Upload
amit-bajpai
View
215
Download
0
Embed Size (px)
Citation preview
7/31/2019 Indirect Tax in India-4.9.12
1/49
KAEFER Group
Co
rporateCommunications_
2008-05
- 1 / 49 -
KAEFER Company Profile 2007 - 2008
More than good ideas.
Indirect Tax System in India
7/31/2019 Indirect Tax in India-4.9.12
2/49
Co
rporateCommunications_
2008-05
- 2 / 49 -
Proposed Indirect Tax System in India
By Central Govt
*Excise Duty CENVAT System
*Service Tax CENVATSystem
(Input Credit available towards goods &Services
Indian Goods & Services Tax Act (CentralGST)
From 1st April, 2010
By State Govt
*VAT has replaced State Tax from 1st April2005, (Sales Tax, WCT, Lease Tax, TOT,
SC but not octroi)
State Goods & Services Tax Act (StateGST)
- Merger of all state taxes including octroi
- Service Tax Levy to the state.
(From 1st April, 2010)
*On the same goods or services Central Govt. would collect Central GST
& the states would collect state GST.
7/31/2019 Indirect Tax in India-4.9.12
3/49
Co
rporateCommunications_
2008-05
- 3 / 49 -
Constitution of India (Empowers State Govt. to Levy, Collect & RetainSales Tax)
Movement of goods is deciding factor
State transactions of
purchases/sales
Interstate - Import/export
Transactions
* State * State
"A" "B"
State VAT Act & Rules * * CST Act, 1956 & Rules
State Sales Tax
Act
State Sales Tax
Act- Liability/Registration
- Scheme of Taxation
- VAT Credit- Works Contract
- Departmental
Processdings
- Penalty/Recovery
- Returns/Payments /
Forms
- Registration
- Interstate Sales- Interstate Transfers
- Rate of CST
- Penalty
- Declared Goods
- Forms - C, EI - EII, F, H, etc
CST ACT
State VAT Act State VAT Act
* Local Movement - State VAT Act
* Interstate Movement - CST Act
7/31/2019 Indirect Tax in India-4.9.12
4/49
Co
rporateCommunications_
2008-05
- 4 / 49 -
What is a Indivisible Works Contract?
1. It is a works contract(WC) & Not a Normal Sale
2. The indivisible works contract :
Composite Turnkey Jobs (Labour & Material is involved)
Breaking of Price for supply(Material) & Labour may not be separate sale ofmaterials & Labour contract.
Whether the contractor/seller gets the order from the customer for definite goods or
for WC
3. The clauses in the agreement between the contractor and the contractee are the key
factors for determining whether the contract is of sale of goods or WC.
4. If the contract is divisible then, the supply of material is a sale contract and the labour
portion is WC. If in the labour portion, material is also used then VAT (WC) is applicable.
5. The concept of local & Inter-state WC . Local WC are covered under the Local VAT Act &
Inter-state WC are covered under the central sales tax act.
7/31/2019 Indirect Tax in India-4.9.12
5/49
Co
rporateCommunications_
2008-05
- 5 / 49 -
Sale Vs. Works Contract (Concept) In a contract of sale, the main object is the transfer of property and delivery of the
possession of chattel as a chattel to the buyer, where it is not so, it is a contract of
works & labour (Hindustan Aeronatics Ltd. 55-STC 314-SC)
The Contract between a Photographer and his Customer is not a contract of sale
but is work of Art & Labour (B C Kame 39 STC 237 SC)
The test therefore is as whether in a particular case, it is a contract of sale (Chattel
as a chattel) or WC, neither the ownership of the material not the value of skill or
labour as compared with the value of the material is conclusive, although such
matter may be taken into consideration of the particular case.
7/31/2019 Indirect Tax in India-4.9.12
6/49
Sale Vs. Works Contract (Concept) Contd IF the thing to be delivered has any individual existence before the delivery as the
property of the party who is to deliver it, then it is a sale. If the main object of the
work undertaken is not the transfer of a chattel qua chattel, the contract is one for
work & labour (Hindustan Shipyard 119 STC 533 SC).
It is made clear that contract of building buses, ships are that of the sale even if they
are manufactured as per the specifications and under strict supervision of the buyer.
(Hindustan Shipyard 119 STC 533 SC)
The activity is a sale or WC depends upon the facts, the terms and conditions and
intention of the parties. (McKenzis Ltd. 165 ST C -58-SC)
CorporateCommunications_
2008-05
- 6 / 49 -
7/31/2019 Indirect Tax in India-4.9.12
7/49
CorporateCommunications_
2008-05
- 7 / 49 -
What is Deemed Sale?
1. The scenario before the 46th constitutional amendment (Before 2nd February,
1982)
The sales of goods covered under the sale of goods act were
only liable for sales tax.
The supreme court judgment of Gannon Dunkerely (9 STC 353)
The invisible WCs were not covered under the state sales tax
laws. The states were not empowered to levy sales tax on
indivisible WCs.
2. The 46th
Amendment to the constitution of India: Sub-article (29-4 reads as under
(b) a tax on the transfer of property in goods (whether a goods
or in some other form) involved in the execution of a works
contract.
7/31/2019 Indirect Tax in India-4.9.12
8/49
CorporateCommunications_
2008-05
- 8 / 49 -
What is Deemed Sale? Contd.
