INTERNATIONAL CHAMBER OF INDIRECT TAX PROFESSIONALS ONE DAY SEMINAR ON A PRESENTATION BY CA J.MURALI

Transcription

1 INTERNATIONAL CHAMBER OF INDIRECT TAX PROFESSIONALS ONE DAY SEMINAR ON A PRESENTATION BY CA J.MURALI

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3 HOW IS SALES TAXED? SALES TAXED AS PER PROVISIONS OF TNVAT ACT 2006 IN TAMILNADU CA J MURALI

4 BASIS OF TAXATION SALES TAX ACT AND VAT ACT ARE BASED ON SALE OF GOODS ACT 4

5 INGREDIENTS OF SALE 5

6 sale with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes - (i) a transfer, otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) a delivery of goods on hire-purchase or any system of payment by instalments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; 6

7 WHAT IS SALE (v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 7

8 SO SALE IS Trading in ascertained goods; Transfer of property is essential; Valid consideration is necessary. 8

9 VAT IS LEVIED ON SALE RATES IN FIRST SCHEDULE 9

10 SALE SERVICE WORKS CONTRACT When Washing Machine is handed over against the valid consideration it is a sale. Sale of Air Conditioner and Installation is sales and services, a works contract. 10

11 CA J MURALI

12 REQUIREMENT OF WORKS CONTRACT Agreement - Oral or Written Contractor One who executes the contract Contractee Person who gives the contract to contractor 12

13 WORKS CONTRACT Includes any agreement for carrying out for cash, deferred payment or other valuable consideration, building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning, of any movable or immovable property 13

14 MANUFACTURE Defined in Sec 2 (27) of TNVAT Act 2006 as follows: With its grammatical variations and cognate expressions means producing, making, extracting, altering, ornamenting, finishing, assembling or otherwise processing, treating or adapting any goods and included any process of goods which brings in to existence a commercially different and distinct commodity but does not include any activity as may be notified by the Government. 14

15 GOODS Sec 2 (21) : Goods means all kinds of movable property ( other than news papers, actionable claims, stocks and shares and securities) and includes all materials, commodities and articles including the goods ( As goods or in some other form) involved in the execution of works contract or those goods to be used in the fitting out, improvement or repair of movable property; and all growing crops, grass or things attached to, or forming part of the land which are agreed to be served before sale of under the contract of sale. 15

16 DEALERS Dealers means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payments, or for commission, remuneration or other valuable consideration, and includes- (i) A local authority, company, Hindu undivided family, firm or other association of persons which carries on such business; (ii) A casual trader; (iii) A factor, a broker, commission agent or arhati, a del credere agent or an auctioneer, or any other mercantile agent by whatever name called, and whether of the same description as herin before or not, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal, or through whom the goods are bought, sold, supplied or distributed; 16

17 (iv) Every local branch State; of a firm or company situated outside the (v) A person engaged in the business of transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payments or other valuable consideration; (vi) A person engaged in the business of transfer of property in goods ( whether as goods or in some other form) involved in the execution of a works contract; (vii) A person engaged in the business of delivery of goods on hire purchase or any system of payment by installments; 17

18 (viii) A person engaged in the business of transfer of the right to use any goods for any purpose ( whether or not for a specified period) for cash, deferred payment or other valuable consideration: (ix) A person engaged in the business of supplying by way of, or as part of, any service or in any other manner whatsoever of goods, being food or any other article for human consumption or any drink ( whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration. 18

19 WORKS CONTRACT Goods used in the execution of contract are not physically transferred Transfer of property is not made immediately Transfer may be in the same form or some other form Goods may not beascertained goods. Possession is handed over only at the end Payment is received on part during execution 19

20 WORKS CONTRACT (Contd) Work may becontinued in the next period also. Tax deducted at source under VAT. Contract is the basic document. Contractor should get registered in the state in which work was carried. 20

21 WORKS CONTRACT EVOLUTION Tamilnadu was the First state to assess works contract. Builders Association and connon and Dunkerly are Landmark Judgements. Constitution amendment in Transfer of property involved in the execution of works contract is taxable. 21

22 WORKS CONTRACT CST Act was amended on 11 th May Goods involved in the works contract is assessable in the interstate works contract. 22

23 DEEMED SALE A transaction not a sale but treated as sale under the Act. The assessment is made on the estimated value of goods used in the contract. 23

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25 WORKS CONTRACT TAXABILITY Contractor are assessed to tax on the goods utilized in the execution of contract. Contractor should pay tax. 25

26 WORKS CONTRACT METHODS OF ASSESSMENT Compounding method Sec 6 Material Identification Sec 5 Ratio method Sec 5 (Rule 8 (5)(d)) 26

27 WORKS CONTRACT COMPOUNDING METHOD Tax to be paid on the entire contract value based on the actual receipt. Fixed rate of tax to be paid. 2% for civil contract. 2% for civil repair contract. 5% for any other contract. 27

