17. Treatment of works contracts

(1)Treatment of VAT dealer executing works contract

(a) In the case of contracts not covered by sub-rules (2) and (4) of this Rule, the VAT dealer shall pay tax on the value of the goods at the time the goods are incorporated in the work at the rates applicable to the goods.

(b) In such a case the VAT dealer shall be eligible to claim input tax credit on Seventy Five Percent (75%) of the tax paid on the goods purchased other than those specified in sub-rule (2) of Rule 20 and shall be eligible to issue a tax invoice.

(c) Where a VAT dealer mentioned in clause (a) awards any part of the contract to a registered sub-contractor, no tax shall be payable on the consideration paid for the sub-contract.

(d) The value of the goods used in execution of work in the contract, declared by the contractor shall not be less than the purchase value and shall include seigniorage charges, blasting and breaking charges, crusher charges, loading, transport and unloading charges, stacking and distribution charges, expenditure incurred in relation to hot mix plant and transport of hot mix to the site and distribution charges.

(e) Subject to clause (d) the following amounts are allowed as deductions from the total consideration received or receivable for arriving the value of the goods at the time of incorporation,-

(i) Labour charges for execution of the works;

(ii) Charges for planning, designing and architect’s fees;

(iii) Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;

(iv) Cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract;

(v) Cost of establishment of the contractor to the extent it is relatable to supply of labour and services;

(vi) Other similar expenses relatable to supply of labour and services;

(vii) Profit earned by the contractor to the extent it is relatable to supply of labour and services;

(viii) amounts paid to a sub contractor as consideration for the execution of works contract whether wholly or partly

Provided that the contractor VAT dealer shall arrive at the value of goods at the time of incorporation, tax rate wise, from out of the taxable turnover arrived at as above, on prorata basis taking the ratio of value of goods liable to tax at different rates against the total value of purchases relating to such contract.

Provided further that, subject to the filing of returns and payment of tax as per clause (d), the VAT dealer shall pay the balance amount of tax arrived at by following this clause at the time of finalization of accounts relating to the particular work. Such additional taxable turnover and taxes payable shall be declared in the return for the month in which accounts are finalized.

Case Law

Deduct Service Tax Componennt from Gross receipt alongwith tax collection U/APVAT Act,2005 ( APSTAT judgement “ Indian Commerce & Industries Pvt Ltd. Vs. State of AP reported APSTJ 2012 (55) Sept’2012(f) Where tax has been deducted at source, the contractor VAT dealer shall obtain Form 501A with unique form ID from the Assist Commissioner / Commercial Tax Officer concerned and supply the same to the contractee. The contractee shall complete the Form 501A with required information and supply the same to the contractor within fifteen days after the end of the month in which the deduction is made. The contractor VAT dealer shall submit the Form 501A along with the tax return.

STANDARD DEDUCTIONS FOR WORKS CONSTRACTS

(g) Where the VAT dealer has not maintained the accounts to determine the correct value of the goods at the time of incorporation he shall pay tax at the rate of Fourteen and a half percent (14.5%) on the total consideration received or receivable subject to the deductions specified in the table below. In such cases the contractor VAT dealer shall not be eligible to claim input tax credit and shall not be eligible to issue tax invoices.

(h) Where any tax is deducted under sub section (3) of section 22 in respect of any dealer executing works contracts and work in whole or any part of such work is awarded to a registered sub contractor by him, the tax proportionate to the amounts paid as consideration to the sub-contractor out of the tax deducted by the contractee shall be transferred to the sub-contractor by issuing Form 501B to the registered sub-contractor. The sub-contractor shall file Form 501B to the authority prescribed along with the return in Form VAT 200.

Rule 17 (2) Treatment of works contracts under composition,-

(a) Any VAT dealer who executes a contract and opts to pay tax as specified in clause (b) of sub-section (7) of section 4 must register himself as a VAT dealer;

(b) The VAT dealer mentioned in clause (a) above shall pay tax at the rate of five percent (5%) of the total consideration received or receivable whichever is earlier.

(c) In the case where the VAT dealer opts for composition he shall, before commencing the execution of the work notify the prescribed authority on Form VAT 250 of the details including the value of the contract on which the option has been exercised.

Provided that a consolidated Form VAT 250 can also be filed by the contractor who undertakes multiple works contracts of similar nature.

