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Query No. 1
Facts
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"A" a registered dealer has received an order for
preparation and installation of hoardings at various places.
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"A" through subcontracting got the job complete.
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His sub-contractor "B" is also a registered dealer.
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"B" raised a bill for the work done and charged 8% tax
under composition scheme.
Now question before me while guiding my client "A"
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As per section 45(4)(f) principal will pay tax after
deducting the value of contract on which sub-contract has paid tax.
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Section 45 also says that if principal is paying tax, then
sub-contractor will not pay and vice versa for same certificate in Form
406/407 and declaration 408/409 are prescribed.
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If principal decides to pay tax, then he will have to issue
a tax invoice, in which tax will be charged separately, and will have to issue
a certificate in Form 406 and a declaration in Form 409 to his sub-contractor.
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Now in such circumstances, how principal will get set off
of tax consumed in execution of contract, because entire purchases of material
is affected by his sub-contractor. Sub-contractor is not paying tax because of
section 45(4)(d).
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How principal will issue "Tax Invoice", if his agent has
already paid tax by issuing "Tax Invoice", because liability of principal is
to the extent of value addition only u/s. 45(4)(f).
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Also guide me which return form should be used and how
deduction of this is to be shown, in which column.
Miss Pramila R. Chavan,
Advocate
Reply
From the query it can be seen that the sub-contractor has
charged tax @8%, in his bill. Since the relationship between
contractor/sub-contractor is of principal and agent the sub-contractor should
not charge any tax @ 8% etc. to his principal.
The other issue is set off to principal contractor. In this
case the purchases are effected by sub-contractor and hence sub-contractor can
claim set off on these purchases. Under VAT for getting set off, payment of tax
on sale side is not at all an criteria. Therefore sub-contractor can claim set
off irrespective of fact of any payment by him. Otherwise also as a principal,
the main contractor, is paying tax and hence as an agent it is also payment by
him. It is also possible that principal contractor can claim set off on
purchases effected by sub-contractor. However he should get details of purchases
and if required Tax Invoices from sub-contractor for claiming set off.
Your query (4) and (5) are exactly opposite. Question (4)
says that there is no payment by sub-contractor. In question (5) it is said that
main contractor is paying tax on value addition. As per law either party; i.e.,
principal contractor or sub-contractor can discharge liability.
Therefore confirm the fact who has paid tax and to what
extent. If sub-contactor has paid tax then principal contractor will not be
liable to pay any tax on his value in respect of work done by sub-contractor.
There is no value addition between sub-contractor and principal contractor. The
principal contractor will pay tax only on the portion relating to work done by
him.
However, he can issue Tax Invoice showing entire tax paid to
Government, directly by him or through sub-contractor. Principal contractor
should consider tax to be paid by him as well as actual tax paid by
sub-contractor, add up and show that much of tax in Tax Invoice.
The return forms are now changed. You will be required to use
Form 223 since works contract activity is involved. Deductions will depend upon
the fact of claim about tax paid by main contractor/sub-contractor.
Query No. 2
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One of my clients is doing business of motor car
refinishing work (i.e., denting, painting of cars, body repairs, accidental
restoration jobs,) and automotive painting work.
My query is
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Whether he is liable to pay Works Contract Tax under
the VAT Act as well as then existing Works Contract Tax Act, 1989?
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If he is liable to pay tax under Works Contract Tax, then
whether he will be eligible to opt for composition and can collect tax
under composition under VAT Act in his invoices?
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If he is liable to pay tax under Works Contract at which
rate he has to pay tax and under which method as prescribed in the Act for
taxation?
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Whether he can issue separate invoices; i.e., one for
denting (there is no property to transfer, it is only labour work) and
another for painting (on which works
contract tax, if attracted would be payable?)
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One of my clients is Works Contractor executing various
composite works contracts such as pipe-line work, turnkey civil projects etc.
My query is
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While computing set off, whether he has to claim set off
on the goods actually consumed for which he has received the bills in that
period of return (i.e., actual consumption and receipt of R.A. bills for the
said subsequently, e.g. he has received RA bill in the period of return and
he has to claim set off only for the purchases made for the said RA bill and
claim set off for the respective purchases).
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Or he can claim set off on the purchases in the period of
return, irrespective of whether RA bill for the same was received or not.
(E.g. he has purchased steel of Rs. 10,000 and used but bill for the same
was received in next period of return or it is still receivable).
Please give me your precious opinion on the abovementioned
queries raised to you. Please do the needful.
Dhiraj Ashok Shah,
Advocate
Reply
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Yes, your client is liable to tax under earlier
Works Contract Act and present VAT Act. The transactions done by you are
of works contract.
Yes, he can opt for composition under old Act and
present VAT Act. The composition tax can be collected separately in
invoices.
Under earlier Work Contact Act there were three methods
to discharge tax liability. To pay tax @ 15% on purchase price of goods
transferred. To pay tax @ 4% on entire contract value as composition or to
pay tax @ 8% on contract value less RD purchases.
The contract should be accepted separately then only
separate bills can be prepared. Under VAT there is also provision of
section 57 by which the sale tax authorities are entitled to disregard
contract if it is to avoid tax. The implication of said section be seen.
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As per VAT Act set off is available on all purchases
effected during return period irrespective of fact of sale etc. Therefore
you can claim set off on entire purchases effected during the return period.
Query No. 3
One of my clients is holding Entitlement Certificate having
manufacturing unit in the backward area. The unit is manufacturing declared
goods and his product is totally exempted under the Package Scheme 1993 to March
2000. Now the dealer is assessed for 2000-01 onwards. Kindly let me know his
sales tax liability on local sales as well as inter-State sales. Whether the ‘C’
form declaration on inter-State sales are to be produced. If so from what date?
As per the Commissioners Trade Circular 40T dt. 13-12-2002,
the dealer is entitled to get the interest on refund due to set off. Whether the
STO can deny the interest in any of the circumstances; Such as return filed late
or the sales are exempted etc.
Kindly reply the above two queries and oblige.
R. N. Naik, STP
Reply
On local sales the tax will be 4% since the goods are
declared goods. Please check up if any further concession is given by issue of
any notification under section 41.
The ‘C’ forms are must for all periods otherwise the rate
will be double the local rate. Therefore for 2000-01 onwards you are required to
collect ‘C’ forms.
No, once the refund arises under assessment order interest is
must and cannot be denied/reduced on any ground.
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