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The Indian VAT laws have continuously gone under several changes since their introduction. The need for incessant evolvement is fundamental for growth and development and our tax department has taken well care of it.

The Indian VAT law is spread over 29 states and 5 union territories. Each state law is linked with chains of regulations but upholding its unique persona.

If we talk about Works Contract, essentially each state law has Normal Provisions as well as an option to opt for composition scheme. Conferring to developers involved in execution of Works contract, our emphasis for the current article remains on the divergent laws for Haryana and Rajasthan developers opting for composition scheme.

Cogitating VAT laws of said states for developers involved in execution of works contract, the rules governing such provisions are Rule 49A and introduced vide NOTIFICATION No. S.O. 89/H.A.6/2003/S.60/ 2014 dated 12.8.2014 as amended by Notification No. 23/H.A.6/2003/S.60/2015 Dated 24th September, 2015 for Haryana and Notification No.F.12 (59)FD/Tax/ 2014-18 dated 14.07.2014 as amended by Notification S. O. 265 No. F. 12 (23) FD/TAX/2015-201-Dated 9th March, 2015 for Rajasthan.

Ruminating the laws of Haryana VAT, In case the builders opt for the composition scheme {known as composition developer}, as per NOTIFICATION No. S.O. 89/H.A.6/2003/S.60/ 2014 dated 12.8.2014 as amended by Notification 23/H.A.6/2003/S.60/2015 dated 24th September, 2015 and rule 49A, a lumpsum amount need to be deposited by the builder @ 1% of entire aggregate amount specified in the agreement or value specified for the purpose of stamp duty, whichever is higher, in respect of the said agreement.

However, following restrictions will be applicable on the builder opting for composition scheme:

a. Composition Developer shall be treated as NON- VAT dealer and not eligible to claim input tax credit u/s 8.

b. Composition Developer shall not be eligible for deduction on account of tax paid by the contractor /sub contractor.

c. Composition Developer shall purchase goods for use in the execution of the works contract from a registered dealer of the State but shall not be entitled to claim any input tax credit thereon.

d. If the input tax in respect of any goods purchased in the State has been availed of by a developer and such goods are held in stock at the time of option of composition scheme, the input tax in respect of such goods shall be reversed. In case any goods used in the execution of works contract are procured or purchased from dealers other than the registered dealers from within the State or from outside the State on which no tax has been paid to the State, the composition developer shall be liable to pay an amount equal to the amount of tax that would have been payable, had the goods been purchased within the State from a registered dealer.

e. The composition developer shall be entitled to purchase or receive goods, from any place outside the State including imports from out of India, against prescribed declaration forms, to be used in the execution of the contract at any time during the period for which the composition remains in force under this Scheme, but he shall pay tax at the rate of 4% on purchase price thereof and on goods purchased and or received from any place outside the State and held in stock at the time of option of the composition scheme, and such tax shall not be adjustable towards his composition tax liability

f. The composition developer not be entitled to use declaration Form VAT D-1 for purchasing goods at concessional rate of tax from within the State

g. Composition Developer shall not collect any amount by way of tax.

h. Composition Developer shall not issue Tax invoices.

i. Composition Developer shall retain the originals of all tax invoices and all the retail invoices for all his purchases.

j. Composition Developer shall not be entitled for refund.

k. Rule 49A provides that the tax period for the composition developer shall be monthly and the payment of lump sum in lieu of tax shall be paid by the composition developer within 15 days of the close of the month. Further, if a composition developer fails to make the payment of tax in time under this scheme, then he shall be liable to pay interest as per the provision of sub-section (6) of section 14 of the Act.

Regarding provisions of TDS,

Along with the same, the contractee/builder needs to file a quarterly return in Form VAT-R4A and the builder will issue a TDS certificate to the contractor, on the submission of which Contractor will become eligible to claim setoff of TDS on the date of filing the return.

However, TDS provisions are not applicable where aggregate amount paid or likely to be paid during a year does not exceed Rs. 1 Lac.

