Works Contract Under: VAT, Service Tax & GST

WORKS CONTRACT
under
VAT, Service Tax & GST
22nd Oct, 2016
by :
TONY M P, THRISSUR
1
PRESENTATION PALN
 What is Works Contract
 Constitutional Provisions
 Works Contract under VAT Law
 Works Contract under Service Tax Law
 Works Contract under GST Law
2
What is
Works Contract
Background – VAT - levy & Value
 State of Madras Vs. Gannon Dunkerley 1959 SCR 379 - SC
 Constitution Amendment ( 46th Amnd.) wef. 02/02/1983
 Constitution Amendment challenged – Builders Assn

of India Vs. UOI (1989)2 SCC 645 – SC – 5 Judge
 Valuation Settled - Gannon Dunkerley Vs. State of

Rajasthan (1993) 88 STC 204 - SC
4
Background – Dominant Intention
 Rainbow Color lab Vs. State of MP (2000) 118 STC 9 – SC- 2J
 Dominant Intention Theory irrelevant - ACC Vs. Comm of

Customs (2001) 124 STC 59 – SC – 3J
 Did ACC overrule Rainbow? – C K Jidheesh Vs. UOI

(2005) 8 SC 784 – SC – 2J
 C.K.Jidheesh not correct law - BSNL Vs.UOI ( 2006) 145 STC

91 SC -3J
 Larsen Toubro v. State of Karnataka – 2013-TIOL-46-SC-

CT-LB 3J,Kone Elevator v. State of Tamil Nadu - 2014-TIOL-
57-SC-CT-CB 5J
 State of Karnataka v Pro Lab and Others - 2015-TIOL-08-

SC-CT-LB – 3J
5
Sale of Goods vis-à-vis Works
Contract
Sale of Goods Works Contract
Taxed as actual Sale : Seller & Buyer Taxed as Deemed Sale : Contractor &
Contractee
Absolute property of the maker when In WC, it is never an absolute property
produced / manufactured. Later on of the maker. Materials used in WC –
sold to buyer may be makers absolute property
In sale, ‘goods’ are sold as ‘goods’ In WC, article produced becomes the
property of buyer without first
becoming property of the maker.
Primary function - supply of materials Primary function - work and labour

Incidental - work or service Incidental - materials are supplied
TDS provisions are not applicable TDS provisions are applicable
6
Works Contract under
VAT
Works Contract under Kerala VAT
 "sale" with all its grammatical variations and cognate expressions
means any transfer whether in pursuance of a contract or not of
the property in goods by one person to another in the course of
trade or business for cash or for deferred payment or for other
valuable consideration, but does not include a mortgage,
hypothecation, charge or pledge;
 Explanation IV : A transfer of property in goods (whether as goods

or in some other form) involved in the execution of a works
contract shall be deemed to be a sale.
 "works contract" includes any agreement for carrying

out for cash or for deferred payment or other valuable
consideration the construction, fitting out, improvement, repair,
manufacture, processing, fabrication, erection, installation,
modification or commissioning of any movable or immovable
property;
8
Works Contract under Kerala VAT
Valuation options
under
Works Contract
Actual Labour
Standard Labour Composition
deduction
deduction
Service Tax
SERVICE TAX - Taxable services involved in
the Works Contract
Description of Service Taxable
w. e. f
Erection, Commissioning or Installation 01/07/2003
Services
Commercial or Industrial Construction 10/09/2004

services
Construction of Complex Residential 16/06/2005

services
Works contract services 01/06/2007
11
Works Contract under Service Tax
 Taxable w e f 01/06/2007…….
 Works Contracts not liable prior to 01/06/2007 under any other

head…….. ……….C C E, Kerala Vs M/s Larsen & Toubro Ltd
2015-TIOL-187-SC-ST
 Introduction of Negative list from 01/07/2012…….
 Service portion of works Contract is a service…….
12
 Definition of Works Contract in Finance Act, 1994 (wef 01/07/2012)
 "works contract" means a contract wherein transfer of property in

goods involved in the execution of such contract is leviable to tax
as sale of goods and such contract is for the purpose of carrying
out construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation,
alteration of any movable or immovable property or for carrying
out any other similar activity or a part thereof in relation to
such property;.
13
VALUATION
Abatement No:
Valuation Rules
26/2012
Gross 40%/ 30% is

Less: 70% Value of
Materials is Service Service
14
 Exemptions in Service Tax
 Time of Provision of Service
 Joint / Partial Reverse Charge
15
GST
GST…..Taxable event…….Supply
Manufacture of Goods,
Sale of Goods,
Rendering of Service
Supply of Goods/ Services
17
Taxes subsumed in GST
Central Taxes State Taxes
Value Added Tax