28 CONDITION FOR COMPOUNDING Option letter to be filed along with the First monthly return. The option is to be followed for all the contractors in the given year. Interstate purchases should not be made. 28

29 DEEMED SALE Import not allowed. Input Tax Credit is not eligible. Tax should not becollected. Return in Form L to be filed. 29

30 COMPOUNDING METHOD OPTION GIVEN WILL BE FINAL FOR THE YEAR; IF CODITIONS ARE VIOLATED OPTION MADE WILL BE CANCELLED; EVERY YEAR THE OPTION IS TO BE GIVEN TAX AT COMPOUNDING RATE IS TO BE PAID EVEN THOUGH THERE IS NO MATERIAL SUPPLY INVOLVED 30

31 COMPOUNDING METHOD CONTD. NO DEDUCTION FOR EXEMPTION; NO DEDUCTION FOR SUBCONTRACTOR PAYMENT; NO DEDUCTION FOR 6 (2(b)) SALES; IN THE YEAR OF COMPOUNDING, WHEN PAYMENT FOR PREVIOUS YEAR IS RECEIVED IT SHOULD ALSO BE COMPOUNDED 31

32 .CONTD NO ELABORATE ACCOUNTS MAINTENANCE; CONTRACT AGREEMENTS AND DETAILS OF CONTRACT RECEIPTS IS ENOUGH; TAX ON CONTRACT RECEIPTS SHOULD NOT BE COLLECTED 32

33 .CONTD TDS ON WCT CAN BE ADJUSTED WITH THE TAX PAYMENT OPTION EXERCISED AND ACCEPTED THEN THE STATE CANNOT REVISE THE ASSESSMENT MADRAS HIGH COURT JUDGEMENT SINTEX INDUSTRIES 33

34 ..CONTD IF TURNOVER CROSSES PRESCRIBED LIMIT VAT AUDIT U/S 63A OPTION FINAL FOR ALL THE CONTRACTS FOR THE SAID YEAR TURNOVER IS CONTRACT RECEIPTS 34

35 .CONTD INPUT TAX CREDIT INTERSTATE PURCHASE COLLECTION OF TAX 35

36 ..CONTD COMPOUNDING OPTION LETTER COMPULSORY EVERY YEAR ELABORATE ACCOUNTS NOT REQUIRED 36

37 Material Identification Method Sec.5 Tax paid on the basis of materials consumed in the contract. Material cost +Profit=Deemed Sales. Rate of tax for the materials used are as per the I schedule of TNVAT ACT. 37

38 Material Identification Method Sec.5 Returns to be filed in form I Input tax credit if any can be claimed. Interstate Purchases can be made. Taxes can be collected. 38

39 Material Identification Method Sec.5 Elaborate Accounts to be maintained. Deductions for Labour is allowed Subcontractor payments can be deducted. Exports, Sale in the course of Export can be exempted. 39

40 Material Identification Method Sec.5 CST sales and Sec 6(2)(b) are exempted. Tax to be paid by the main contractor only when there is materials supply at their end. TDS can be adjusted with the tax due. C forms can be generated online. 40

41 Material Identification Method Sec.5 When there is no material supply then no tax need be paid. Option letter not required. Land cost can be reduced. Two agreements required namely agreement for undivided share and construction agreement are to be entered. 41

42 Material Identification Method Sec.5 Lesser tax paid under this method when compared to other two methods. The Profit is only Notional profit. 42

43 Ratio Method under sec.5 Rule (8)(5) Taxes paid on the basis of the contract receipts. Specific percentage of receipt will be classified as Labour. The ratio of Labour is given in the schedule. 43

44 Ratio Method under sec.5 Rule (8)(5) Taxes to be paid even when there is no material supply involved. Form I is to be filed. Input tax credit is eligible. Taxes can be collected from the Contractee. 44

45 Ratio Method under sec.5 Rule (8)(5) Purchases account to be maintained. Input tax to be separately maintained. Maximum taxes will be paid in this method. Sub contractor payment can be exempted. Interstate Purchases can be made. 45

46 Ratio Method under sec.5 Rule (8)(5) Export sales is exempted. Sales in the course of import is also exempted. Cst sales and Sale in transit are exempted. Contracts with Corporate and for Big contracts this method is suitable. 46

47 Schedule for Labour as given in the Rules S. No Types of WC Labour or other charges as a percentage value of the WC 1 Electrical Contracts 15 2 All Structural Contracts 15 3 Sanitary Contracts 25 4 Watch and / or clock repairs Contracts 50 5 Dyeing Contracts 50 6 All other Contract 30 47

48 Description Comparison of assessment options. Regular method Specified % of Deduction method Compounding method A) Value of each material/ goods transferred in same form or some other form To be identified May be identified/ may not be identified Need not be identified B) Deduction from the T.O. a) T.O. of exports/imports Yes Yes No b) T.O. interstate Yes Yes No c) Goods specifically exempted Yes Yes No 48

49 Comparison of assessment option. (Cont) Description Regular method Specified % of Deduction method Compoundin g method d) All amount paid to regd. Sub-contractor for execution of works contract as consideration e) Labour charges and other charges f) Input tax credit Yes Yes Yes Yes Yes Yes No No No 49