The concept of deemed sale under the state VAT/CST Acts:
The sales tax/VAT/CST is applicable only on the value
of the goods and not on labour portion of the contract.
Alternatives are prescribed for arriving at the materialvalue of the contract.
3. The states are empowered to levy sales Tax/VAT/CST on such deemed sales
only after the 46th Amendment to the constitution of India.
7/31/2019 Indirect Tax in India-4.9.12
9/49
CorporateCommunications_
2008-05
- 9 / 49 -
Divisible Works Contracts
State AContractor X
State AContractee Y
Supply Normal Sale
VAT 4%/12.5%
State AContractor X or X1
State AContractee Y
Erection & Commissioning
Labour Job(WC) (if material used, the
WC provisions are attracted, otherwise
pure labour job)
Two separate contracts, one for supply portion and other for labour work, two
separate companies, preferable.
No artificial break of sale price to avoid VAT (WC) on labour portion.
The clauses in the agreement and intentions of the two parties, important.
7/31/2019 Indirect Tax in India-4.9.12
10/49
CorporateCommunications_
2008-05
- 10 / 49 -
Indivisible Works Contracts
State AContractor X
State AContractee Y
Deemed Sale (WC)
VAT (WC) is applicable on contract
value as per the three options availble
Only one indivisible WC
The clauses in the agreement and intentions of the two parties, important.
VAT (WC) applicable only on the material value of the contract determined by
the three methods (options) under State VAT Act.
7/31/2019 Indirect Tax in India-4.9.12
11/49
CorporateCommunications_
2008-05
- 11 / 49 -
Activities Covered Under works Contracts1. Construction Jobs
2. Civil Work
3. Erection of Plant and Machinery
4. Processing conversion jobs
5. Repair Jobs6. Annual Maintenance Contracts
7. Customized Printing Jobs
8. Building of bodies on chassis
9. Electrical Fittings
10. Installation of lift/elevator in the building
11.Air Conditioning Installations
12.Painting Jobs
13.Repairs of Vehiicles
14.Re-treading of old tyres
15.Electro-plating, electro-galvanizing, anodizing and the like
7/31/2019 Indirect Tax in India-4.9.12
12/49
CorporateCommunications_
2008-05
- 12 / 49 -
Indivisible Works Contracts Various Types
IndivisibleComposite
Works Contracts
ConstructionContracts
Erection of Plant& Machinery
EPC Contracts
Installation andCommissioning
of lifts/elevators Civil Works
Job Works
ProcessingConversion Jobs
Printing Jobs
Repair Jobs
Electro-plating,electrogalvanizing,
anodizing andlike
Customizedprinting jobs
Pure LabourJobs
Pure labour jobswhere no ownmaterial is usedby thecontractors(consumables,chemicals which
evaporate duringthe process areallowed.
Art Works
Works of Art &Labour (ArtWork)
Photography
Paintings by theartist
VAT Applicable VAT Applicable
No VAT
Applicable
No VAT
Applicable
7/31/2019 Indirect Tax in India-4.9.12
13/49
CorporateCommunications_
2008-05
- 13 / 49 -
Basic Concepts of Levy of VAT/CST on works contracts (DeemedSale)
1. No VAT/CST is applicable on pure labour jobs where no material of his own is
used/added by the job worker(vendor).
2. VAT/CST is applicable on material value (Deemed Sale) of the WC.
3. To arrive at the material value in the contract, three methods are adopted under the
state VAT Acts namely:
Actual Non-material Deduction Method
Standard Deduction Method
Composition Tax Method (Non Legal Method)
4. VAT Setoff/Credit is available under the State VAT Acts to both the Contractors and
contractees except for the negative list items purchased.5. For divisible contract, supply of material is a normal sale contract and the labour
contract is subject to VAT(WC) provisions, only if the own material is used by the
contractor.
6. If the contractor dispatches his own materials from one state to another, directly to the
customer under the indivisible WC, then it is a deemed inter-state sale of material
subject to levy of CST by the state of dispatch.
7/31/2019 Indirect Tax in India-4.9.12
14/49
CorporateCommunications_
2008-05
- 14 / 49 -
Maharashtra VAT Act, 2002 (MVAT Act) WC Provisions
1. Definition of Sale under Section 2(24) explanation (ii):
The transfer of property in goods (whether as goods or in some other form) involved
in the execution of - #(WC namely an agreement for carrying out for cash, deferred
payment or other valuable consideration, the building, construction, manufacture,
processing fabrication, erection, installation, fitting out, improvement, repairs or
commissioning of any movable or immovable property).# The Amendment from 20th June, 2006
2. For the WC carried out inside the state of Maharashtra only.
3. Applicable provisions under MVAT Act & Rules:
Rule 58 Actual Labour Deductions Option, Rule 58 Proviso Standard LabourDeduction Option.