Returns under HVAT are recently amended via the said notification which specifies in case the builder opt for composition scheme, he shall furnish a quarterly return in Form VAT R-13 to the appropriate assessing authority and also submit proof of payment of tax along with the return.

Drawing a distinction in reference to Rajasthan VAT, as per Notification No.F.12 (59)FD/Tax/ 2014-18 dated 14.07.2014 as amended by Notification S. O. 265 No. F. 12 (23) FD/TAX/2015-201-Dated 9th March, 2015, 2 options are available to the developers/ builders, i.e.:

Option A: Rs.1300 for every 2 Lakhs or part thereof, of the consideration received in the relevant period.

Option B: Rs.8000 for every 2 lakhs or part thereof, of the consideration received in the relevant period.

The conditions under Option A are -

1. The dealer shall purchase goods from within the State, for execution of the works contract from a registered dealer of the State.

2. in case such dealer, procures or purchases any goods in any manner other than the manner as provided in condition 1), he shall, in addition to the lump sum amount, be liable to pay an amount equal to the amount of tax that would have been payable, had the goods been purchased in the State from a registered dealer.

However, the dealer opting to pay tax in lump sum has to submit his option in the Application for permission.

Section 20(1) read with rule 17A provides for due date of payment which is catalogued as below –

a. If, Annual Tax liability: 20,000 - 40 crore- the tax liability is to be discharged within 14 days from the close of month

b. If, Annual Tax liability: equal to or more than 40 crore- the tax liability is to be discharged as follows-

  1. by 15th of the month for the period 1st to 10th day of the month
  2. by 25th of the month for the period 11th to 20th day of the month
  3. within 5 days from the close of month for the period 21st to 30th/31st day of the month

c. Other Cases: within 14 days from the close of quarter

Thus, the VAT liability of all the contracts of a particular project in a particular tax period is to be computed and discharged accordingly.

Further, in contrast to HVAT, the provisions for deduction of sub-contractor is clearly defined. Recently as on 23-06-2015, CIRCULAR- No. 06/2015-16- No. F.16 (97)/Tax/CCT/14-15/5929 has been issued, clarifying that where a builder has opted for payment in lump sum in lieu of tax awards whole or part of the work to a sub-contractor, no tax shall be levied on the turnover of such sub-contract subject to the condition as mentioned in proviso to sub-rule (6) of rule 22A of the RVAT Rules, i.e. the sub-contractor shall make intra-state purchases of goods for execution of the work contract and that too from a registered dealer. However, in case the goods are purchased from unregistered dealer, the sub-contractor shall be liable to pay an amount equal to the amount of tax that would have been payable had the goods been purchased in the State from a registered dealer.

Conferring to TDS provisions, Rule 40 provides various provisions for the awarder to deduct TDS. Further Notification  No. S.O.272 No. F. 12 (23) FD/TAX/2015-208 dated: 9-3-15 provides that tax is to be deducted @ 6% if payment for works contract is to a registered dealer and @ 7% if payment for works contract is to unregistered dealer.

However, if the contractor is not liable to pay tax under the works contract, he may obtain a No Tax Deduction Certificate, by submitting application in Form VAT 40C and the authorized officer will grant the NO TDS Certificate in Form VAT 40D within 15 days

Conversely, in case of M/S. SURYA CONSTRUCTIONS VERSUS COMMERCIAL TAX OFFICER (WC & LT) AND STATE OF KERALA {2015 (4) TMI 570 KERALA HIGH COURT}, has delivered a recent judgement. In the said case also, the petitioner had sub contracted the entire work and also obtained the Form 20H certificate from the sub-contractor who undertook to discharge the tax liability in respect of the entire work that was sub contracted. The amounts retained by the petitioner, from out of payments made by the awarder of the contract, represented only the profit element that accrued to the petitioner in his capacity as the main contractor. It is not in dispute in the instant case that the tax liability in respect of the work that was sub contracted was not due from the petitioner in his capacity as the main contractor. In fact the very demand against the petitioner is only on the amount that was retained by him towards profit under the transaction with the awarder of the contract. The Kerala HC held that, there was no liability on the petitioner in terms of the Kerala Value Added Tax Act since there was no sale of material in the course of execution of works contract that emanated from the petitioner to the awarder of the contract. In the absence of any taxable event under the Kerala Value Added Tax Act, the respondent could not have demanded tax on the amounts retained by the petitioner as profits arising out of the transaction in question. The demand of tax from the petitioner is thus illegal and liable to be set aside.

