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Raw Water Purchase for Manufacturing of Dairy Products

S JEEVARETHINAM (Sr Manager Finance and Taxation) (137 Points)

05 August 2022

Dear Experts,

Our client is a dairy manufacturing company and purchasing raw water on a trip basis. One of their GTA Transport company is raising bills to the service receiving companies for both purchases of water and lorry freight ..Please clarify Is it comes under Goods or Service.

If it is treated as goods(2201), should our client has to deduct TDS under 194Q (Exceeds Rs 50 Lakhs)

If it is treated as a service(9965 GTA), should our client has to deduct TDS under 194C for a freight bill consisting of both water and freight?

Please suggest

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Adv. Ravish Bhatt, ADIT, CIOT (Dual Qualified Lawyer/ Solicitor International Tax Affiliate CIOT) (1110 Points)
Replied 22 August 2022

Are separate bills issued for purchase of water and lorry freight? How is GST charged in these invoices? While GST invoice/s would not be conclusive for determining the TDS liability, it will be useful and essential to look at the invoices.

There is no definite formulae for distinguishing sale from a works contract and it has to be decided on case to case basis looking at facts and documents. While I do not see any definite answer without looking at all documents, prima facia it appears that s.194C won’t apply as principal purpose of the arrangement seems to be purchase of raw water. Many judgments have gone on the basis of principal purpose test to decide whether s.194C shall apply or not.

However, the contract and GST invoices need to be examined before concluding.

Author: Advocate Ravish Bhatt
Gmail: ravishdbhatt @ gmail.com
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