WORKS CONTRACT UNDER THE GUJARAT VAT ACT, 2003
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n The Gujarat Value added Tax Act, 2003 :
Important features of VAT Act ;
The Value Added Tax is multipoint tax. Vat is applicable to each event of sale. VAT system is more transparent with compared to Sales tax. Every dealer is entitled to get credit of tax paid on purchases. There are no forms prescribed in VAT regime. Each dealer has to pay tax on sales and claim tax credit (ITC) of tax paid purchases.
n Works Contract & VAT Act :
Following definitions are important to under stand the issue of works contract :
Sec. 2 (4) Business
Sec. 2 (10) Dealer
Sec. 2 (13) Goods
Sec. 2 (14) Manufacture
Sec. 2 (15) Person
Sec. 2 (16) Place of business
Sec. 2 (18) Purchase price
Sec. 2 (23) Sale
Sec. 2 (24) Sale price
Sec. 2 (30) Taxable turnover
Sec. 2 (32) Turnover of purchases
Sec. 2 (33) Turnover of sales
Sec. 2 (34) Total turnover
Following works has been notified as “Works Contracts” by Notification No.(GHN-23) VAT-2006(S.2)(23)(1) TH Dt.31.03.2006 :
Sr.No. / Description of Works Contract
1. / The construction, improvement or repair of any Building, Road, Bridge, Dam or other immovable property.
2. / The installation, fabrication, assembling, commissioning, or repair of any plant or machinery whether or not affixed to any building, land or other immovable property
3. / The installation, fabrication, assembling, commissioning of any Air conditioner plant, Air conditioner, Air cooler, whether or not affixed to any building or other immovable property
4. / The assembling, fitting out, reassembling improving, producing repairing or otherwise treating of furniture fixtures, partitions including contracts of interior decoration
5]xx / Deleted by Noti. No. (GHN-27) VAT 2008 S.2(23)(2) TH Dt.16.05.2008
6. / The construction, fabrication, assembling, commissioning or repairs of bodies on chassis of motor vehicles including three wheelers and fire fighters or of vessels of every description meant for plying on water
7. / The overhauling or repairing or dismantling of any motor vehicle, vessels of every description meant for plying on water or any other vessel propelled by mechanical means, any air craft, or any equipment or part of any of the aforesaid items
8. / The fitting out, assembling, altering, ornamenting, reassembling, blending, finishing, furnishing, improving, processing or otherwise treating or adapting or fabrication of any goods.
9. / Erection, installation and Commissioning of Wind Turbine Generator including power evacuation system and repairing thereof.
10. / Fixing of Marble, slabs, polished granite stones, and tiles (other than mosaic tiles)
11. / Fixing of sanitary fittings for plumbing drainage and the like
12. / Painting and polishing
13. / Laying of pipes
14. / Tyre re-treading
15. / The supply of goods in providing know-how, designs, labour, supervision, inspection, training or other services in connection with any of the operations mentioned in serial numbers 1 to 14 above.
n Works Contract :
Definition of works contract :
- The term “works contract” is not defined in the G.VAT Act, 2003. The Explanation (ii) to the definition “sale” states that “works contract” means a contract for execution of works and it includes such works contract as the State Govt. may by notification in the Gazette, specify.
- The State Govt. vide Noti. No.(GHN-23) VAT-2006 S.2(23)(1)TH Dt.31/3/2006, specified 15 types of works as works Contract. It includes construction, improvement, or repair of any building, road, bridge, dam, or other immovable property. The assembling, fabrication, installation, repair or commissioning of any plant or machinery, air conditioner plant, air conditioner, air cooler, elevators, escalators etc. and contract of interior decoration, printing and polishing, laying of pipes, tyre re-trading etc.
- The CST Act, 1956 defines the term “works contract” as follows, “works contract means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, eraction, installation, fitting out, improvement, repair or commissioning of any movable property.
