civil works contract taxation in karnataka

Hi,

1. It will depend on composition of your purchases.  If local purchases and labour component are more, you can go far VAT regular scheme.

2. I believe, companies are not yet notified for deduction of tax at source U/s.9-A.

3. NA as companies are not notified.

4. VAT rate for regular scheme will be at 12.5% on material portion.  From the gross value of bill, labour charges to be deducted based on the supportings available. On the balance turnover tax at 12.5% to be computed.  From the output tax so arrived deduct input tax paid on local purchases to arrive at the net tax liability.

5. There is a conflict on this issue.  Since factory is an integral part for manufacture of goods for sale, you can claim it.  But I am not sure.

6. Yes, composition tax dealers (works contracts) can collect VAT in their bills.

7. Yes, it is 12.5%.

Hope have clarified you.

Rgds/Dharmaraju

Thanks for your valuable reply.

for the answer to the point no. 2 the sec 9 - A specifically includes industrial, commercial or trading undertakings.  hence tds provision is applicable.  what is your veiw.

supporting my point sec 18  and 18-A of the Act allows a dealer to make TDS on purchase of specified goods.  But above section specifies the term registered dealer.  but sec. 9 A does not so.

Your answer point no 5 - Sec 2(7) of the Act defines the term capital goods and it includes the word PLANT.  the dictionary definition of plant includes a building or buildings used for a manufacturing enterprise or other business.  But Sec. 11 - schedule 6 input tax credit restrictions on cement and other consutructional materials such as bricks, timber, wood, glass, morrors, roofing materials, stones. etc.,

what are your comments on the above and pl. be elaborative.  defenetly it is a disputable issue.

quote any case law you came accross.

Thanks,

As per sub-section (1) of Section 9-A, the provisions of deduction of tax is applicable to Government departments and such other commercial undertakings as may be notified from time to time. Hence, primarily, it is applicable to Government departments but are applicable to those entities which are to be notified by the Commissioner.  As far as I know, no other entities are notified for the said purpose as of now.

As noted by you, Section 18 & 18A is applicable to all the registered dealers.

As per sec. 2(15), goods means all kind of moveable properties....... Hence, the provisions of VAT and Sale of Goods Act are applicable to Movable goods only and not immovable.    Section 2(7) also speaks of capital goods. Therefore, considering the basic assumptions of taxation, I believe buildings will not come under the purview of VAT as they are not goods. Hence, I believe these are not specifically listed in Fifth Schedule, instead only bricks, wood, roof materials, stone, tiles, paints are included as they are goods.

Another view in the direction is that VAT is charged for transfer of property in goods (works contract) which takes place not in one stranch but it happens over a period of time as and when the work is executed.  Hence, the transfer does not take place as building as a whole but individually in the form of bricks, mirrors etc., which are listed in Fifth schedule. 

Dictionery meaning of Plant includes a place where an industrial or manufacturiing process takes place and it does not speak of building. As per my understanding, a plant is not a building but a unit where composition of various machineries work together to carry out a activity.

I have not come across  any case law on the issue.

Trust the above is in order.  Please revert with your ideas on the issue.

Rgds/Dharmaraju

his is with respect to interpretation of section 9-A of the kvat act,

Section 9-A can be divided into two parts the first part starts from Notwithstanding anything contained in this Act, the Central Government, or any State Government, or an industrial, commercial or trading undertaking of the Central Government or of any State, or any such undertaking in joint sector or Being one part having certain number of class of contractees The second part starts from any other industrial, commercial or trading undertaking or any other person or body as may be notified by the Commissioner in first part there has been use of comma [,] frequently at each class of contractees, which mean, the first party tries to include those kind of contractees without the notification from the Commissioner, which ends at the expression “any such undertaking in joint sector” whereas in the second part there is no such frequent use of comma [,], therefore the other class of contractees such as “any other industrial, commercial or trading undertaking or any other person or body” to deduct wct under KVAT Act, 2003 requires notification from Commissioner.