Provided further that single Form VAT 250 can also be filed by the contractor for the full or part of financial year, which will cover all the contracts on which work is commenced during the full or part financial year as the case may be.

(d) On receipt of any payment related to the contract, the contractor VAT dealer shall calculate the tax due at five percent (5%) of the amount received and shall enter such details on Form VAT 200. The tax due shall be paid with the return in Form VAT 200;

(e) VAT dealer shall not be eligible for input tax credit and shall not be eligible to issue tax invoices;

(f) In the case of a contractor mentioned in clause (a), if any part of the contract is awarded to a sub-contractor, the sub-contractor shall be exempted from tax on the value of the sub-contract. The sub-contractor shall not be eligible to claim input tax credit on the inputs used in the execution of such sub-contract;

(3) Omitted.

Rule-17(4). Treatment of Apartment Builders and Developers under composition,-

(a) Where a dealer executes a contract for construction and selling of residential apartments, houses, buildings or commercial complexes and opts to pay tax by way of composition under clause (d) of sub section (7) of Section 4, he must register himself as a VAT dealer;

(b) Before the commencement of execution of work) the VAT dealer shall notify the prescribed authority on Form VAT 250, of his intention to avail composition for all works specified in clause (a) above, under taken by him;

(c) Omitted.

(d) The VAT dealer shall have to pay tax by way of composition at the rate of five percent (5%) on twenty five percent (25%) of the total consideration received or receivable towards cost of land as well as construction or the market value fixed for the purposes of stamp duty, whichever is higher and the balance seventy five percent (75%) of the total consideration received or receivable shall be allowed as deduction for the purpose of computation of taxable turnover;

(e) The VAT dealer, executing a contract mentioned in clause (a) of this sub-rule, shall calculate the tax due at the rate of 5% of the 25% of the total consideration or the market value fixed for the purpose of the Stamp Duty, whichever is higher, and shall enter such details in Form VAT 200, filed for the month in which the sale of such property is concluded and registered. The tax due shall be paid with the return in Form VAT 200 and the particulars of payment of tax made directly or through the sub registrar shall be reported in the relevant columns in Form VAT 200.

(f) The contractor VAT dealer shall not be eligible for input tax credit and shall not be eligible to issue tax invoices;

(g) Where the contractor VAT dealer specified in clause (f) above, awards any portion of his contract to a sub-contractor, such contractor shall not be eligible for any deduction relating to the value of the sub-contract.

(h) Where any dealer mentioned in clause (a) opted for composition and paid any tax under the provisions of APGST Act 1957, before 30.04.2005, there shall be no further liability in respect of the built up area for which tax has already been paid under APGST Act, provided the sale deed is executed in respect of such built up area before 30.09.2005.

(i) the payment of tax due, as mentioned in clause (e), shall be made by way of treasury challan and the challan shall be presented at the time of registration of property to the Sub-Registrar, who is registering the property, duly furnishing the TIN No. of the dealer and the full address of the Commercial Tax Officer/Assistant Commissioner concerned, on the reverse of the challan. The Sub-Registrar shall send the challans, received in a particular week to the Commercial Tax Officer/Assistant Commissioner concerned, before the end of immediately succeeding week.

(j) Where a sub-contractor avails exemption under proviso to the clause (d) of subsection (7) of section 4 of the Act, he shall produce the copy of the Form VAT 250, filed by the contractor as evidence that the contractor has opted for composition in respect of the specific work.

Rule–17 (5)(a) Where the contractor is a TOT dealer as specified in clause(e) of sub-section (7) of Section 4, he shall pay tax at the rate of one percent (1%) on the value of the goods at the time of their incorporation in the execution of the contract.(b) Where the TOT dealer has not maintained the accounts to determine the correct value of the goods at the time of incorporation he shall pay tax at the rate of one percent (1%) on the total consideration received or receivable subject to the following deductions;

(i) Labour charges for execution of the works;

(ii) Charges for planning, designing and architect’s fees;

(iii) Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;

(iv) Cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract;

(v) Cost of establishment of the contractor to the extent it is relatable to supply of labour and services;

(vi) Other similar expenses relatable to supply of labour and services;

(vii) Profit earned by the contractor to the extent it is relatable to supply of labour and services;

(c) Omitted.