- The contract of supply of goods only is not a works contract. In the contract of labour work only, where no material are transferred is not a works contract. The contract in which, no property in goods passed or the goods gets consumed in the process of execution of works is not a works contract. The contract of work of art and skill in which the passing of property in goods is co-incidental, is not a works contract.
- The works contract, in which transfer of property in goods involved in execution of contract is a deemed sale. The transfer of property in goods is not sufficient to levy tax on sale, but it must be involved in the execution of works contract. The term “involved” means during the course of execution of works contract, i.e. as and when work is executed property in goods with which work is done passes at that stage only and not at the time of delivery of goods.
- The works contract, in which transfer of property in goods involved in execution of contract is deemed sale. The transfer of property in goods is not sufficient to levy tax on sale, but it must be involved in the execution of works contract. The term “involved” means during the course of execution of works contract, i.e. as and when work is executed property in goods with which work is done passes at that stage only and not at the time of delivery of goods.
n Determination of taxable turnover in works contract :
As provided in section 2(30)(c), in case of turnover of sales in relation to works contract, the charges towards labour, service and other like charges, and subject to such conditions as may be prescribed. It is also provided that, where the amount of charges towards labour service and other like charges in a contract is not ascertainable from the terms and conditions of the contract, the amount of such charges shall be calculated as per table specified in Rule 18AA of the G.VAT Rules, 2006. Deduction of charges towards labour, service, etc. are specified as under :
TABLE
Sr. No. / Description of Works Contract / Percentage of deduction1. / Construction, improvement or repair of any building, road, bridge, dam, canal or other immovable property. / Thirty per cent.
2. / Installation, fabrication, assembling, commissioning or repair of any plant or machinery, whether or not affixed to any building, land or other immovable property. / Fifteen per cent.
3. / Installation, fabrication, assembling, commissioning of any Air conditioner plant, Air conditioner, Air cooler, whether or not affixed to any building or other immovable property. / Ten per cent.
4. / Assembling, fitting out, re-assembling, improving, producing, repairing or otherwise treating of furniture, fixtures, partitions including contracts of interior decoration. / Twenty per cent.
5. / Installation, fabrication, assembling, commissioning or repairs of lifts or elevators or escalators. / Fifteen per cent.
6. / Construction, fabrication, assembling, commissioning or repairs of bodies on chassis of motor vehicles including three wheelers and fire fighters or of vessels of every description meant for plying on water. / Twenty per cent
7. / Overhauling or repairing or dismantling of any motor vehicle, vessels of every description meant for plying on water or any other vessel propelled by mechanical means, any air craft or any equipment or part of any of the aforesaid items. / Twenty per cent.
8. / Fitting out, assembling, altering, ornamenting, re-assembling, blending, finishing, furnishing, improving, processing or otherwise treating, adapting or fabricating of any goods. / Fifteen per cent.
9 / Erection, installation and commissioning of Wind Turbine Generator including power evacuation system. / Thirty per cent.
10. / Fixing of marbles, slabs, polished granite stones and tiles (other than mosaic tiles). / Twenty per cent.
11. / Fixing of sanitary fittings and plumbing. / Fifteen per cent.
12. / Painting and polishing. / Twenty per cent.
13. / Laying of pipes excluding plumbing. / Twenty per cent.
14. / Tyre re-treading. / Thirty per cent.
15. / Supply of goods in providing know-how, designs, labour, supervision, inspection, training or other services in connection with any of the operation specified in Serial Nos. 1 to 14 above. / Twenty per cent.
16. / Dyeing and printing of textile. / Thirty per cent.
17. / Printing contracts. / Thirty per cent.
18. / Any other works contract. / Twenty per cent.
n Composition of tax on works contract(Section 14A) :
Section 14A provides for payment of lump-sum tax by way of composition. Composition is optional; a works contractor may at his option apply for composition. As provided in Sec.14A (1) lump-sum tax shall be payable on total value of works contract, no deduction of labour and service charges is admissible.
