.1.02 @ 4% and
Rs.5.92 @ 12.5%.
If actual cost price of goods used in resale is available
(i.e., if to this extent identification is possible) then you can first deduct
those purchase costs from total purchases and the ratio for deciding the
taxable value in contract can be decided as per the balance purchases used in
works contract. You can follow any convenient method but it should then be
followed consistently.
Query No. 5
My client is manufacturer of forgings and also doing job
work, which is nearly 40% but never more than 50% of turnover of all receipt
on A/c. of Net sale and labour.
The set off is required to be claimed after deducting 4% of
purchase price of furnace oil. Set off on purchases are claimed as per taxes
paid.
Now question is whether this set off further required to be
reduced on proportion in the case of my client after 1-4-2005 as per rule 52.
The dealer along with his raw material purchases furnace
oil, (which is used as fuel) and other consumables in the course of business.
The sub-rule (d) of rule 54 prohibits set off on consumable
for those " who are principally engaged in doing job work or labour work and
is not engaged in the business of manufacturing goods for sale by him. . . . .
. . . . . . . . . are sold. "
Whether my client in any way covered by this prohibition?
When is a dealer is said to be principally engaged in doing
job work?
Please cite the reference case law if any on the subject in
question in support of your reply.
B. H. Dehadray,
For M/s. R. G. Bhilare & Co.
Reply
Since you are doing sale activity you are not covered by
Rule 54(d) about principally engaged in job work. There is no definition of
above term ‘principally engaged in job work’. However it can be said that the
rule seeks to cover such a dealer who is only doing job work or substantially
doing job work and selling certain scrap etc., generated from such job work.
The intention is that based only on scrap generation etc. the dealer should
not be entitled to claim the set off. In my opinion, your dealer is not
falling in above category. There is no case law on above subject under MVAT
Act, 2002. However you can write to Commissioner of Sales Tax for
clarification, if you so feel necessary.
Though you have not mentioned, it appears that main issue
is about the set off on furnace oil. Since your sale receipts are less than
50% of gross receipts you will be entitled to set off on purchases
corresponding to goods sold. Therefore in relation to furnace oil used for job
work you cannot be entitled to set off. This position is created due to
operation of Rule 53(6) and not by Rule 52.
