We seek your valuable guidance on the matter is as under.

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 June 2011 CASE OF THE FACT

Assessee Company is a company registered under the provisions of the Companies Act, 1956,(hereinafter referred to as “Company”) entered into agreement with another company (hereinafter referred to as “Land Owner”) to develop a commercial complex on the land owned by Land owner. and engaged contractor for construction of said commercial complex. In this respect Company provided some material (like Cement, Iran & Steel & sanitary items) to contractor free of cost for construction of the complex. The material was purchased by Company from registered dealer after paying VAT.

During the period of execution of work, due to some reason the agreement was cancelled and the Company received Rs. 1,86,11,000/- from land owner as reimbursement against the expenses made by the Company for construction.

Observation of Sale Tax Department:

1. The sale tax department wants to impose VAT on the basis of section 2(g) of CST Act 1956.

2. They do not want to give the benefits of input tax credit because the Company was not as registered dealer at the time of execution of work.

Our Observation:

According to section 2(d) of CST Act 1956, Company did not fall within the purview of VAT at the time of execution of work, hence it was not necessary to get registration under VAT.

However, the VAT became applicable due to cancellation of agreement, in this respect Company should avail the benefit of input tax credit against its VAT liability on the following reason:

1. There is no value addition in the amount of reimbursement, it’s purely reimbursement.

2. The VAT on such items is already paid by registered dealer on behalf of the Company.

3. Since the VAT became suddenly applicable hence the benefit of input tax credit should be made applicable on occurrence of the sudden event, because the company was not liable for registration under VAT at the time of execution of work.

What is Your Observation?

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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19 June 2011 Mr Author,
Here the problem can be resolved as follows:
1 You become liable to be registered as soon as you despatch taxable goods ouside the state for a consideration.
2 If the sale is made after registration then the tax paid on purchases before registration can be availed.
3 As you have not issued any invoice on this transfer of goods,you take up a registration and then issue an invoice
which allows to avail input tax credit.
4 Keep the money received as simply a deposit till the matter is sorted out. After making an invoice adjust the amount received towards the sale recorded. Build documents to this effect and place them before the authorities,by quoting relevant sections of the concerned VAT law.

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2011 Thankyou Sir,

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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04 July 2011 Mr Author,
Please note the follwing points carefully,
1) The assessee company has not undertaken an interstate works contract.They have entered into a contract of land development i.e.constructing a building of their own in somebody's land. This work was entrusted to a contractor and required material was sent,not on sale ,but for own use.
2)The development contract brokedown and a compensation amount was remitted,by the land owner.Here the transaction is complete only when the assessee company accepts the compensation and issues an invoice.
3) The assessee company can keep it pending till he takes a registration,and after doing so,he can issue an invoice by increasing the value to the extent of freight and other expenses.
4) The company can pay the tax after deducting the input tax already paid while purchasing.
5) The assessee company did not intend to sell the goods to anyboby initially,but wnted to put them for thier own use. The idea of selling them came up only later.So,
the sale transaction can also be done later on,i.e.after registration.
Please think carefully and don't get confused.
MJK

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