Under Rule-28(8) Form-214, 214A are prescribed for application for composition. Form-215, 215A are prescribed for Permission granted.
n Rate of lump-sum tax by way of composition has been specified by notification as under :
1. Notification No, (GHN-21) VAT -2006/S.14A(1)(1)-TH
“In exercise of the powers conferred by sub-section (1) of section 14A of the Gujarat Value Added Tax Act, 2003 (Guj. 1 of 2005), the Government of Gujarat hereby fixes two per cent. as the rate of lump sum tax by way of composition in lieu of the tax payable by the dealer referred to in sub-clause (f) of clause (10) of section 2 of the Act, who has been permitted to pay lump sum tax under sub-section (1) of said section 14A.”
Note : Above Notification was superseded by Government Notification No. (GHN-88)VAT-2006-.14A(4) Dt. 17.08.2006.
2. Notification No. (GHN-88)VAT-2006-S.14A(4)-TH:Dt.17.08.2006-
SCHEDULE
Sr. No. / Description of works contract / Rate of lump sum tax1. / All kinds of workds contract other than those specified in any of the following entries. / two per cent of total value of the works contract.
2. / Processing of Polyester Textile Fabrics including bleaching, dyeing and printing thereof. / one half per cent of total value of the works contract.
Following entry was added by Noti. No. (GHN-106) VAT- 2006 -S.14A(5)TH dated 11-10-2006.
Sr. No. / Description of works contract / Rate of lump sum tax(1) / (2) / (3)
"3. / (i) Works of roads of all kinds including work of paving, mixing, metalling, asphalting and earth work.
(ii) Works of building construction including Reinforced Cement Concrete and masonary work but excluding air conditioning, firefighting, interior works and electrical work; if its total value exceeds ten per cent of total value of works contract.
(iii) Works of cross drainage structure and bridges.
(iv) Works of digging and laying of pipelines of all kinds.
(v) Works of dams, check dams, weirs, protection walls, canals and head works.
(vi) Works of excavation and mining.
(vii) Works of construction of jetty, port and break water.
(viii) Works of construction of airport runways and landing strips.
(ix) Works of water storage structures including underground and overhead storage tanks. / Zero point six per cent (0.6%) of total value of the works contract.",
Rate of composition at a glance :
1. For processor of polyester fabrics - 2% from 1/4/06 to 16/8/06
- 0.50% from 17/8/06 and onwards
2. For civil works contractor – 2% from 1/4/06 to 10/10/06
- 0.60% from 11/10/06 and onwards
3. For other works contractor – 2% from 1/4/06 and on wards
4. Purchase tax u/s-9 is also payable by the works contractor for purchases made from URD.
n Salient features of composition of tax u/s 14A (works contract) :
Relevant provisions ;
1. Section 14A of the VAT Act, 2003
It is optional, once option given is final, no permission for alteration
2. Rule 28 (8) of the VAT Rules, 2006
3. Forms – Form 214 – application for contract wise permission
Form 215 – Permission granted for contract wise
Form 214A – Application for yearly permission
Form 215A – Permission granted for the year
4. Turnover limit – Nil
5. Time limit for application –
(1)For a particular contract, within 30days from the commencement of the contract
(2) For the year 2006-07, before Dt.30/11/06 [Rule 28(8)(bb)]
(3) For the year commencing after 2006-07, before 31st march
(4) Dealer liable to pay tax after Dt.1/4/2006, within 90 days from the effect date of TIN
6. Disposal of application : - within 15 working days from the receipt of application
n A works contractor granted permission u/s 14A shall not use following goods in execution of works contract :
- Goods purchased in the course of inter-state trade or commerce.
- Goods purchased from import.
- Goods received from consignee or branch situated out side the State
n Goods supplied by the contractee to contractor :
1. If the contractee has supplied material to the contractor for use in the works contract and deducted value from the payment or from final payment, in such case the supply of goods shall be treated as sale and liable to VAT.
2. When the contractor use the goods supplied by the contractee in the execution of works contract and bill it to the contractee, in such a case he is liable to pay VAT on the value of goods transferred to the contractee in the execution of works contract. However the contractor is entitled to claim tax credit