Section 42 Composition (WC) Tax
Section 31 & Rule 40 TDS (WC) Provisions
Rule 52 Setoff, Rule 53 Reductions of Setoff, Rule 54 Negative List (No
VAT Setoff)
7/31/2019 Indirect Tax in India-4.9.12
15/49
CorporateCommunications_
2008-05
- 15 / 49 -
Works Contract Taxation Under State VAT ActContractor [Maharashtra]
When Contractor Bills to the contractee for the Works Contract Carried out by him in the state
Option A (Legal) Option B Composition
A1 [VAT Paid on Inputs Rs. 2.50
Contract Price Rs. 100.00
(-) Actual Non-Material
ValueRs. 80.00
Material Value Rs. 20.00
@ 12.5% VAT on Rs. 20.00 Rs. 2.50
Tax Invoice Rs. 100.00
Vat @ 12.5% on Rs. 20.00 Rs. 2.50
Rs. 102.50
VAT Payable (2.50 - 2.00) Rs. 0.50
2% TDS Deduction by Contractee
A2 [VAT Paid on Inputs Rs. 2.50
Contract Price Rs. 100.00
Standard Deduction (Non-
Material)Rs. 25.00
Material Value Rs. 75.00
@ 12.5% VAT on Rs. 75.00 Rs. 9.38
Tax Invoice Rs. 100.00
Vat @ 12.5% on Rs. 75.00 Rs. 9.38
Rs. 109.38
VAT Payable (Rs. 9.38 - 2.00) Rs. 7.38
2% TDS Deduction by Contractee
VAT Paid on Inputs Rs. 2.00 (Credit 64%) Rs.
1.28
Contract Price Rs. 100.00
@8% Composition Tax on Rs.
100.00Rs. 8.00
Rs. 108.00
Invoice
Contract Price Rs. 100.00
@8% Composition Tax Rs. 8.00
@5% Composition Tax(20-06-06) Rs. 108.00
VAT Payable (Rs. 8.00 - 1.28) Rs. 6.72
2% TDS Deduction by Contractee
7/31/2019 Indirect Tax in India-4.9.12
16/49
C
orporateCommunications_
2008-05
- 16 / 49 -
Works Contract Taxation Under State VAT Act Contd..
1. Setoff will be available to contractor on VAT paid on local purchases. Partial
setoff(64%) for composition scheme only in Maharashtra. For 5% Composition
Tax (Construction Contracts), setoff available is in excess over 4% of inputs
VAT paid.
2. Composition option may continue to be available under VAT act (Separate
rates in states). No Credit available for composition contractor in the state other
than Maharashtra.
3. If contractee (customer) purchases goods for erection of immovable property,
no setoff is available to him.
4. Ongoing Contracts Tax liability would not exceed under VAT which was
determined as per earlier law.
7/31/2019 Indirect Tax in India-4.9.12
17/49
C
orporateCommunications_
2008-05
- 17 / 49 -
Illustrations Option A1, A2& B
Option "A1"
(Actual Non-Material Deduction)
Material Purchase(All Local) Rs. 30.00
ED 16.32% Rs. 4.90
12.5% VAT on Rs. 34.90 Rs. 4.36
Less: 12.5% VAT Setoff Rs. 4.36
Less: CENVAT Credit Rs. 4.90
Material Cost Rs. 30.00
20% margin on Material Cost Rs. 6.00
Material Value Rs. 36.00
Labour (Profit) Rs. 64.00
Contact/Sale Price Rs. 100.00
Add: ED 16.32% of Rs. 36.00 Rs. 5.87
Add: ED 16.72% of Rs. 64.00 Rs. 10.45
Add: 12.5% VAT on Rs. 41.87
[36 + 5.87 (ED)]Rs. 5.23
Less: CENVAT Credit Rs. 16.32
Less: VAT Setoff Rs. 5.23
Cost to the contractee Rs. 100.00
Cost to the contractee
without VAT SetoffRs. 105.23
VAT Payable = (O) - (I) = Rs.
5.23 - Rs. 4.36
Rs. 0.87
Option "A2"
(Standard Deduction)
Material Purchase(All Local) Rs. 30.00
ED 16.32% Rs. 4.90
12.5% VAT on Rs. 34.90 Rs. 4.36
Less: 12.5% VAT Setoff Rs. 4.36
Less: CENVAT Credit Rs. 4.90
Material Cost Rs. 30.00
Labour (Profit) Rs. 70.00
Contact/Sale Price Rs. 100.00
Add: ED 16.32% Rs. 16.32
Add: 12.5% VAT on 80% of Rs.116.32 i.e. on Rs. 93.06 Rs. 11.63
Less: CENVAT Credit Rs. 16.32
Less: VAT Setoff Rs. 11.63
Cost to the contractee Rs. 100.00
Cost to the contractee if No VAT
SetoffRs. 111.63
VAT Payable = (O) - (I) = Rs. 11.63
- Rs. 4.36
Rs. 7.27
Option "B"
(Composition Tax)
Material Purchase(All Local) Rs. 30.00
ED 16.32% Rs. 4.90
12.5% VAT on Rs. 34.90 Rs. 4.36
Less: VAT Credit (64% of 4.36) Rs. 2.79
Less: CENVAT Credit Rs. 4.90
Material Cost Rs. 31.57
Labour (Profit) Rs. 70.00
Contact/Sale Price Rs. 101.57
Add: ED 16.32% Rs. 16.58
8% Composition Tax Rs. 9.45
Less: CENVAT Credit Rs. 16.58
Less: VAT Setoff(Full) Rs. 9.45
Cost to the contractee Rs. 101.57
Cost to the contractee if No VAT
SetoffRs. 111.02
VAT Payable = (O) - (I) = Rs. 9.45 - Rs.
