What is concept of 'Work Contract Tax' (WCT) which is levied @ 3% on the amount of bill paid to any contrcator who provide material and services. (Rajasthan only)
For Example if a contract given to a Carpenter for making furniture along with material.
The Carpenter make combine bill for service & material. Deduction made for Contract TDS (U/s 194 C) and WCT @ 3% is also attarct.
Please advice that this WCT are attract on all type of Contracts with material or applicable for limited cases?
CA. Atindra A. Prabhu Bhatikar
(practising CA)
(68 Points)
Replied 19 June 2008
In the sale of goods, the things produced or manufactured as a whole is absolute property of maker when it comes into existence and then he transfers it to the buyer. In works contract, the things produced as a whole is never absolute property of maker. Even though material used in works contract might hav been his absolute property. The article produced as a whole directly becomes property of buyer without first becoming property of maker. The contract is primarily, the contract of work, labour and materials are supplied in execution of such contract.
In a WCT, the tax is goods involved in execution of works contract and not on works contract as such. Say in construction, ABC builders and promoters have given the contract of building to Mr. A, then has to charge ABC builders WCT on the material involved in const. on which VAT is payable, ie cement, steel,sand etc. This means all the purchases have to be vattable.
All works contract are not taxable.
Supriya
(Engineer)
(0 Points)
Replied 20 June 2008
Ashish Ashra
(Chartered Accountant)
(61 Points)
Replied 01 July 2008
WCT is a part of VAT. WCT is in VAT like TDS is in Income Tax Act. WCT was the name given by Sales Tax Act but VAT Act name it as TDS. As per DVAT, it is to be levied @ 2% but there are companies who charge more than 2%. Every state may be having different rates just check it in VAT Act of Rajasthan
In the Act you will find a topic of "Tax Deduction At Source" explaining the whole provision.
CST is altogether a different thing. CST is a tax whereas WCT is TDS for those contractors who are liable for Tax deduction in VAT Act.
I think you got that.
Shahs
(Practising Chartered Accountan)
(53 Points)
Replied 01 July 2008
An exporter of goods has some work done on labour job. The labour job contracter levies works comtract tax. Can the exporter submit Form H so that no WCT is levied?
Sanjeev Kumar
(Private)
(895 Points)
Replied 01 July 2008
pure labour contracts are not covered VAT, hence no need to charge WCT under VAT as well as form H
mahendra
(Job)
(21 Points)
Replied 26 September 2008
Please give me the details of WCT under MP VAT (Processor, Rate of tax, Return etc.)
| Originally posted by :Guest | ||
| " | WCT is a part of VAT. WCT is in VAT like TDS is in Income Tax Act. WCT was the name given by Sales Tax Act but VAT Act name it as TDS. As per DVAT, it is to be levied @ 2% but there are companies who charge more than 2%. Every state may be having different rates just check it in VAT Act of Rajasthan In the Act you will find a topic of "Tax Deduction At Source" explaining the whole provision. CST is altogether a different thing. CST is a tax whereas WCT is TDS for those contractors who are liable for Tax deduction in VAT Act. I think you got that. |
" |
Sabiha Dabir
(Asst.manager)
(26 Points)
Replied 05 November 2010
I want to know what is WCT? and whether it should be charged on total bill amount including VAT or only on basic bill amount.
rajesh bhandari
(service)
(41 Points)
Replied 30 March 2011
We are a educational institute not registered under vat act or sales tax act. we are consturctiong building for educational purpose and given the withmaterials contract .
Whether we have to deduct the WCT . If deduct how it will be paid to govt. as we are not registered under sales tax act.
R.Guru
(Accountant)
(30 Points)
Replied 13 October 2011
we are manufacturing of cooling towers and installation at site we are doing project in all over india we having excise registeraion for manufacturing and service tax for erection and commissioning. we are receiving Purchase order from customers they are separelly mentioning supply of material value with excise duty & CST or VAT and erection and commissioning value with service tax. Our excise dept auditor told me that this is works contract you have to pay for works contract tax but we are paying excise duty & service tax how we can pay for works contract tax ? pls explain
Guru
Pankaj Gandhi Jaiswal
(Chartered Accountant)
(2629 Points)
Replied 21 February 2012
STUDY ON TAXABILITY OF WORKS CONTRACT UNDER VAT & SERVICE TAX
In order to constitute a works contract, two basic cumulative conditions need to be satisfied,
i) there must be a transfer of property goods involved in the execution of specified works contract,
ii) Such transfer is leviable to tax as sale of goods under the relevant Sales Tax / Vat Laws.