Excise Duty Central Sales Tax
Addl Excise Duties Luxury Tax
Service Tax Entertainment taxes
SAD/ CVD Tax on lottery
Surcharges Entry Tax
Cesses Surcharges
Cesses
18
GST…….taxes
GST
LOCAL INTERSTATE
SUPPLY SUPPLY
CGST SGST IGST
19
Works Contract in …..GST
WORKS CONTRACT =
(GOODS + SERVICES)
WORKS CONTRACT =
SERVICES
20
Works Contract Definition under GST
 "works contract" means an agreement for carrying out for cash
deferred payment, or other valuable consideration,
Building
Construction
Fabrication
Erection
Installation
Fitting out
Improvement
Modification
Repair
Renovation or,
Commissioning
Of any movable or immovable property.
21
Taxation of Works Contract under GST
 "works contract" is deemed as a service in GST…….Sch: II 5(f)
 Works Contract including transfer of property in goods ( whether

as goods or some other form) involved in the execution of a works
contract……... Is deemed as a service.
 Place of Supply:
Works
Contract
Immovable Movable
property related property related
Location of Location of Receiver, if Regd /

property location of Supplier
22
Works Contract ……Time to pay GST?
Date of Issue of invoice or Date of Receipt of payment whichever is

earlier, if the invoice is issued raised in time ( 30 days) .
Date of completion of provision of service or Date of Receipt of

payment whichever is earlier, if the invoice is not issued in time.
Date of receipt of service by purchaser in his books, if above not

applicable
23
How much to pay – Value of Supply
Value of supply means transaction value (Price paid or payable), if

Seller and Buyer are unrelated.
Transaction value includes:

Expenses of Seller paid by Buyer
Free supply by recipient
All taxes and fees other than GST
Incidental Expenses charged by supplier
Reimbursement of Expenses by supplier
Discount/incentive allowed after supply ( post supply discount as
per agreement, known before supply and linked to relevant
invoices not covered )
24
Value of supply in following situations as per Valuation Rules only:
Consideration not in money

Supplier and Recipient related
Transaction value adopted by supplier is doubtful
Transactions by pure agent, money changer, insurer, air travel
agent, lottery agents
Notified situations
25
Valuation Rules are same for all the three laws (CGST,SGST,IGST)
Methods to Value supply :
Comparison method ----------------- Similar Value

Computed Value Method ------------ Cost + Profit
Residual Method ---------------------- Reasonable method
26
27

Works Contract Under: VAT, Service Tax & GST

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WORKS CONTRACT

22nd Oct, 2016

 What is Works Contract

 Works Contract under VAT Law

 Works Contract under Service Tax Law

 Works Contract under GST Law

 State of Madras Vs. Gannon Dunkerley 1959 SCR 379 - SC

 Constitution Amendment ( 46th Amnd.) wef. 02/02/1983

 Constitution Amendment challenged – Builders Assn

 Valuation Settled - Gannon Dunkerley Vs. State of

 Dominant Intention Theory irrelevant - ACC Vs. Comm of

 Did ACC overrule Rainbow? – C K Jidheesh Vs. UOI

 C.K.Jidheesh not correct law - BSNL Vs.UOI ( 2006) 145 STC

 Larsen Toubro v. State of Karnataka – 2013-TIOL-46-SC-

 State of Karnataka v Pro Lab and Others - 2015-TIOL-08-

Primary function - supply of materials Primary function - work and labour

TDS provisions are not applicable TDS provisions are applicable

 Explanation IV : A transfer of property in goods (whether as goods

 "works contract" includes any agreement for carrying

Commercial or Industrial Construction 10/09/2004

Construction of Complex Residential 16/06/2005

Works contract services 01/06/2007

 Works Contracts not liable prior to 01/06/2007 under any other

 Introduction of Negative list from 01/07/2012…….

 Service portion of works Contract is a service…….

 Definition of Works Contract in Finance Act, 1994 (wef 01/07/2012)

 "works contract" means a contract wherein transfer of property in

Gross 40%/ 30% is

 Exemptions in Service Tax

 Time of Provision of Service

 Joint / Partial Reverse Charge

Supply of Goods/ Services

Central Taxes State Taxes

Value Added Tax

CGST SGST IGST

 Works Contract including transfer of property in goods ( whether

Location of Location of Receiver, if Regd /

Date of Issue of invoice or Date of Receipt of payment whichever is

Date of completion of provision of service or Date of Receipt of

Date of receipt of service by purchaser in his books, if above not

Value of supply means transaction value (Price paid or payable), if

Transaction value includes:

Value of supply in following situations as per Valuation Rules only:

Consideration not in money

Methods to Value supply :

Comparison method ----------------- Similar Value

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