Vat registration & work contract

This query is : Resolved

Mohit Taneja (Querist)
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20 March 2013 A Tailor works in 2 ways :

1.Purchase fabric, stitches it & then Sell it. [Sale value Rs.8lakhs p.a]

2.Client(3-star hotel) gives him Fabric(prnciple Raw Material, he stitches it by using Thread,Buttons,etc.(incidental material) on his own & then Return the Clthes to Client for their waiter. [Job Charges: Rs.7lakhs p.a]

Query: In opinion of a CA he is liable to register under VAT as 2nd way of doing work is covered under Works Contract [& total turnover is more than 10lakhs(8+7)]. Is he correct??
In my opinion 2nd way of work is pure service work as thread,buttons,etc are incidental materials, & therefore not covered in Vat as W.C.
Plz Guide me!

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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27 March 2013 Your query is properly presented.First you say when the tailor makes uniform all by himself sales will be for Rs8 laks. Then you saly when the major material is supplied by the client your job charges will be for Rs7 laks.The figures are not matching. However,in the first category when the sales crosses the tailor becomes liable registration. In the second type of transaction also the same rule applies.The principle of incidental transfer of property may not apply in this case,as extra items like buttons,thread,collar material,zip,elastics etc,are necessary for making dresses and physically passover to the customer. Further cost of these materials are not negiligible. Therefore, when the tailor's receipts cross the minimum he should register and declare all the receipts in his returns. Exemption will be available for the labour expenses and vat has to be paid on the material value.......mjk