Works contract and cst

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vinay hingu (Querist)
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25 February 2013 One of Our client is interior decorator doing interior work he has opted for composition scheme under works contract so in given scenario the dealer gets the set off reduced by 36% i.e. if 100 Rs vat paid towards purchases than dealer will only get set off of Rs. 64 which is local purchase in our case we have local sale + OMS sale so what we have done is taken ratio of Local:OMS sale and than bifurcated the set off according to the ratio for Example 40:60
1)so my Query is that should we reduce our full set off by 36%???? or
2) reduce the local sale i.e. 40 by 36% and take full set off against OMS sale ???

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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02 March 2013 Your query has some doubts. First you are in which state. In some states when you are doing general sale also composition is not permitted. Further ,such apportioning of input tax on prorata basis is not allowed in all cases.You have to calculate the liability at actuals.What is OMS sale?...MJK

vinay hingu

vinay hingu (Querist)
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04 March 2013 SIR THANK YOU FOR YOUR REPLY

I AM FROM THE STATE OF MAHARASHTRA

AND OMS STANDS FOR OUT OF MAHARASHTRA STATE
THAT IS OUT OF MAHARASHTRA SALES

Asha Kanta Sharma online

Asha Kanta Sharma online

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03 August 2025 Thanks for the details! Here's a clear explanation about Works Contract VAT composition scheme and CST (Central Sales Tax) implications for your interior decorator client in Maharashtra doing both local and out-of-state sales (OMS):
Situation Recap:
Client is an interior decorator in Maharashtra opting for composition scheme under works contract VAT.
Composition scheme allows abatement on input tax credit (ITC)—set off is reduced by 36% (i.e. only 64% ITC available).
Client has local sales (Maharashtra) and Out of Maharashtra State (OMS) sales.
Question: How to apply set off reduction—apply 36% reduction on entire set off, or only on local sales, while OMS sales get full set off?
Key Points:
1. Composition Scheme Input Tax Credit Restriction
Under Maharashtra VAT composition scheme for works contract, input tax credit (ITC) on local purchases is restricted.
The ITC is reduced by 36% as per scheme (i.e., only 64% ITC on local purchases is allowed).
2. Applicability on Local Sales vs OMS Sales
Local Sales (within Maharashtra):
Composition scheme applies and ITC on local purchases is restricted by 36%.
Out of Maharashtra Sales (OMS):
These are treated as interstate sales, thus CST is applicable (usually at concessional rates).
For OMS sales, VAT composition scheme restrictions on ITC do not apply, because CST is different and the goods are sold outside the state.
How to Apply Set Off (ITC) Reduction?
Option 1: Apply 36% Reduction on Entire Set Off
This is not correct, because OMS sales are interstate and governed by CST, so composition restrictions for Maharashtra VAT ITC should not apply here.
Option 2: Apportion ITC Based on Ratio of Local and OMS Sales
Correct method:
Calculate ITC on local purchases, reduce ITC by 36% only on the proportion relating to local sales.
For the OMS sales portion, full ITC should be allowed (no abatement).
Example:
Total sales = ₹100 (Local ₹40 + OMS ₹60)
Total ITC on purchases = ₹100
ITC allowable:
For Local sales (40%), reduce ITC by 36% → 64% of ₹40 = ₹25.6
For OMS sales (60%), full ITC → ₹60
Total ITC allowed = ₹25.6 + ₹60 = ₹85.6
Reference & Legal Backing:
Maharashtra VAT Act and Rules governing composition scheme for works contract provide for restriction of ITC only on local purchases/sales.
CST law treats interstate sales separately; thus ITC on goods used for OMS sales is fully allowed.
Summary Table:
Sales Type Apply 36% ITC Reduction? ITC Allowed
Local Maharashtra Yes 64% of ITC on local purchases
Out of Maharashtra (OMS) No Full ITC allowed

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