With respect to levy of tax, in my view for declared involved in the execution of works contract should be 4% and not 12.5%, presently this issue is under litigation With respect to claiming input tax credit on construction of factory building, input tax credit cannot be claimed as it is restricted under fifth schedule.

Regards

Vasanth D Jaganath

Mr. Dharmaraju I will split the section  9-A as below.

the Central Government OR

any State Government OR

an Industrial , commercial or trading undertaking in joint sector OR

any such undertaking in the joint sector ie., means central and state combined undertaking

OR

any other industrial, commercial, or trading undertaking

OR

any other person or body as may be notified by the commissioner from time to time.

So your veiw for applicability is not imited to Governments and other person as notified by the commissioner.  There are so many OR`s in Sec. 9 A (1) and each OR is a distinct part.  and any other industrial commercial or trading undertakings other than Governmental undertaking is liable to deduct tax and hence the TDS provision is applicable. 

IN my view the government and non governmental persons has to deduct Tax in case such non governmental persons are industrial, commercial or trading undertakings.

The commissioner has been given powers to notify other persons not covered above to bring to the TDS net.   Such other person may include I think, clubs, charitable institutions, education institutions etc., to them the Act has given powers to commissioner to issue notification to  make TDS.

I think my intrepretation is correct.  Pl.  think over in broad way and let me confirm, since I have to advice my client, since the liability of tax is around Rs. 2 lacs.

Please.

Dear Dharmaraju Sir,

Kindly refer section 4(1)(c) which is the charging section for works contract.  This provision referes the rate of tax as mentioned in sixth schedule, which is subject to section 14 and 15 of the CST Act, Iron & Steel is notified as special imprtance goods under CST Act, therefore the rate of tax should not exceed more than 4%.

Regards

Vasanth D Jaganth

Mr. Jaganath the rate of tax for civil works contract is at 12.50% as per sl no. 13 of 6th schedule.  For declared goods the rate is as you mentioned.

Ms. Sreelatha,

Mr. Vasanth has very clearly explained why other commercial and trading establishments are not covered under the purview of Section 9-A.   Rule 44(2)(a) specifies that every authority deducting tax under section 9-A shall submit a monthly statement in Form VAT 125 and every person deducting tax under section 18 ........... This makes the intention of the statute, to some extent clear and implies that Section 9-A is not applicable to other commercial & trading entities. A perusal of entire Rule 44 reveals that distinction is made at every level for applicability of Section 9-A and 18-A by specifying authority and person for Section 9-A and 18-A, respectively.

I would like to inform you (though it is not a tool to convince the statutory provisions) that an unanimous decision was taken in various seminars regarding the above issue.   Further, I will be happy if you can prove that the above provisions are applicable to all the dealers in the State since most of the dealers in the State are not deducting tax U/s.9-A. 

Dear Vasanth Sir,

It is absolutely to correct to say that declared goods are taxable at 4%.  I did not observe the word `declared` used in your reply. Further, I prefixed sir since I meant to say `sir` to you as you are a professional far talented and experienced than we.  Please do not prefix sir while responding to our queries.

Rgds/Dharmaraju

Thank you, Dharmaraju,  for your brave replay by connecting rules and provisions.

But why it is between two OR`s the word ``any other industrial, commercial, or trading undertaking``.

Thank you.

I can understand the concern you have expressed.  Incientally I was looking for any Clarification or Advance Ruling of the Commercial Taxes on the matter.  Pls. check the below given link in which the Commissioner of Commercial Taxes has discussed regarding the applicability of the provisions of Section 9-A to Central, State Government ...............

https://ctax.kar.nic.in/circular031207.pdf

Hope the above will be of some help to you.

Rgds/Dharmaraju

Are you happy with the circular of Commissioner.

Dear Experts,

Please confirm whether a Pvt. Co. in Karnataka is required to deduct WCT under Section 9-A of KVAT Act, if Works Contractor is a composite dealer? If yes, please Specify Notification No. under the said Act.

sir,

request you to kindly arrange to provide KVAT regular scheme excel sheet format this is help with us,

please do the needful for the same,