Vat or works contract of government (mainly cpwd & bsnl)

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divya dhamija

B.Com

36 Points Joined February 2013

Respected Experts

This refers to works contract taken by father in Maharashtra (contractor who is a registered sales tax dealer.)

Contractor undertakes civil construction projects of making buildings for BSNL & CPWD and in all cases, the flats after construction are not sold as they are made like quarters for the use of CPWD & BSNL employees.

Agents cum Principal contractor BSNL & CPWD deduct TDS @ 2% from the bills on the taxable turnover and issue certificates…All these assessments of work done relate to period 1993 to 2000.

Now after so many years, sales tax authorities impose assessment orders running into several crores & they use their own mechanics to calculate and charge tax @ 15% with penalty on turnover.

My basic query is “government contractors” have already got tax deducted at source from BSNL & CPWD, so why are we again burdened. Can sales tax re-burden us with taxes? Why should the burden not be put on BSNL / CPWD..They are the principal contractors, hence they should be made answerable too.

For us it is the works contract act or do we need to follow new MVAT Act & pay burden on our ownselves. But BSNL & CPWD consider government construction contracts as “works contract” & not under VAT???

Please assist with your valuable input.

Replies (3)

Mr Subrata Dasgupta

Finance Professional

171 Points Joined January 2013

Dear Divya

I fully empathise with the situation you and your father find yourself in.

It seems from the information given by you that some huge demands have been raised on your father’s business, eventhough the tax has been deducted from the payments made to him by the Principals. Also, your father has not been able to put forward his side of the story convincingly before the authorities.

Let me give you a background of the Tax deducted at source from your father’s running bills by BSNL/PWD. The Government of Maharashtra has prescribed a deduction from a contractor’s bills and deposit the tax so deducted into the Government Treasury. The contractor (in this case your father) is required to get a Certificate of Deduction from the Payee (BSNL/PWD). The amount in the Certificate is nothing but the Tax deposited into government treasury by the Payee on behalf of the Contractor. This does not however mean that the full tax due from a contractor will be deposited by the Payee. The contractor has to file returns in order to get the set off or tax so deposited by the Payee. It is not clear from your post whether your father has filed returns or not. I guess that such returns have not been filed for the period under question.

Now coming to the course of action available to your father. Your father is advised to immediately file an Appeal before the Appellate Authority and apply for a STAY of the demand raised in the Assessment Orders. In order to do that your father should gather all the Certificates received from the various payees during a given period, he should also calculate the tax actually payable by him based on his turnover, subtract the amount paid by payee and the tax paid by him by way of a challan during the period. If there is a Refund then the Stay will be granted. If, however there is some tax yet to be paid, the Appellate Authority may ask for 50% payment before granting the stay. In the Appeals your father should put his side of the story and try to convince the Authority that there is no liability that can be fastened on him. Though he may be penalized for not filing returns.

Wish you and your father all the best and hope you come out of this with no or less monetary damage.

divya dhamija

B.Com

36 Points Joined February 2013

Sir,

Extremely thankyou for such a long message & to place empathy with us.....

I have a few qstns if u can share as I have been in dispute:

If u cud please read,

https://www.cpwd.gov.in/newsitem/salestax.pdf

https://www.cpwd.gov.in/newsitem/LevyOfSales.pdf

please throw a light on theseif u can....

Mr Subrata Dasgupta

Finance Professional

171 Points Joined January 2013

Dear Divya

Having gone through the Circulars mentioned by you, the following points appear:

Point 2 of the Circular states that the option is to be taken for deduction of tax by the Principal Contractor. Did your father specifically opt, in writing, for the same ?
Point 3 of the Circular mentions that the Government Contractor will have to give a consent letter for such option to the Works Contract Cell. Did your father give the consent letter to the Works Contract Cell of the Delhi Sales Tax ?
Point 4 of the circular states that the Tax will be deducted at the rate of 4% instead of 2% by the Government Department. I had asked this question earlier also, what is the rate of tax at which the Government department has deducted tax from the bills raised by your father.
Point 7 of the circular states that all government contractors have to give an affidavit to the Government Department that they are Govt Contractors and have opted for the scheme of Composition and agree to a deduction of 4% from their bill in full settlement of their liability to pay tax. Did you father give any such affidavit ?
Point 9 of the Circular states that the government is thinking in terms of an Annual Return for such contractors who have opted for Composition. Did your father file any such Returns ?

The other circular only states that Free material will not be supplied by the Government Department as some sales tax liability arises to the department. This circular is not relevant to the case in hand.