Goa vat on works contract: consitutional validity

This query is : Resolved

Deepak Gupta (Querist)
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23 June 2014 Dear All

There is Rule 4A in Goa VAT Rules, which gives formula for determination of sale price in respect of Works Contract. Similar to various other States VAT Laws, it gives specific rates of adhoc deduction from gross turnover in respect of various types of works contracts.

But surprisingly, Goa VAT Rules do not speak of any thing about deductions on actual basis or deduction in accordance with principles laid down in Apex Court Jugdement in the case of Ganon Dunkerleys regarding deduction from gross turnover to arrive at taxable value.

Kindly Comment.

CA UMESH DULAL

CA UMESH DULAL (Expert)
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23 June 2014 There is no doubt about constitutional validity of works contract. Abatement rules are made for ease to dealer, if the govt does not make rule for abatement, it will not against the constitution.

Deepak Gupta

Deepak Gupta (Querist)
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23 June 2014 Dear Sir

I also do not have any doubt regarding the constitutional validity of the levy of VAT on Works Contract.

But the method of determining of taxable value is to be examined. Dealers are not provided with any option to calculate taxable value on actual basis under Goa VAT Rules and here is the problem.

Kindly comment

Deepak Gupta

Deepak Gupta (Querist)
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23 June 2014 Further to mention the case law of Ganon Dunkerley & Co. Vs State of Rajsthan (SC 5 member bench jugdement) It says charges for labour and services have to be deducted from total value of works contract. If contractor is not able to give detailed breakup, then legislature can provide scales for deductions.

Thus, considering above principles, will it not be voilation of the principle, if vat rules do not provide any option to claim deduction on actual basis but only on presumptive basis.

CA UMESH DULAL

CA UMESH DULAL (Expert)
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24 June 2014 If there is no option for payment of VAT on actual basis, then this can be challenged in court. The abatement rules are made for ease of administration but this rule can not be imposed on dealer.
File PIL on high court.

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