1. WORKS CONTRACT TGVAT ACT 2005
Satish Saraf
Chartered Accountant

2. Agenda Provisions relating to Works Contract – TGVAT Act, 2005
T & AP HC Decision in the case of Omega Shelters (P) Limited
Act No: 4 of 2015, Dt:

3. What, Why, how 1. Nature of Contract – Predominance
2. Incidental - Supply of Goods Vs. Service
3. Accretion/ accession theory
4. Emergence of commercial commodity
5. Emergence of customized goods
6. Transfer of ownership – before they are used
7. Owner of the goods – supplied by the contractee
8. Price charged for separately for goods & labour or for both as a job.
9. goods used, are capable to remove in the same form in case of breach
10. Trade marks / patents etc. involved in the contract and their ownership
Source: Works contracts by Dr. T. Ramesh Babu

4. Classification of Contracts
The Contract may be for work to be done for remuneration and for supply of materials used in the execution of the works contract (Works Contract)
The Contract may be a contract for work in which use of materials is accessory or incidental to the execution of the work (Labour Contract)
The contract may be a contract for supply of goods where some work is required to be done incidental to the sale (Sale)
Source: A Guide to Works Contract by M.G. Merchant

5. Classification & Types of Contracts
Divisible Contracts
Indivisible Contracts
_______________________________________________________
Apex Court Re. State of A P Vs. Larsen & Tourbro Ltd – 17 VST 1
Divided Works Contract into two types
Works Contract for Construction
Works Contract in relation to movable property like repairs to vehicles, printing & Etc.

6. Definition - Section 2(45)
Works Contact includes any agreement for carrying out for cash or deferred payment or for any other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, laying, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.

7. Works Contracts – TGVAT Act, 2005
Guntur Branch of SIRC of ICAI
Works Contracts – TGVAT Act, 2005
Incidence & levy of Tax
Input Tax Credit
Tax Deduction at Source
Maintenance of Records
Seminar on Works Contract

8. Guntur Branch of SIRC of ICAI
SCHEME OF TAXATION
Works Contract
V A T Dealer
Regular
Proper Books
No Proper Books
Composition
Other than Builders
Builders
T O T Dealer
Seminar on Works Contract

9. Regular Proper Books of Accounts
Guntur Branch of SIRC of ICAI
Regular Proper Books of Accounts
Value of goods incorporated at the time of execution.
Value of Goods incorporated are taxed at Schedule rates.
Input tax 75%
Eligible to issue “Tax Invoice”.
The value of sub contract is allowed as deduction.
Seminar on Works Contract

10. Regular Proper Books of Accounts
Guntur Branch of SIRC of ICAI
Regular Proper Books of Accounts
Value of Goods incorporated includes the following (Addition Method):
Value of goods shall not be less than purchase value
Seigniorage Charges, Blasting & Braking Charges, crushing, loading, unloading, transport, stacking, distribution charges & expenditure incurred for hot mixing & its transportation.
Seminar on Works Contract

11. Regular Proper Books of Accounts
Guntur Branch of SIRC of ICAI
Regular Proper Books of Accounts
Value of Goods incorporated does not include the following (Subtraction Method):
Labour Charges & other related expenses
Planning, designing & Architect fee.
Plat & Machinery hire charges
Cost of consumables (which is not transferred) like water, fuel & electricity etc
Cost of establishment
profit relating to supply of labour & services.
Seminar on Works Contract

12. Regular Proper Books of Accounts
Guntur Branch of SIRC of ICAI
Regular Proper Books of Accounts
While filing of returns the contractor may pay tax on the basis of addition method
On completion of each contract or finalization of accounts the total value of goods incorporated should be arrived by subtracting method and the balance turnover and tax has to be declared and paid
Ultimate effect is profit margin put to tax
Seminar on Works Contract

13. Abatement – No proper books of a/c.
Guntur Branch of SIRC of ICAI
Abatement – No proper books of a/c.
Total consideration 14.5% subject to abatement (Rule 17(1)(g))
Ex: Civil 30% (effective rate 10.15%)
Not eligible for Input Tax Credit on Purchases
Not eligible to issue “Tax Invoice”
Sub – Contract value ???? [Rule 17(1)(g)]
Seminar on Works Contract

