12
Constitutional amendments
Constitutional Amendments
Related to Taxation
WORKS CONTRACT
Background
• State of Madras Vs. Gannon Dunkley & co (Madras) Ltd.(1958)
• 46th Constitutional amendment
• Deemed Sale
• Builder Association of India V. Union of India
• 46th constitutional amendment and Interstate sale– Gannon Dunkerley. & Co. vs. State of
Rajasthan (1993)
Chargeability under service tax
• Declared Service
• Definition– Transfer of property
– Chargeability to VAT/Sales Tax
– Must be for Specified activities
RULE 2A (i)
“Gross amount” charged for the works contract
-
Less: - the value of transfer of property in goods involved in the execution of works contract.
-
Taxable value
-
Rule 2A (ii)
Works pertaining to Value of services
Original works 40% of the “Total amount” charged
Maintenance, repair, reconditioning or restoration or servicing of any goods.
70% of the “Total amount” charged
In case of other contracts not included above
60% of the “Total amount” charged
Illustration
• Mr. B entered into an agreement with Mr. A to construct a building for Rs. 1 Cr. As per the agreement Mr. B will supply 1000MT cement to Mr. A @ Rs.1000/MT. Sales tax @5% is chargeable on the amount recovered on account of charges for cement supplied. The Fair market value of cement is Rs. 6500/MT. Furthermore Mr. B will also provide a Crane for 30 days to be used in the construction without charging any amount. Mr. B recovers Rs.1000 per day for such crane from others.
Total amount
Particulars Amount(Rs.)
Gross Amount 10000000.00
(+) Fair market value of Goods and services supplied in or relation to the execution of works contract
6500000.00(cement)+30000.00(Crane hire)
(-) Amount charged for such goods and service 1000000.00(cement)
(-) Value added Tax levied on the transfer of such goods (if any)
50000.00
TOTAL AMOUNT 15480000
Valuation (contd…)
• Works contract under CST - State rules to apply
• Works contract under VAT - Regular method - Standard deduction - Composition method
Thank You