2.79
Rs. 6.66
7/31/2019 Indirect Tax in India-4.9.12
18/49
C
orporateCommunications_
2008-05
- 18 / 49 -
Tax Deducted at Source on Works Contract (MVAT Act)1. In all the three options, the contractee/customer has to mandatorily deduct 2% TDS [2%
of net price excluding VAT (WC) & Service Tax amounts) and pay the same to the
government Treasury within the prescribed period.
2. In case the contractor is not Registered Dealer under MVAT Act, then 4% TDS to be
deducted and paid by the contractee/customer.3. Those contractee which are notified, only would deduct TDS like:
R. D. under MVAT Act
Governments State or Central
Co-operative Housing Societies
4. The contractee would:
Issue TDS Certificate to the contractor
Would maintain register in form
Obtain TAN form Sales Tax deptt. (Provision is deleted)
5. In most of the states TDS provisions are incorporated in the state VAT laws.
7/31/2019 Indirect Tax in India-4.9.12
19/49
C
orporateCommunications_
2008-05
- 19 / 49 -
Negative List MVAT Rules (Rule 54) (WC)
1. Purchases effected by way of WC where the contract results in immovable property
[Rule 54(g)].
2. Purchases of building material which are not resold but are used in the activity of
construction.
3. Purchases of office equipment, furniture & fixtures, if such goods purchased are treated
by the claimant dealer as Capital Assets [Rule 54(I) Setoff in excess over 4% from 8th
September, 2006]
4. Any purchase of consumables or of goods treated as capital assets by the claimant
dealer where the dealer is principally engaged in doing job work or labour work and is
not engaged in the business of manufacturing of goods for sale by him and incidental to
the business of job work or labour work any waste or scrap goods are obtained or sold.
[Rule 54(d)]
7/31/2019 Indirect Tax in India-4.9.12
20/49
C
orporateCommunications_
2008-05
- 20 / 49 -
VAT Transactions between Main and Sub Contractor
Sub
Contractor
State A
Main
Contractor
State A
Customer
State A
Works Contract
VAT Under legal &
Composition Options
VAT Form
(Sub-Contract)
Exchange of VAT Forms
between MC and SC)
VAT Calculations
Sub Contract Value Rs. 60.00
30% Standard Deduction Rs. 18.00
Material Value Rs. 42.00
@12.5% VAT on Rs. 42.00 Rs. 5.25
Invoice Rs. 60.00
@12.5% VAT on Rs. 42.00 Rs. 5.25
Total Rs. 65.25
VAT Calculations
Total Contract Value Rs. 100.00
(-)Sub Contract Value Rs. 60.00
Rs. 40.00
30% Standard Deduction Rs. 12.00
Material Value Rs. 28.00
@ 12.5% VAT on Rs. 28.00 Rs. 3.50
Tax Invoice Rs. 100.00
+ @12.5% VAT on Rs. 70.00 Rs. 8.75
Total Rs. 108.75
1. If customer buys buildingmaterial (Steel, Cement) inconstruction contract, no VATCredit is available to thecustomer.
2. TDS is deductible againstadvance payments received
towards contract value
Full credit is available of the VAT paid on the input by theMain/Sub Contractor under legal option
7/31/2019 Indirect Tax in India-4.9.12
21/49
C
orporateCommunications_
2008-05
- 21 / 49 -
VAT Transactions between Main and Sub Contractor Contd
1. No TDS by the Main Contractor from the sub-contractors Invoice
2. Exchange of VAT Forms between Main (VAT Form 406) & Sub-contractor
(VAT Form 407) for the payment of VAT.
3. 8% composition on Rs. 60 at the hands of sub-contractor and on Rs. 40 at the
hands of main contractor.
64% of VAT credit is available under composite scheme.
7/31/2019 Indirect Tax in India-4.9.12
22/49
C
orporateCommunications_
2008-05
- 22 / 49 -
VAT Local Works ContractsThe taxation of construction contractor in Maharashtra.
V1
(State B)
V2
(State A)
State AContractor
3% CST
C Form
(No Setoff) State AContractee
(Customer)Legal Option Composition
Rs. 100.00
(-) Rs. 30.00
Rs. 70.00
4% & 12.5%
VAT(B)
5% on
contract Value
(B)
(Construction)
No Credit available to customer, being
erection of immovable property
Full VAT Credit is available under legal
option & in excess over 4% under
composition Option, VAT = (B) (A)
Please refer to the notification dated 30thNov06 on Construction
Contracts from 20thJune06
Works Contract VAT (B)
4% or 12.5%
VAT (A)
7/31/2019 Indirect Tax in India-4.9.12
23/49
C
orporateCommunications_
2008-05
- 23 / 49 -
Works ContractsFree Issues by the CustomerA Gross Price (including value of free issues) charged by the customer
State "A"
Vendor
Price Rs. 60.00
VAT @ 12.5% Rs. 7.50
Rs. 67.50
State "A"
Customer
Cost Rs. 67.50
State "A"
Contractor
Price Rs. 100.00
VAT @ 12.5% Rs. 12.50
Sale Price Rs. 112.50
Customer
VAT Cost Rs. 7.50
Rs. 12.50
A Rs. 112.50
OPTION A
State "A"
Vendor
Price Rs. 60.00
VAT @ 12.5% Rs. 7.50
Rs. 67.50
State "A"
Customer
Cost Rs. 67.50
State "A"
Contractor
Price Net Off Free Material
Sale Price Rs. 40.00
Vat 12.50% Rs. 5.00Sale Price Rs. 45.00
Customer
Total Cost Rs. 7.50
Rs. 5.00
B Rs. 12.50
OPTION B
Free
Issue
Free
0%
VAT
Sale
Free
Issue
Free
0%
VAT
Sale
State "A"
Vendor
Price Rs. 60.00
VAT @ 12.5% Rs. 7.50
Rs. 67.50
State "A"
Customer
Cost Rs. 60.00
State "A"
Contractor
Price Rs. 60.00
VAT @ 12.5% Rs. 40.00
Sale Price Rs. 100.00
Customer
VAT Cost Rs. 12.50
C Rs. 12.50
OPTION C
Sale
VAT
7.5%-7.5%=0%
100
+
12.5%VAT
Sale
Cost
to
Cost
7/31/2019 Indirect Tax in India-4.9.12
24/49
C
orporateCommunications_
2008-05
- 24 / 49 -
Summary MVAT (WC) Provisions1. For any WC carried out by the contractor/seller, three options are available to levy
VAT/Composition Tax namely:
Actual Non-material Value Deduction
Standard Non-Material Value Deduction
Composition Tax(Non-Legal)
2. In all the options VAT Setoff/Credit is available to both the contractor (seller) and the
contractee(buyer). For Composition Tax option, the contractor gets 64% in excess over 4%
credit of the total VAT paid.