14. Composition – Other than Builders
Guntur Branch of SIRC of ICAI
Composition – Other than Builders
5% on total value of consideration / contract – Sec.4(7)(b)
Not eligible for Input tax credit
Not eligible to issue Tax Invoice
Must be registered as VAT dealer
Application in form VAT-250 before commencement & for each contract
Any part of work is sub-contracted, main contractor is taxable, sub-contractor is exempted for payment of tax.
Seminar on Works Contract

15. Composition - Builders
Guntur Branch of SIRC of ICAI
Composition - Builders
Any dealer engaged in Construction and selling of residential Apartments, houses, buildings or commercial complexes.
Must be a VAT Dealer
Application in Form VAT-250 for each contract before commencement of work
5% on 25% (effective rate 1.25%)
Any part of work is sub-contracted, such part of contract value is exempted in the hands of sub- contractor.
Seminar on Works Contract

16. Contractor – sub contractor
Section 4(7)(h)
No tax shall be payable by the main contractor
Amount paid to sub-contractor
The evidence of sub-contractor is registered under the Act, and
The sub-contractor has paid tax on the amount received from the main contractor.
State of AP Vs. L & T Ltd., (SC) 2008 AIR SCW 6358 or 17 VST 1

17. Guntur Branch of SIRC of ICAI
Tax on Purchases
Any Works Contractor under composition is liable to pay tax on the purchases, if the purchases are Non-VAT Dealer & out side the State.
Value of such purchases are taxable at schedule rates
Such Purchase value to be reduced from the value of composition
Omitted by Act No: 21 of 2011, wef
Seminar on Works Contract

18. Guntur Branch of SIRC of ICAI
TOT Works Contractor
Turnover between 7.50 & Lakhs
1% on the value of goods incorporated
If the value of goods incorporated is unable to determine, the entire proceeds are 1% subject to deductions.
Not eligible for input tax credit
Not eligible to issue tax invoice.
Seminar on Works Contract

19. Guntur Branch of SIRC of ICAI
CST Works Contract
Telangana – VAT dealer executing works out side the state with in the meaning of Section 3 of CST Act, 1956
Goods transferred in the same form or in other form
Such transfer from Contractor to contractee are exempted from tax under TGVAT Act 2005.
The contractor is liable to tax under CST Act (as per CST AP Rules)
Seminar on Works Contract

20. Guntur Branch of SIRC of ICAI
INPUT TAX CREDIT
Dealer executing works contract with proper books of accounts
Is eligible for 75% on purchases made by him - Section 13 & Rule 20
Only this dealer is also eligible for issue of tax invoice, such that the contractee will get Input Tax Credit.
Seminar on Works Contract

21. Contractor & Sub Contractor
Guntur Branch of SIRC of ICAI
Contractor & Sub Contractor
Regular - with proper books of A/c’s:
Contractor eligible for deduction.
Tax Invoice issued by sub-contractor
Sub-contractor must be a VAT Dealer
Sub-Contractor is taxable at par with the contractor
The proportionate TDS has to be transferred by the contractor to sub – contractor by issue of Form 501B (not Applicable in case of composition)
Seminar on Works Contract

22. Contractor & Sub Contractor
Guntur Branch of SIRC of ICAI
Contractor & Sub Contractor
Composition Contracts
Sub Contractor Turnover is exempted in all kinds of composition contracts
Other than Builders
Builders
Contractor not eligible for deduction
Sub Contractor shall opt for composition and shall prove that the main contractor also opted for composition with Form 250 of the Main Contractor
Seminar on Works Contract

23. Contractor & Sub Contractor
DEDUCTION / EXEMPTION
Regular
Deduction
Abatement
Composition -
Exemption

24. Guntur Branch of SIRC of ICAI
TDS under TGVAT Act
Every contractee irrespective of their status shall deduct TDS on payments made to 70% of 5%, or 70% of 2%, (as applicable) or
Shall make an application to the concerned AC(CT) or CTO, to determine the quantum of TDS.
Procedure for obtaining T D S Certificate.
With in fifteen (15) days TDS to be deposited with the jurisdictional assessing authority of the contractor.
Seminar on Works Contract