50 Comparison of assessment option. (Cont) Description Regular method C) Tax rate Rate of specified goods 5% or 14.5% Specified % of Deduction method If goods are identifiable, rate specified in the first schedule that is 5% or 14.5%. If not identifiable 14.5% Compoundi ng method 2% in case of civil or 5% for others D) Taxable Turnover Only taxable value of material transferred Total turnover less specified % Total contract value (both material and labour) 50

51 Comparison of assessment option. (Cont) Description Regular method Specified % of Deduction method Compoundi ng method E) Maintenance of Books of Accounts Detailed accounts compulsory Compulsory to certain extent at least to identify the material transferred Not necessary F) Whether could be recovered from contractee Yes Yes No 51

52 Tax deducted at source Every person responsible for paying any sum to any dealer for execution of WC shall at time of payment of such sums has to deduct tax as follows. Person shall includes the Central or a state government. a Local authority. a corporation or body established by or under a Central or State Act. a company incorporated under the Companies Act 1956 including a Central or State govt. undertaking a society including a co-operative society an educational institution Or a Trust 52

53 Tax deducted at source Nature of Contract Percentage of Deduction Civil works contract 2% Civil Maintenance Works Contract 2% All other Works Contract 5% 53

54 TDS Remittance, issue of certificate etc. (contd) No deduction is required on the following cases (Sec 13(1)): No transfer of goods involved in the execution of works contract. Dealer produces certificate of non deduction of tax in Form-S from the prescribed authority concerned that he has no liability to pay. Dealer produces certificate of non deduction of tax in Form S from the prescribed authority concerned that the dealer has already paid/deposited the tax on that WC under Sec (5) If the aggregate amount of payment of not exceeding Rs. 1 Lakhs. 54

55 TDS Remittance, issue of certificate etc. (contd) TDS shall be deposited on or before 20 th of succeeding month. Statement in Form R to be filed with the prescribed authority having jurisdiction over the person. Issue of TDS certificate in Form T to the contractor shall be made within 15 days from the date of deposit. Contravention of above attracts interest at 1.25% pm till the date of default continues. (sec 13(5)). 55

56 TDS Remittance, issue of certificate etc. (Contd) No notice of demand is required fro the above and the tax and interest shall become due from the date of accrual (Sec13(7)). Failure to deduct TDS and failure to deposit will make the contractee as a default assessee and the tax, interest and penalty shall be recovered from him as assessee. 56

57 Key Issues of Works Contract under VAT 1) Issues in composition of WC: Taxability of sub contractors when compounding rate adopted a) As per AP.HC in L&T judgment (148 STC 616) there cannot be two accretion of goods; consequently, no two taxable events 57

58 Key Issues of Works Contract under VAT b) Interstate purchases are not allowed for composition. AP.HC in Maruthi construction (10 VST 362) struck down the provision. c) Similar provision in TN VAT Act. Position of TNVAT after the above judgment? 58

59 Key Issues of Works Contract under VAT (contd) d) No option to exit in middle of the year. Retrospective amendment in June e) Contract wise option for composition not available. 2) contract executed in SEZ, whether TDS applicable. Yes 3)TDS on inter state WC beyond jurisdiction of states in VIP construction case by SC (145 STC 185) 59

60 Key Issues of Works Contract under VAT (Contd) Supply of materials by contractee? 72 STC 368 (S.C.) N.M. Goel and 103 STC 477 (S.C.) Cooch Behar Supply by the contractee to the contractor Value of goods supplied adjusted in the contractor s bill Adjustment to be treated as sale by contractee to contractor and subject to levy of sales tax 60

61 C Form for Purchases and Sales Works contractors are eligible for c form purchases for goods to be used in WC. Works contractors are eligible for CST and local registration. Many High Courts have held that C form can be issued for purchases of goods which are used in works contract. 61

62 Sec 12 Purchase tax Sec 12.Levy of Purchase TAX (1) Subject to the provisions of sub-section (1) of section 3,every dealer,who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act),in circumstances in which no tax is payable by that registered dealer on the sale price of such goods under this Act, and either- 62

63 Sec 12 Purchase tax (contd) Section 12.(1) (a) consumes or uses such goods in or for the manufacture of other goods for sale or otherwise ; or (b) Disposes of such goods in any manner other than by way of sale in the state; or 63

64 Sec 12 Purchase tax (contd) (2) Notwithstanding anything contained in clause (24) of Section 2,the dealer who pays tax under sub-section (1) shall be entitled to input tax credit on the goods specified in the First Schedule. 64

65 Purchase Tax The monthly return forms such as Form I and Form L provide for the levy of purchase tax under sec.12. Is the works contract will attract levy of purchase tax? 65

66 MEET ME AT : J.MURALI&CO S-21/E,PONNAMBALAM SALAI, K.K.NAGAR, CHENNAI CALLME IN : / MAIL ME TO: jmuraliandco@gmail.com 66