Works contract

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alok shukla (Querist)

08 March 2013 We have a client who is a builder/developer which is a company,who has given contract to construct the building to a contractor who is a partnership firm but the terms of the contract says that all the material shall be supplied by the builder to.the contractor.
So,my question is whether works contract is applicable on this contract as then we need to comply with the various provisions of works.contract.
And also suggest me with the various compliances in this case.
Please provide me with suitable answers.

MJ Krishnamurthy

MJ Krishnamurthy (Expert)

09 March 2013 Mr Alok shkla,
In this kind of contracts there are two types.One is engaging a contrator only on labour work. The other is engaging a contrator on regular basis,but the owner supplying major part of material,like steel,cement,timber,plywood,electric goods etc. In the second type the contractor supplies some material and raises bills on the entire work. Owners in this case deduct the value of material given by them,like PWDs and PSUs etc,from the payments.The first type does not need any VAT registration,but, for the second category all steps of a regular dealer has to be followed.

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alok shukla

alok shukla (Querist)

09 March 2013 Dear Sir,

Thank you for replying to my query.But want to know whether this contract is covered by the provisions of works contract from service tax point of view.
If it is a works contract then,we shall be liable to pay service tax on reverse charge basis in 50:50 ratio and also deduct WCT TDS.
Please solve my query and provide me with the case laws on this subject for my reference.

MJ Krishnamurthy

MJ Krishnamurthy (Expert)

09 March 2013 Mr Shukla,
It depends on the terms of agreement of contract. As I explained by me this contract can be two types. If it is pure labour contract then VAT laws are not applicable and only ST will be applicable.ST TDS has to be done on the entire payments @ 12.36%.If it involves transfer of property also VAT and ST TDS are to be done as per the ratio of the respective components of material and labour. In the normal circumstances it is 60:40 ratio of turnover to be considered for tds under VAT and ST.These are the points of rules of respective acts....mjk.

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