3. No VAT credit/setoff available on purchase of negative items.
4. 2% TDS Deduction of net sale price (excluding VAT & Service Tax) charged by thecontractor and payment of same to the government within the prescribed period by the
contractee (if the contractor is unregistered dealer, the TDS deduction is 4%)
5. VAT forms are provided for the transactions between main and sub-contractors.
6. Specific provisions for WC in MVAT Act and rules.
7/31/2019 Indirect Tax in India-4.9.12
25/49
C
orporateCommunications_
2008-05
- 25 / 49 -
VAT and Service Tax
1. While rendering Taxable Service, if there is a deemed sale of goods/materials
also, then both Service Tax and VAT(WC) is applicable.
2. The supreme court & the High Courts have confirmed that both Service Tax
and Sales Tax (VAT) is payable by the service provider, if the goods are alsoused in such service contracts.
e.g. Construction contracts, Annual Maintenance Contracts.
3. If in the taxable service Value, if the value of actual material sold can be
determined, then VAT(WC) would be payable on the material value and service
tax on the balance value.
4. If the value of materials used in the taxable service is on the presumptive basisthen on total contract value VAT (WC) would be calculated by 2 options
available under the MVAT Act (Standard Deduction & Composition) and service
tax would be calculated as per the service Tax Law (Abatement Method).
5. The credit of both VAT(WC) and service tax paid is available subject to certain
conditions to the service recipent.
7/31/2019 Indirect Tax in India-4.9.12
26/49
C
orporateCommunications_
2008-05
- 26 / 49 -
Annual Maintenance Contract (AMC)
Illustration Working of VAT (WC) & Service Tax Payable
AMC (Predominant Service Contract but parts also would be replaced)
VAT (Works Contract) SERVICE TAX
A1
(Actual Non-Material
Deduction)
A2
(Standard
Deduction)
B
(Composition Tax)
S1
(Actual Material Deduction)
S2
(Abatement Method)
Contract ValueRs.
100.00
Contract
Value
Rs.
100.00
Contract
Value
Rs.
100.00 Contract Value Rs. 100.00 Contract Value Rs. 100.00
Non MaterialRs.
80.00
Std.
Deduction
Rs.
40.00 Material Sold Rs. 20.00 Abatement Rs. 67.00
MaterialRs.
20.00 Material
Rs.
60.00 Material
Rs.
100.00 Material Rs. 80.00 Material Rs. 33.00
VAT @ 12.5% Rs. 2.50VAT @
12.5% Rs. 7.50
8% Comp.
Tax Rs. 8.00
Service Tax
@12.36% Rs. 9.89
Service Tax
@12.36% Rs. 4.12
Fully VAT Credit available to service provider in A1 & A2 options but only
64% VAT credit in option B
CENVAT Credit is not available to service provider in S1
option & in Option S2
The customer can get VAT Credit if the goods are not in the negative list.
The customer can get service tax credit under CENVAT
Credit rules
7/31/2019 Indirect Tax in India-4.9.12
27/49
C
orporateCommunications_
2008-05
- 27 / 49 -
Annual Maintenance Contract (AMC)
Illustration Working of VAT (WC) & Service Tax Payable Contd
Invoice Note:
Contract Value Rs. 100.00If the actual material value is available, then VAT
(WC) would be calculated on that value and on
balance value Service Tax would be calculated,
otherwise separate workings as per VAT (WC) and
Service Tax Provisions
VAT (A1 Option) Rs. 2.50
Service Tax (S1
Option)Rs. 9.89
Total Rs. 112.39
7/31/2019 Indirect Tax in India-4.9.12
28/49
C
orporateCommunications_
2008-05
- 28 / 49 -
Works Contracts Certain Specific Issues1. The supreme court judgment in the case of K. Raheja development
corporation (141 STC, 298):
The Ratio of the judgment
Maharashtra Amendment to the Definition of works contract from 20th
June, 2006 Maharashtra trade circular No. 12 T of 2007 dated 07-02-2007
Amendment to Delhi rules from 7th Sept06 to provide for deduction of
LandCost from the contract price.