25. Records to be maintained
Guntur Branch of SIRC of ICAI
Records to be maintained
Dealer executing Works Contract:
Keep separate Accounts for each contract along with details of each contractee.
Opting for Composition:
Payments Received from contractee.
Record of From 200
Records of TDS & TCS
Seminar on Works Contract

26. Records to be maintained
Guntur Branch of SIRC of ICAI
Records to be maintained
Not Opting for Composition:
Particulars of goods procured for execution.
Particulars of goods used in the execution.
Details of payments received for each contract.
Details of Labour Charges for works executed.
Details of payments to Sub-Contractors.
Details of charges of Planning, designing & architect’s fee.
Details of charges paid for hiring machinery & tools
Details of Cost paid towards consumables.
Seminar on Works Contract

27. Records to be maintained
Guntur Branch of SIRC of ICAI
Records to be maintained
Details of cost of establishment & apportionment towards each contract.
Details of profit to the extent relatable to supply of labour & services.
Details of goods exempted under Schedule –I used in the execution of contracts.
Details of turnovers under Sec. 3 of CST Act used for the execution of Works.
the above records are not maintained to the satisfaction of the assessing authority, he can reject the records and make assessment at the rate of 14.5% with abatement.
Seminar on Works Contract

28. T & AP HC - Omega Shelters (P) Ltd
Writ Petition No: 1528 of 2013, Dt:
If dealers engaged in the construction and sale of residential apartments, houses, buildings or commercial complexes exercise the option, and comply with the conditions stipulated in Section 4(7)(d) and Rule 17(4), they cannot be denied the benefit of composition thereunder for the construction made by them, for the very same person, after execution of a registered deed for the sale of a semi-finished structure. Denial of the benefits of the composition scheme under Section 4(7)(d) to such dealers, for the post-sale construction made in terms of the initial agreement, is illegal and is contrary to the provisions of the AP VAT Act and the Rules made thereunder.

29. Act No: 4 of 2015, Dt: 09-04-2015 Bill No: 5 of 2015. Dt: 23-03-2015
Accent of Governor of Telangana obtained on
Amendment of Section 13 (1) of TGVAT Act, 2005
Insertion of Section 13(1A) to TGVAT Act, 2005
Amendment of Section 20(1) of TGVAT Act, 2005
Amendment of Section 22 of TGVAT Act, 2005.

30. Amendment of Section 13(1)
Input Tax Credit is allowed to the buying VAT Dealer provided
The selling VAT dealer has paid the tax on the goods sold
The purchase is with in the state of Telangana
From a VAT Registered dealer.
The goods purchased are being used for the purpose of
Resale with in the State.
Use as input in the manufacturing or processing of goods in the State.
Use as packing materials
Use as Capital goods in the manufacturing of taxable goods
Sale in the course of inter state sale or commerce falling under sub section (1) of the CST Act, 1956.
No ITC on Schedule – Vi Goods, if already ITC is allowed to re reversed

31. Section 13(1A) inserted Over rides the all sub-sections of Section 13.
No Input Tax will be allowed
Any Registered Dealer has sold goods
The value of sales is lesser than the value of purchase
ITC will be restricted to the extent of OTC

32. The Returns to be submitted along with annexures as may be prescribed
Amendment of Section 20
Section 20(1) is amended
The Returns to be submitted along with annexures as may be prescribed

33. Amendment of Section 22
Insertion of Sub Section 3-C and 3-D in Section 22
Sub Section 3-C
TCS by FCI and Civil Supplies Corporation on purchase of Rice from Rice Millers at the rate prescribed under the relevant schedule.
The TCS amount to be deposited on the next working day in the manner prescribed.
Sub Section 3-D
TCS by the Distilleries & Breweries on purchase of empty bottles from the dealers at the rate prescribed under the relevant schedule.

34. Guntur Branch of SIRC of ICAI
Q & A
Seminar on Works Contract