Hence relying upon the above mentioned case laws, it can be presumed that in case the work is fully subcontracted, the main contractor is not liable at all (even for the profit margin) till the liability is fully discharged by the sub-contractor.

Unlike Haryana VAT where composition developers are required to file quarterly return, composition developers under Rajasthan VAT are required to file an Annual Return Form VAT-11 within 90 days. The same is mentioned in Section 19(4)(v).  However, in case auditing is required u/s 44AB of IT Act, 1961, return may be submitted within 9 months of the relevant year.

The primitive essence of laws remain the same in both states, however, they both have an individual existence. The table below elucidates the points of similarities and distinction –


Law

Haryana

Rajasthan

Governing Provisions

Particulars

Governing Provisions

Particulars

Computation

Rule 49A & NOTIFICATION No. S.O. 89/H.A.6/2003/S.60/ 2014 dated 12.8.2014 as amended by Notification 23/H.A.6/2003/S.60/2015 dated 24th September, 2015

1% of entire aggregate amount specified in the agreement or value specified for the purpose of stamp duty, whichever is higher

Notification No.F.12 (59)FD/Tax/ 2014-18 dated 14.07.2014 as amended by Notification S. O. 265 No. F. 12 (23) FD/TAX/2015-201-Dated 9th March, 2015

Rs.1300 for every 2 Lakhs or part thereof, of the consideration received in the relevant period.

Option B: Rs.8000 for every 2 lakhs or part thereof, of the consideration received in the relevant period.

Due Date of Payment

Rule 49A

Within 15 days of close of month

Rule 17A(5) read with Section 20(1), with Notification S.No. 271 No. F. 12 (23) FD/TAX/2015-207 dated 09.03.2015, applicable w.e.f. 01.04.2015

Annual Tax liability: 20,000 - 40 crore- the tax liability is to be discharged within 14 days from the close of month

Annual Tax Liability: equal to or more than 40 crore-

  1. 15th day of month for 1st-10th day
  2. 25th of month for 11th-20th day
  3. within 5 days from close of month for 21st-30th/31st.

Other Cases: within 14 days from close of quarter

Eligibility to claim ITC

Rule 49A(2)(iv)

Not eligible

Notification S No. 3209 dated 19.08.2014 read with Rule17A (9)(ii)

Not eligible

Deduction by sub-contractor

Rule 49A(4)

Not eligible, litigative issue (M/S. SURYA CONSTRUCTIONS VERSUS COMMERCIAL TAX OFFICER (WC & LT) AND STATE OF KERALA)

CIRCULAR- No. 06/2015-16- No. F.16 (97)/Tax/CCT/14-15/5929

If subcontractor makes intra-state purchases from Registered dealer: Eligible

Otherwise: Not eligible

TDS

Section 24, Rule 33, notification 24/2014 no. 6/H.A.6.2003.S.60.2014

Deduct @ 5% within 15 days of close of month with Form VAT C1

Rule 40, Notification  No. S.O.272 No. F. 12 (23) FD/TAX/2015-208 dated: 9-3-15

Deduct TDS @ 6% if registered dealer and 7% if unregistered dealer.

Returns

Rule 49A

Quarterly return in Form VAT R-13 along with proof of payment.

Section 19(4)(v)

Annual Return Form VAT-11 within 90 days. If auditing u/s 44AB of IT Act 1961,  return submitted within 9 months.

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