2. Service Contracts AMC Contracts in the states by the company/contractor
VAT & CST Registration in the State where work is carried out by the main
contractor and the sub contractor?3. Replacement of warranty Parts under the warranty period
Replaced by the dealers/distributors from their own stock
or
Directly replaced by the manufacturer
4. Sale in Transit (E-1 Sales) under indivisible works contract Allowable only if
proper documentation/transaction is made by the contractor.
7/31/2019 Indirect Tax in India-4.9.12
29/49
C
orporateCommunications_
2008-05
- 29 / 49 -
Software Companies & VAT1. Software Packages are intangible goods subject to VAT under the VAT laws.
2. As per the recent judgement of TCS (137 STC 620 SC), the supreme court
observed that:
In the case of software, both canned and un-canned, all these are
possible. Intellect property when it is put on a media becomes goods
Software may be intellectual property but the property contained in a
medium is bought and sold, it is an article of value and such software can
be described as goods subject to sales tax.
It was not dealing with unbranded/customized software and no opinion
there on was being expressed because in case of unbranded software
other questions like situs of contract of sale and / or whether the contract
was a service contract may arise.
7/31/2019 Indirect Tax in India-4.9.12
30/49
C
orporateCommunications_
2008-05
- 30 / 49 -
Software Companies & VAT Contd3. The state governments started levying VAT on the unbranded/customized
softwares after the said judgment of TCS of the supreme Court.
Recently the commissioner of sales tax, government of Maharashtra has
passed DDQ order wherein it has been decided that the sales tax (Now VAT)
is applicable on unbranded/customized software in the case of MASTEK Ltd.,
As certain clauses in the agreement with the client were confirming that it
was a sale of software product.
No VAT credit is available on softwares goods being included in the negative
list, in Maharashtra.
7/31/2019 Indirect Tax in India-4.9.12
31/49
C
orporateCommunications_
2008-05
- 31 / 49 -
Agreement of WC Proper Clauses of VAT/CST1. Whether the contract is a sale contract or WC is dependable on the facts of the
transactions, terms and conditions and the intention of the two parties. All such clauses
in the agreements should be incorporated to avoid litigations.
2. In cases of individual WC, following clauses should be incorporated:
The contractor and contractee intend to treat the whole contract as indivisible WC,
all the time.
The transfer of property of the contractors goods to the contractee shall take place
as soon as the said goods are used in the execution of the contract.
VAT, is applicable, under the provision of VAT Act, shall be leviable only on the
value of goods used in the execution of said contract.
The Contractee shall remain the owner of the material supplied him to thecontractor for use in the execution of WC, all the time. There shall not be
transfer/sale of such goods to the contractor at any time.
No VAT is applicable on the said contract being a pure labour job as no material of
his own used by the job worker Processor.
7/31/2019 Indirect Tax in India-4.9.12
32/49
C
orporateCommunications_
2008-05
- 32 / 49 -
Agreement of WC Proper Clauses of VAT/CST Contd...
3. It is advisable, if the best option under the MVAT Act is decided before entering into the
agreement by the contractor and the contractee, the same should be incorporated in the
clauses of the agreement.
7/31/2019 Indirect Tax in India-4.9.12
33/49
C
orporateCommunications_
2008-05
- 33 / 49 -
Works Contracts Important Judgment1. Sarvodaya Printers
(114 STC 242-SC)Customized Printing Jobs are WC
2. Rainbow Colour Labs Ltd.
(118 STC 9 SC)The state cannot tax, if marginal material is used for producing work of art
3. ACC Ltd.
(140 STC 22-SC) Smaller transfer of properties in goods subject to tax in works contract
4. Kone Elevators (I) Ltd. It is a sale and not WC (CKD Packs)
5. Matoshree Textiles Textile Dying is WC (in other form)
6. Hindustan Shipyard Ltd.
(119 STC 533-SC)Sale of Vessel Not a WC
7. Builders Association of India
(73 STC 370-SC)
Tax on material value of the contract
46th Amendment brings Fictional Break up of contract value
8. Gannon & Dunkerley & Co.
(1993) (88 STC 204 SC)Deductions available from total contract value
9. Everest Copiers
(103 STC 36 SC)Photocopying is not a sale but contract of work and labour
10. Modi Xerox
(114 STC 424 Karnataka)
In AMC, Contract of maintenance of Xerox machine there is implied sale
of parts(WC)
7/31/2019 Indirect Tax in India-4.9.12
34/49
C
orporateCommunications_
2008-05
- 34 / 49 -
Work Contracts Provisions State wise Comparison
1. Actual Non-Material
Deduction Method
Uniform an all the VAT States
2. Standard Deduction Method Mostly uniform in the states. In certain states
Contractee does not get the VAT Credit.
3. Composition Tax Method Available in most of the states. Generally, the rate
is 4% (Except in Maharashtra - 8%). In no state
contractor and contractee avail the VAT Credit
except in Maharashtra
4. Purchases from other states Composition is available. 12.5% VAT is payable
in few states.
5. TDS Provisions Available in most the states but TDS percentages
differ.
