VAT & Service Tax (Civil Works Contract)

DVAT Rule 3 of DVAT rules deals with Works Contract . Section 2 of DVAT Act explains that a "works contract" includes any agreement for carrying out for cash or for deferred payment or for valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property; Civil Works Contract is also explained under Rule 3 of DVAT rules

As per rule 3 of DVAT Rules

I) Taxable turnover shall be the value at the time of transfer of property in goods (whether as goods or in some other form) involved in the execution of work contract and shall exclude

A) the charges towards labour, services and other like charges and it shall include-

(i) labour charges for execution of works;

(ii) charges for planning and architects fees;

(iii) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;

(iv) cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract;

(v) cost of establishment of the contractor including cost of marketing,finance expenses and securities deposits to the extent it is relatable to supply of labour and services;

(vi) other similar expenses relatable to supply of labour and services;

(vii) profits earned by the contractor to the extent it is relatable to supply of labour and services subject to furnishing of a profit and loss account of the works sites: and

B) the charges towards cost of land, if any, in civil works contracts; subject to the dealer's maintaining proper records such as invoice, voucher, challan or any other document evidencing payment of referred charges.

II) Where amount of charges towards labour, services and other like charges are not ascertainable from the books of accounts of the dealer, the amount of such charges shall be calculated at the percentages specified in the Rules. In respect of CIVIL Contracts pay VAT @ 12.5% on a) 75% of contract amount ( if cost of land is not included) b) 70% of contract amount ( if cost of land is included)

SERVICE TAX

There are two scenarios;

1) If you are owner of the land and as well as the builder & developer and construction is done for sale of the flats then it will fall under the category of declared service under section 66E(b) which explains construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly,except where the entire consideration is received after issuance of completion-certificate by the competent authority. As per notification 26/2012, service tax @ 12.36% is paid on 25% of the contract amount if cost of land is included

2) If you are not the owner of land and construction service is provided then it will fall under the category of works contract services As per section 65B (54)"works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, improvement, repair, renovation,alteration of any building or structure on land or for carrying out any other similar activity or a part thereof in relation to any building or structure on land; As per notification 24/2012 service tax @ 12.36% is paid on the value of service portion in the contract. As per notification 24/2012, Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract. Explanation.- For the purposes of this clause,-

(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;

(b) value of works contract service shall include, -

(i) labour charges for execution of the works;

(ii) amount paid to a sub-contractor for labour and services;

(iii) charges for planning, designing and architect's fees;

(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(vi) cost of establishment of the contractor relatable to supply of labour and services;

(vii) other similar expenses relatable to supply of labour and services; and

(viii) profit earned by the service provider relatable to supply of labour and services; Where the value has not been determined in case of works contracts entered into for execution of original works,pay service tax @ 12.36% on 40% of the total amount charged for the works contract.