C A S.S.Agarwal, M.Com.,LL.B,
( Expert )
23 March 2012
CIRCULAR No. - 07
Sub: Tax Deduction at Source nOS) for VAT on Works Contracts
It is for general inf~fmation to all concerned that tax deduction at source (To.S) for VAT has:
been introduced with effect from 11th April, 2007 by making an amendment in the Arunachal
Pradesh Goods Tax Act, 2005 and the person responsible for paying sale price is liable to
deduct the amount of tax at the time of payment to the Work Contractor as per following
Rate of VAT on taxable turnover of works contracts
Value Added Tax (VAT) is leviable on taxable turnover of the Works contract @ 12.5% vide
Ordinance No. TAX-64/2004/Pt dated 28th August, 2009.
Definition of Works Contracts
As per the Arunachal Pradesh Goods Tax Act, 2005, the definition is Works Contract
includes any agreement for carrying out for cash or deferred payment or for valuable
consideration, the building construction, manufacture, processing, fabrication, erection,
installation, fitting out, improvement, repair or commissioning of any movable or immovable
Calculation of Taxable Turnover
As per rule 5 of the Arunachal Pradesh Goods Tax Rules, 2005, the amount representing
the charges towards labour, services and like charges shall be excluded from the taxable
turnover of the dealer subject to the dealer's producing invoice, voucher, challan or any
other document evidencing payment of charges towards labour and services to the
satisfaction of the competent authority. The charges towards labour and services and other
like charges shall include:
(a) Labour charges for execution of works;
(b) Charges for planning and architects fees;
(c) Charges for obtaining on hire or otherwise machinery and tools used for the
execution of the works contract;
(d) Cost of consumables such as water, electricity, fuel etc. used in the execution of the
(e) Cost of establishment of the contractor to the extent it is relatable to supply of labour
(f) Other si milar expenses relatable to supply of labour and services;
(g) Profits earned by the contractor to the extent it is relatable to supply of labour and
services subject tb furnishing of a profit and loss account of the works sites.
Further, after excluding the admissible deduction, the remaining portion constitute~ taxable
turnover out of which the declared goods (Goods specified under the section 14 of the CST
Act, 1956), if any used in the works contract have to be charged @ 4% as per Schedule 3
(SI. No. 77) of the Arunachal Pradesh Goods Tax Act, 2005 and all other goods @ 12.5%
as mentioned above.amount of tax payable by him under the provision of the Arunachal Pradesh Goods Tax Act,
2005. Further details of the scheme may be seen in the said notification.
. , .
Manner in which TOS is to be deposited
Any tax deducted shall be paid into the Government account on behalf of the person from
whose bills and invoices, the deduction has been made and same shall be deposited by
Challan No FF-08 under 'Head of Account "0040". The person making any deduction of tax
at source and pqyin'g it into the Government account shall issue to the payee intimation!
certificate of tax deduction at source and payment.
Penalty in case W n~m-~deductionof TOS
It is, therefore, impressed upon all concerned to scrutinize the tax deduction and take
immediate necessary steps to realize dues, if any, immediately failing which penalty as
stipulated under sub-section (9) and (10) of section 47A of the Arunachal Pradesh Goods
Tax Act, 2005.
Sub-section (9) of section 47A of the Arunachal Pradesh Goods Tax Act, 2005 states,
"Where the amount has not been deposited after deduction, such amount and any other
sum which may be payable under this section shall be charged upon, all the assets of the
person concerned who made the deduction or who is liable to pay other amount and shall
be recoverable from him as arrears of land revenue:
Provided that no recovery proceedings shall be drawn up by the Prescribed Authority
having jurisdiction over the person concerned without prior approval of the commissioner."
Sub-section (10) of section 47A of the Arunachal Pradesh Goods Tax Act, 2005 states, "If
any person as referred to in sub-section (1), or sub-section (2) fails to make the deduction
or after making the deduction fails to deposit the amount so deducted into the Government
account, the Prescribed Authority may, after giving such person a reasonable opportunity of
being heard, by an order in writing, direct that such person shall pay. by way of penalty, a
sum not exceeding twice the amount deductible under this section besides tax deductible
but not so deducted and, if deducted, not so deposited into th~ Governm