6. Plant and Machinery Definitions differ, in states.
7/31/2019 Indirect Tax in India-4.9.12
35/49
C
orporateCommunications_
2008-05
- 35 / 49 -
VAT & Inter-State Works ContractState B
State "B"
Customer
STATE "A"
Contractor (XYZ)
(Manufacturer of Machinery
used in the works Contract
Material Supply - Rs. 80.00
2% CST Against C/D Forms
State "B"Contractor XYZ
State Works Contract VAT
(If no material, pure labour job, NO
VAT)
Erection & Commissioning - Service Tax / E. Cess = 12.36%
Total Contract = Rs. 80 (material) + Rs. 20 (Labour)
1. If the contractor is under legal option in state B then VAT payable only on material value of
the local purchases (All deductions to arrive at material value are available)
2. If the contractor opts for composition scheme in State B, then on total contract value
Composition Tax (VAT) is payable.
3. Inter state works contract when contractor is in one state and contractee is in other state and
goods move from one state to other under indivisible works contract.
7/31/2019 Indirect Tax in India-4.9.12
36/49
C
orporateCommunications_
2008-05
- 36 / 49 -
Works Contract Job WorkWhere job-worker is inside and outside the state & uses some of his own material
in the contract:
Manufacturer
State "A"
Material (No CST) Job Worker
State "B"2% CST Against "C" Form
Material (No VAT) Job Worker
State "A"VAT (WC) or Composition
(Credit Available to Manufacturer)
7/31/2019 Indirect Tax in India-4.9.12
37/49
C
orporateCommunications_
2008-05
- 37 / 49 -
TAX Structure under the CST ACT Effective from 1st
April07
1. The local VAT rate (schedule) and the CST Rate, if not supported by C Form is
equal to local schedule rate of the sellers state (e.g. local rate 12.5% - CST
rate without C form would be 12.5%)
VAT Schedule Rate Applicablein the Sellers State
CST Rate withC Forms
CST Ratewithout C
FormRemarks
0.0%
1.0%
4.0% (Declared Goods included)
12.5%
0.0%
1.0%
3.0%
3.0%
0.0%
1.0%
4.0%
12.5%
C Form not
required for 0%
and 1% schedule
VAT rate goods
CST Rate applicable to the
interstate Sales covered under
Section 8(5) of the CST Act(issued by the selling state) if
CST rate is 0%, 1%, 2%
0%
1%2%
0.0%
1.0%
4.0%
12.5%
7/31/2019 Indirect Tax in India-4.9.12
38/49
C
orporateCommunications_
2008-05
- 38 / 49 -
TAX Structure under the CST ACT Effective from 1st
April07 Contd.
2. For interstate sales of goods covered under section 8(5) notifications, C Forms
are required otherwise full CST rate, equal to the VAT (Schedule) rate of the
selling state.
3. D Form (Govt. Sales) is abolished from 1-4-2007
7/31/2019 Indirect Tax in India-4.9.12
39/49
C
orporateCommunications_
2008-05
- 39 / 49 -
Inter-state Sales Sale in Transit [Section 3(b)
Sale is effected by transfer of documents of title to the goods during the
movement from one state to another
State "A"SELLER
Inter State Sale(2% CST)
State "B"BUYER 1
Inter State Sale(2% CST)
BUYER 2"C" Form "C" Form
"E-1" Form
- 2nd Seller
- Endorses L/R in Favour of
Buyer 2
- Takes the delivery of the
goods- Total Tax burden
2% CST + 0% CST = 2%
(Otherwise - 2% CST + VAT)
1st Seller
7/31/2019 Indirect Tax in India-4.9.12
40/49
C
orporateCommunications_
2008-05
- 40 / 49 -
Inter-state Sales Sale in Transit [Section 3(b) Contd
KEY FACTORS:
1. No delivery by the Buyer 1, endorsement on L/R in favour of Buyer 2 by the
Buyer 1
2. Buyer 2 takes the delivery (Interstate Sale Completes)
3. For exemption to buyer 1 E-1 Form from first Seller and C form from
Buyer 2.
7/31/2019 Indirect Tax in India-4.9.12
41/49
C
orporateCommunications_
2008-05
- 41 / 49 -
High Seas SalesCover under Section 5(2) of the CST ACT
"A"
Foreign Supplier
Import"B"
ABC & Co.
High Seas Sales"C"
Ultimate CustomerNo Sales Tax 0% VAT/CST
ImporterIn India In India
- Endorsement on B/L in favour of
customer
- Invoice on 'C' with 0% VAT/CST
as sale covered under section 5(2)
of CST Act
- Proper Documentation
- Payment of Custom Duty (after
B/L endorsement date)
- Clearance from the custom
station
- Proper Documentation
Issues:
Bulk Consignments
Endorsement on bill of lading
Bonded Warehouse.
7/31/2019 Indirect Tax in India-4.9.12
42/49
CorporateCommunications_
2008-05
- 42 / 49 -
Union Budget[2007-08] Proposed Changes in CST ACT from 1st
April07
VAT (B-A)VAT (B) State 'B'
Customer
Outside State
Vendor V1
Sales of Goods
State 'A'
ABC Mfg.