Position under Vat:
Ordinarily all types of indivisible works contracts for supply of material and application of labour are liable for wct vat under the MVAT Act, 2002. However, if the contract is divisible into material and labour, then it will be a contract of sale and supply of labour. It will not amount to be a works contract. Under the Mvat Act, 2002, three options are given to the assessee. The rate for specified construction contracts is 5%, other than construction contracts, the rate will be 8% or at the scheduled rate of goods of 5%, 8% or 12.5% as the case may be. The option of choosing the rate of tax is left on the dealer executing the works contract.
Section 42(3) of the MVAT Act, 2002 specifies the rate of tax for construction contracts @ 5% on the full value of the contract with the rider that only 1% set off will be available to the dealer. In case the dealer opts for 8% tax on the full value of the contract, then 64% set off will be available from the full set off and 36% will be the retention of set off.
Rule 58 of the MVAT Rules 2005 provides a deduction / reduction for all services / labour portion and tax will be needed to levy on the material portion as per the rates specified in Schedules C, & E of the Mvat Act, 2002. In short tax will have to be levied at the specified rates as mentioned in the Schedules and not flat rate of 12.5% as some people understand. If this method is followed by the dealer, then full set off on the materials involved in the execution of the works contract will be available to him.
Alternatively, if the dealer is unable to keep the record of the materials used in the execution of works contract (construction of building), then a flat deduction of 30% of the full contract value will be allowed and vat @ 12.5% needs to be paid on the 70% of the full contract value. In such a scenario, the dealer will be entitled for full set off on the materials used in the execution of works contract. In case of any other contract as specified under Rule 58, a flat reduction of 25% is given for labour service component and specified rates of tax is required to be paid on the material component. If specified rates are not possible, then full rate of 75% is required to be paid on the total contract value. The validity of a hassle free composition rate of tax has been upheld by the Supreme Court in the case of Mycoon Construction v/s the State of Karnataka (2002) 127 STC 105 (S C)
Principal Contractor & Sub Contractor / Sub Contractors
The Mvat Act allows the Principal Contract either to execute the contract fully or either subcontract the same to a subcontractor or subcontractors fully or partially. In such a situation, it shall be the liability of the principal contractor to pay the tax under the Mvat Act, 2002 to the Government. Alternatively, he can subcontract part of the contract or fully subcontract the whole contract, and if the subcontractor undertakes to pay the tax, then the principal contractor will be exempt from paying tax as it is a single contract. Vice versa if the principal contractor undertakes to pay the tax, then the subcontractor is exempt from paying tax.
To avail this benefit, the following conditions need to be fulfilled:
In case the principal contractor undertakes to pay the tax, then Form 406 and Form 409 is required to be issued by the principal contractor to the subcontractor for claiming exemption. Similarly in case the subcontractor undertakes to pay the tax, then Form 407 & Form 408 is required to be issued by the subcontractor to the principal contractor for claiming exemption. This is a statutory requirement of law and in case this is not complied with, there will be a tax liability both on the principal contractor and the subcontractor as the principle of joint and several liability comes into play as defined under Section 45 of the Mvat Act, 2002.
Position under Service Tax
The Works Contract Services were notified for the first time by the Finance Act 2007 to be effective from 1/6/2007.
Sub-clause (zzzza) of Section 65 (105) of the Finance Act, 1994 defines the taxable service in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
The Explanation under this sub clause defines the works contract for this purpose as follows:
For the purpose of this sub clause, works contract means a contract wherein
a) transfer of property in goods involved in the execution o such contracts is leviable as sale of goods (liable to tax under vat) and
b) such contract is for the purpose of carrying out
i) erection commissioning and installation of plant equipment or machinery
ii) construction of new building or civil structure or a part thereof for the purposes of commerce or industry
iii) construction of a new residential complex or part thereof
iv) completion of finishing services in relation to ii) & iii)
v) turnkey & EPC projects.
The essential ingredients to constitute a works contract liable to tax as works contract services are as follows:
The service provided or to be provided in execution of works contract which satisfy the conditions as specified in the Explanation above will be liable to works contract services under the Finance Act, 1994.
