Works contract tax in kerala vat
Sajan Jacob
(Querist) 18 April 2013
This query is : Resolved
Dear Sir,
My client is running a contracting firm in Bangalore. In 2012 13 FY he did an inertial work on labor contract of RS 50 lakhs for a bank in kerala.In the agreement they mentioned 60% material cost and 40% labor cost of the contract amount. The Bank didn’t deduct the Kerala VAT TDS because it is a labor contract. The bank paid 40 lakhs to the contractor for metrical purchase and labor charges the all payments and agreement made in bang lore. Manager in Kerala have no right to pay any amount to the contractor. But the Investigation officer of Kerala commercial taxes sends a notice to the bank for pay 10% VAT TDS from the contractor
My question is
(1) It is a labor contract and how can the officer ask the TDS (He told me that the bank paid 85% of the amount to the contractor for labor and purchasing of material so this will become a WCT. I replied him that The manger have no power to give any amount and he can’t purchase the material so they give the money to the contractor and he purchased in the name of bank
(2) If the amount paid the 10% TDS of the said work , the issue will finished or the file will go to the assessment officer for an assessment and the contractor liable to pay the tax with penalty
Kindly advice
Sankaranarayanan
(Expert) 18 April 2013
if you pay the demand as per the notice given by the concern AO then ask them to close the file without penalty . if they are not mention then it will be reopened in future .
Concept & Levy of C.S.T. on Inter state Works Contracts
The Central Government amended the definition of ` Sale’ under the Central Sales Tax Act, 1956 from 11.5.2002. With the said amendment, the states are empowered to levy C.S.T. on the interstate works contract. By the said amendment, the concept of `Interstate works contract’ was introduced in the C.S.T. Act by inserting in the definition of `Sale’ , the words “Transfer of Property in goods involved in execution of works contract” .
When the Contractor dispatches his goods from one State to another under a individuals works contract, it is a interstate works contract. The sections 3,4,5 of the C.S.T. Act are applicable to such deemed sales in the interstate works contract. Accordingly, the State of dispatch can collect the Central Sales Tax on such deemed interstate sales . The Contractors may not be allowed the interstate depot transfers in the cases of indivisible works contracts since such dispatches are made to the sites of the contractee situated in other state and the same are earmarked for the specific contractee. The Contractor would invoice to the Contractee from the state of dispatch and would charge CST as applicable , with or without C/D Forms.
Recently, the CST Act was further amended to explain, the deductions available on the total contract price to the Contractor to arrive at the material value. Please note that in interstate works contracts also, the C.S.T. is payable only on the Material Value/Price’ of the Contract and not on the Labour’ portion of the Contract.
The examples of interstate works contract would be that of Contractor from Mumbai, dispatching goods from his Mumbai plant to the site in Chennai (Tamil Nadu) under a indivisible works contract or A Manufacture in Mumbai dispatching his own material to a processor in Surat and the processor returns back the processed material back to the Mumbai Manufacturer. The Surat processor would charge 4% CST against `C’ form on the material value of his invoice amount being a interstate works contract in his hands .
Please note that when it is an interstate works contract, the Contractee would raise an invoice on the Customer situated in other state with applicable rate of CST on the Material value of the contract, but the Customer would not deduct any amount towards TDS since there is no provision of T.D.S. under the CST Act. TDS is to be deducted only in the local works contracts where the Contractor has charged VAT/Composition Tax.
In short, if the Contractor dispatches goods from his state to the State of the Contractee (Customer) under an indivisible works contract, it is a interstate Works contract in the hands of such Contractor subject to levy of CST which is collected by the state of dispatch . However, in the interstate works contracts also , C.S.T. is payable only on the `Material Value’ of the Contract .
Sajan Jacob
(Querist) 18 April 2013
Sir
My client have no CST Registration only Karnataka VAT
Sajan Jacob
(Querist) 18 April 2013
Sir
Thank you for your reply
My client have no CST registration Only Karnataka VAT
And he purchased all material from kerala in the name of Bank
Anirudh
(Expert) 18 April 2013
Please indicate from State you purchased the goods?
The Goods were purchased in whose name - in your name or in the name of the Bank?
If the contract is for labour, why instead of indicating only the labour cost, the Agreement should indicate the material cost also?
Please indicate in the bill raised by you on the bank, what is the break-up shown by you.
Sajan Jacob
(Querist) 18 April 2013
The goods purchased from Kerala (local purchase) in the name of the Bank.
The bank paid the money to the contractor as advance for purchasing the goods. For avoiding dispute they mentioned materiel cost 60% in the contract
Sankaranarayanan
(Expert) 18 April 2013
If the matrial purchased locally by the bbank itself then your part is only labour. If works contract as per commercial tax means the work should be donne with material and labour. It is very difficult to divisable. Here in your case all the materials purchased in the banker name then how the commercial tax people raised notice in your name. Are you submitted the order to them
R.K Nanda
(Expert) 18 April 2013
no more to add.
Anirudh
(Expert) 19 April 2013
You have conveniently not answered my following question:
Please indicate in the bill raised by you on the bank, what is the break-up shown by you.
Sajan Jacob
(Querist) 20 April 2013
Sir
I till i received the advances only i did't send my final bill