Stock TransfersState 'B'
Depot Branch3% CST - 1/4/07 0% CST VAT (A) State 'B'
Dealer4% CST Form 'F'
Form 'C'
3% CST - 1/4/07
4% CST State 'B'
DealerVAT State 'B'
CustomerForm 'C'
State "A"
Vendor V2
4% VAT - 1% Savings on interstate
purchase from 1stApril07Raw Materials VAT (A)State 'A'
Dealer12.5% VAT VAT (B) State 'A'
Customer
- 1% Reduction in selling
prices from 1stApril07Raw Materials
- C/D Forms to continueTax Paid (-) Burden (=) Setoff VAT (B-A)Vat 4% 3% 4%or 0% VAT 0% or 4% 3%
Vat
12.5% 3% 4%or 0%
VAT 8.5% 9.5% or
12.5%
7/31/2019 Indirect Tax in India-4.9.12
43/49
CorporateCommunications_
2008-05
- 43 / 49 -
Union Budget[2007-08] Proposed Changes in CST ACT from 1st
April07
Purchase Sales
1. Reduction in rate of CST from 4% to
3% from 1stApril07
1. Interstate Sales of goods would be
subject to 3% CST from 1stApril07
2. The said rate 3% CST would besubject to issuance of C/D Forms,
otherwise full CST
2. The 3% CST rate would be subject tocollection of C/D Forms, otherwise full
CST10% or 12.5% would be payable.
3. For local purchases VAT setoff would
be reduced by 3% from 1st April07
(Reduction in VAT Cost/ Burden)
3. The notifications u/s 8(5) of the CST
ACT, for reduction of rate of CST to 0%,
1%, 2% would continue subject to C/D
Forms.
4. VAT Cost % = Rate of CST X
Transfer Ratio
= 3% X 50% = 1.5% (Earlier 2%)
7/31/2019 Indirect Tax in India-4.9.12
44/49
CorporateCommunications_
2008-05
- 44 / 49 -
How to address Query on Works ContractWhether Sale or WC, If WC
Whether Local or Inter-State WC
Which are the options available to the contractor:
A1 - Actual Non Material Deduction Method
A2 - Standard Deduction Method
B - Composition Tax Option
To Decide best option
Whether VAT Credit is available to the contractor or contractee?
(to refer VAT Negative List)
Whether TDS is Applicable? If Yes then to deduct
Cost to Customer
7/31/2019 Indirect Tax in India-4.9.12
45/49
CorporateCommunications_
2008-05
- 45 / 49 -
VAT (Works Contract) Important Points1. Pure Labour Jobs Consumption of lubricants, Oils, Gases, chemicals, water is allowed.
No VAT [Works Contract(WC)] is applicable as there is no transfer of property in these
goods to the customer.
2. TDS (WC) TDS to be deducted from the Total Value of the contract excluding
VAT/Service Tax if charged on the invoice. No TDS deduction on the interstate works contract invoices where CST is charged.
3. Contractor & contractee should decide in advance on the selection of the best option for
levy of VAT(WC), before planning the order.
4. Do not try to break the contract Value/Price Artificially, for making indivisible contract since
after introduction of the VAT system, the VAT burden in both type of contracts is mostly
equal. In fact, more options are available in indivisible works contract.
5. Inter-state WC with CST is possible but the state govt. (where the contract is carried out)
may like to consider it as local WC subject to state tax.
6. Interstate works contract CST is applicable only on the material/goods value of thecontract.
7/31/2019 Indirect Tax in India-4.9.12
46/49
CorporateCommunications_
2008-05
- 46 / 49 -
Works Contract Summary of Important Points1. WC are taxed under state VAT acts, there are no separate WC Acts.
2. For local WC transactions State VAT (WC) is applicable and for inter-state WC
transactions CST is applicable as covered under the CST Act, 1956.
3. No VAT/CST is applicable on pure labour jobs (no material of the job worker/ processor isinvolved)
4. Under state VAT acts, VAT is applicable only on the material value of the contract
(Determined by 3 options) under CST Act also, CST is applicable on material value of the
inter-state WC.
5. In the service contracts (AMCs, constructions, etc.) both VAT & Service Tax is applicable.
If the actual material value is not available then it would be calculated by presumption
methods, separately under VAT (WC) and services Tax Laws.
6. Clauses in the agreements of WC are essential to avoid litigation
7. VAT setoff/credits are available for both the contractor and the contractee, subject tocertain conditions.
7/31/2019 Indirect Tax in India-4.9.12
47/49
CorporateCommunications_
2008-0
5
- 47 / 49 -
Demand Areas of VAT/CST
1. Improper legal status of transactions.
2. Improper levy/collection of sales tax/VAT & CST.
3. Non-inclusion of sales tax clauses in the agreements contracts purchaseorders.
4. Improper internal system of:
Information
Documentation
Forms collection
Computer coding calculation of setoff
Record maintenance
5. Improper handling of Site Documentation. No VAT registration at site
locations.
7/31/2019 Indirect Tax in India-4.9.12
48/49
CorporateCommunications_
2008-0
5
- 48 / -
Sales Tax/VAT - PerformanceStatutory Compliance Demand Areas
1. Returns 1. Non-Collection of CST Forms on Quarterly basis.
Correct, Complete and self consistent [C, EI, EII, F, H, etc)
2. Revised Returns 2. Non Filing of correct and complete returns Late
Payments
3. Payments Before Due Dates 3. No Proper records.
4. SETOFF Working 4. No proper computation of Setoff
Full, Partial and No Credit
5. Works Contract
TAN, TDS Payments Quarterly/Annual Returns
6. Maintenance of Record
Purchase and sales registers, Tax Invoices etc
7. Refund Claims
8. C A Audit
7/31/2019 Indirect Tax in India-4.9.12
49/49
Thank You