Para 9.1 of MF(DR) Circular No B1/16/2007-TRU dated 22/05/2007 clarifies as follows:
Works contract is a composite contract for supply of goods and services, A composite contract is vivisected and vat / sales tax is leviable on the transfer of property involved in the execution of works contract vide Article 366 (29A) (b) of the Constitution of India and service tax will be leviable on services provided in relation to the execution of works contract.
Further Para 9.10 of the aforesaid Circular clarifies as under:
Contracts which are treated as works contract for the purposes of levy of vat / sales tax shall also be treated as works contract for the purposes of levy of service tax. This is clear from the definition under section 65 (105) (zzzza) of the Finance Act, 1994.
Service Tax under Composition Scheme.
The rate of service tax on works contract services is 4.12% (including cess) of the total contract value.
According to the Service Tax (Determination of Value) Rules, the service tax on works contract can also be paid on the value of the services component, after determining the value adopted for vat purposes for the levy of vat. Supposing the value of the total contract is Rs 100/- Under Rule 58 of the Mvat Rules, 2002, vat can be paid as per the scheduled rates of 5%, 8% or 12.5%. Once this value for vat is adopted, then the balance value of the contract becomes the assessable value and service tax @ 10.3% may be paid on the balance amount.
An assessee has the following four options to pay vat and service tax under a works contract.
1) Pat vat / sales tax under composition scheme @ 5% in case of specified construction contract and 8% in other contract and service tax @ 4.12% under composition scheme.
2) Pay vat / sales tax under composition scheme and service tax @ 10.3% on actual labour service component.
3) Pay vat / sales tax on actual scheduled rates of goods @ 5%, 8% or 12.5% and service tax @ 10.3% on actual labour service component.
4) Pay vat / sales tax on actual scheduled rates of goods @ 5%, 8% or 12.5% and service tax under composition rate @ 4.12%
Value of taxable services
The value of taxable service shall be the gross value excluding vat but including all items of material component as well as labour service component.
Cenvat Credit on Inputs, Input Services & Capital Goods
There is restriction in availing service tax credit on inputs in both the cases where the assessee pays service tax at actual or under composition scheme.
The assessee can avail service tax credit on input services directly related to the provision of works contract services. Common input services credit need to be avoided as now there is a restriction to avail such credit under the Cenvat Credit Rules, 2004.
Regarding capital goods, as per Rule 2 (a) of the Cenvat Credit Rules, capital goods really means the goods which are used for providing output service and not those used in or while providing taxable services.
Secondly if a subcontractor pays service tax on the total contract value after availing the input credit, then the principal contractor can avail credit only to the extent of 40% of such credit.
General Exemptions
Full exemption of service tax has been granted to the following recipients provided by a service provider.
a) Services provided to United Nations or an International Organization declared by the Central Govt.
b) Services provided to a developer of SEZ or to a SEZ unit subject to certain conditions.
c) Value of materials or goods sold by the service provider to the recipient of the service provided that no Cenvat credit has been taken on such inputs, and if such cenvat credit has been taken, the same needs to be reversed before effecting the sale.
Specific Exemptions
Following are the specific exemptions :
1) Construction and works contract services relating to ports exempt only upto 1.7.2010, but no exemption to finishing or repairing services
2) Works relating to roads, bridges, tunnels, dams, airport, etc.
3) Construction of canals for government agencies
4) Exemption to works contract services provided within airport
5) Exemption to works contract service provided within port or other port
6) Exemption to works contract services provided for specified construction services in relation to specified projects
Rate of Service Tax
The rate of service tax is 12.36% from 1/6/2007 to 23/02/2009.
The rate of service tax is 10.30% from 24/02/2009 till date.
The rate of composition is 2.04% from 1/06/2007 to 31/03/2008
The rate of composition is 4.12% from 1/04/2008 till date
Prepared By
CA Pankaj Jaiswal
Chartered Accountants
pankaj @ anpllp.com
ashish
(CA)
(21 Points)
Replied 28 August 2012
Please tell me .. when a contractor submit bill to contractee in which he charged VAT & Service Tax separately, then whether contractee required to deduct WCT or not. please elaborate in detail.
Rupang J Desai
(Asst. General Manager-Indirect Taxation & GST Compliance)
(50 Points)
Replied 07 August 2015
can any one send me the defination of works contract under MP Vat Act. whether consumable like diesel is taxable under wcs in MP. in my view it is not taxable as good is not transferred during execution.
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