Thodi Khushi ... Bahot Gum

Bureaucratic jugglery

In our State the Works Contract Act was first enacted in 1985. Since then, till the promulgation of Ordinance No. VI of 2006 the State did not feel it necessary to define the term works contract. Probably, such definition in the Central Sales Tax Act in 2005 by the Central Government has inspired our State to have the definition of works contract. But while doing so the bureaucracy has played its usual role. Instead of importing the definition, as it is, from the Central law it has used the words which exist in the Karnataka Sales Tax Act. Now we will have to wait and watch whether the words "..... an agreement for carrying out.... the building, construction" are used as a weapon against the developers.

State Government contracts

The Government is now empowered to exempt from payment of tax the sales effected to Government (Departments). Presently, we are not aware whether works contracts will enjoy such exemption or reduction in tax, since the Notification, to that effect is yet to be issued. But, if the Government does that the contractors would welcome it. Presently, they are required to pay the tax on such contracts within the stipulated
period but the Government Departments do not pay the contractors for months
together.

Thodi Khushi

We can talk about the reduction in composition only after we receive the revised rules relating to the input tax credit. The incidence will have to be compared with the other systems of payment. But the exclusion of the service tax from the contract value for the purpose of deduction of tax must have given ‘khushi’ to the employers and contractors, both. At least, in some respects the Government has adopted positive approach.

Bahot Gum

There was no necessity to amend section 31(1)(b)(ii). It was working well. Now, the officer is enabled to issue certificate of no deduction of tax only if the contract is not the Works Contract. There is no provision for less deduction. No clear provision for divisible contracts (embodied in one document). The ongoing contracts awarded during the period from 1992 to 1998 are, in some cases, still being executed.

Those attract one per cent tax but the deduction would be two per cent

Bahot Bahot Gum

The award of Works Contract, in most of the cases, takes more than a year. It is different from other types of sales in this respect. The tender is submitted in one year and the contract is awarded in subsequent year. Therefore, Government has always protected such contracts which are known as ongoing contracts from the higher incidence of tax if introduced in the year of award. Section 96(g) as the same was originally enacted, was not beneficial to the contractors and therefore they were paying the taxes under section 6 read with Rule 58, the incidence of tax being lesser than that under section 96(g). The Government has now made the payment of tax on such ongoing contracts mandatory under section 96(g). Such contractors can’t take benefit of section 6. This is totally justified. The contractors should welcome this amendment. They are now required to pay the same amount of tax which they had considered in their quotation at the time of submission of tender. Therefore, the amendment is justified, though it is giving bahot bahot gum.