WORKS CONTRACT

under
VAT, Service Tax & GST

22nd Oct, 2016

by :

TONY M P, THRISSUR

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 PRESENTATION PALN

 What is Works Contract

 Constitutional Provisions

 Works Contract under VAT Law

 Works Contract under Service Tax Law

 Works Contract under GST Law

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 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

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 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
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Sale of Goods vis-à-vis Works
Contract
Sale of Goods
Taxed as actual Sale : Seller & Buyer
Absolute property of the maker when
produced / manufactured. Later on
sold to buyer
In sale, ‘goods’ are sold as ‘goods’
Primary function - supply of materials
Incidental - work or service
TDS provisions are not applicable
Works Contract
Taxed as Deemed Sale : Contractor &
Contractee
In WC, it is never an absolute property
of the maker. Materials used in WC –
may be makers absolute property
In WC, article produced becomes the
property of buyer without first
becoming property of the maker.
Primary function - work and labour
Incidental - materials are supplied
TDS provisions are applicable
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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;

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Works Contract under Kerala VAT
Valuation options
under
Works Contract

Actual Labour
Standard Labour Composition
deduction
deduction
Works Contract under
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

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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…….

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Works Contract under Service Tax

 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;.

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Works Contract under Service Tax

VALUATION

Abatement No:
Valuation Rules
26/2012

Gross 40%/ 30% is

Less: 70% Value of
Materials is Service Service

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Works Contract under Service Tax

 Exemptions in Service Tax

 Time of Provision of Service

 Joint / Partial Reverse Charge

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Works Contract under
GST
GST…..Taxable event…….Supply

Manufacture of Goods,
Sale of Goods,
Rendering of Service

Supply of Goods/ Services

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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

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GST…….taxes

GST

LOCAL INTERSTATE
SUPPLY SUPPLY

CGST SGST IGST

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Works Contract in …..GST

WORKS CONTRACT =
(GOODS + SERVICES)

WORKS CONTRACT =
SERVICES

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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.

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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

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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

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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 )

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How much to pay – Value of Supply

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

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How much to pay – Value of Supply

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

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