Works Contract Composition Scheme Revamped

[CA.Ankit Gulgulia]

The Works contract composition provisions under Delhi VAT shall be significantly revamped w.e.f 1.4.2013. The details of Revised composition model under VAT is as detailed hereunder.

Governing Statute for New Model

• Effectuated vide Notification No. 3(13)/Fin.(Rev-I)/2012-13/dsvi/180 dated 28^th February,2013.
• This notification shall come into force with effect from 1st April 2013.
• Revokes earlier Notifications No.F.3(78)Fin.(T&E)2005-2006/1508-kha dated 17-3-2006.
• Applicable for dealersengaged exclusively in carrying out works contracts for cash or for deferred payment or for valuable consideration in Delhi
• Composition dealers under this notification shall not be eligible for the general composition scheme provided by Section 16(1) to 16(10) of the Act.

The Model suggests different rates under different schemes for different type/nature of Works contract.

Two Schemes

Eligibility for Scheme A

A registered dealer opting to pay composition tax under this Scheme shall:

(i) not purchase or procure goods from any place outside Delhi at any time during the period for which he opts to avail this Scheme; and

(ii) not sell or supply goods to any place outside Delhi at any time during the period for which he opts to avail this Scheme.

However, he may procure his own Plant & Machinery and Equipments from outside Delhi, meant exclusively for use in execution of the works contract by him.

Eligibility for Scheme B

A registered dealer opting to pay composition tax under this Scheme shall be entitled to make purchases of goods required for the execution of the contract under this Scheme in the course of inter-State trade or commerce on the strength of his certificate of registration against declaration in Form-C or by way of inward transfer of stocks from other States against Form-F or by way of imports from other countries solely for the purposes of utilizing the same in the execution of works contract in Delhi only. The dealer shall use the material/ goods imported or procured from outside Delhi strictly for use in execution of the works contract transactions.

General Conditions for both the schemes :-

(1) The composition dealer opting for composition under this notification, shall:

(i) not purchase or procure goods, other than those specified in the First Schedule appended to the Act, within Delhi, from a person who is not registered under the Act, except to the extent of 2% of his total purchase turnover during the year or Rs. 25 lakhs, whichever is lower;

(ii) not be eligible to claim tax credit under section 9 and/ or section 15 of the Act;

(iii) not compute his net tax under section 11 of the Act;

(iv) not collect any amount by way of tax under the Act;

(v) not be entitled to issue ‘Tax Invoices’;

(vi) continue to retain the originals of all tax invoices and all the retail invoices for all his purchases and copies of all retail invoices issued by him as required under section 48 of the Act;

(vii) maintain separate records of all the purchases made within Delhi, or in the course of inter-State trade or commerce and by way of transfer of stock or from outside India;

(viii) issue only Retail Invoices, as per provisions of the Act and the Delhi Value Added Tax Rules, 2005 (hereinafter called ‘the Rules’);

(ix) be eligible to claim set off of TDS only if on the date of filing of return, he is in possession of original TDS Certificate issued to him by the person making the deductions; and

(x) not entitled for refund before his assessment is made under section 32 of the Act.

Few Relevant Points

• A dealer, who opts to pay composition tax under the notification and executes different types of works contracts which are liable to tax at different rates under this notification, shall pay tax according to the rate applicable to each of such contracts.
• The tax period for the composition dealer shall be a quarter, unless otherwise prescribed by the Commissioner for a dealer or class of dealers. However, the tax due shall be paid by the composition dealer on monthly basis, within 21 days of the end of the month.
• In case of Failure to comply, provisions of DVAT shall apply as if no composition scheme applicable and Input tax credit on Opening Stock shall be available.

Intimation to Contractee & TDS (WCT)

The composition dealer who opts to pay composition tax under this scheme, shall make an application to the contractee/ awarder, not being an individual or a Hindu Undivided Family, authorizing it to deduct tax at source at such rate, as may be applicable to the contracts for which composition is opted by the dealer. The contractee shall deduct the TDS accordingly. The contractor shall not be able to claim benefit of the TDS in his return unless the contractee/ awarder has deposited the amount in the appropriate Government Treasury and the copy of the TDS Certificate obtained in the prescribed form and in the prescribed manner, along with challan in proof of such deposit is enclosed with the return. {Big Headache for Contractor!!}

Sale of Plant & Machinery – Form C benefit not available

Where any composition dealer, who has opted for composition scheme under this notification, sells, transfers or disposes of any capital assets, including plant, machinery and equipments, scrap, surplus, waste or discarded material, he shall not make such sale outside Delhi against Central Statutory Forms and shall pay tax on such sale, transfer or disposal at the rates specified in Section 4 of the Act, as if he had not opted for this Scheme.

No Implications for Goods supplied by Contractee – Subject to Conditions

No tax shall be payable under this Notification by a composition dealer on the amount representing the value of the goods supplied by the contractee to the contractor in the execution of works contract in which the ownership of such goods remains with the contractee under the terms of contract and the amount representing the value of the goods supplied by the contractee to the contractor does not form part of the contract and is not deductible from the amount payable to the contractor by the contractee for the execution of the works contract.

Further, no TDS shall be deducted by the contractee on the value of goods supplied as such by it to the contractor.

Rates Applicable – Simplified Analysis

Type of WC	Rate Under Scheme A	Rate Under Scheme B
All Residual Works Contract not covered under 2 & 3 below	3%	6%
Construction WC Dealers Construction, of a complex, building, civil structure or a part thereof, including a residential unit or a complex or building, for sale whether wholly or partly, to a buyer before construction is complete, where the value of land is included in the total consideration. Note: Contracts where the entire consideration is received after issuance of completion certificate by the competent authority are excluded here	1%	3%
Every registered dealer engaged in (i) Printing and/or book-binding. (ii) Textile processing such as dying, fabrication, tailoring, embroidery and other similar activities. (iii) Electro plating, electro galvanizing, anodizing, powder coating and other similar activities. (iv) Re-treading of old tyres	2%	3%

*Rate as % of turnover. (Turnover as detailed below)

Turnover for above purpose shall include total consideration of contract including labour charges (service portion) etc & in case on construction dealers shall also include the value of Land.

Modalities of Scheme

• The dealer applying for a fresh registration can opt for this scheme by filing an application in Form WC 01 appended to this notification along with his registration application in Form DVAT 04.
• To be filed within 30 days from First day of FY of opting scheme or applicability of notification as applicable.
• Existing Dealers opting for such scheme shall pay tax on opening stock as per section 4 of DVAT,2004. The WC-01 shall be accompanied with Form SS-01 detailing the stock , tax paid.
• Similarly, if due to reason of opting out or failure to comply, the input tax credit of opening stock shall be provided to the dealers.
• Scheme shall be eligible for financial year except where dealer defaults in furnishing return within due date for two consecutive tax periods. In such a case, the scheme within deemed redundant and the dealer shall be required to file WC-02 within 7 days of such default.

Registered Sub-contractor – Benefits/Exemption

• Where the composition dealer has made any payment to a registered sub-contractor, who also opts for composition under this notification, for the execution of works contract, whether wholly or partly, the composition dealer shall issue a certificate to such sub-contractor, in Form CC 01 appended to this notification. Such sub-contractor shall be eligible to deduct from his turnover liable to be taxed under this scheme, the amount mentioned in such certificate by enclosing it with his return. Such amount shall not constitute part of the turnover in Form DVAT 17 of such sub-contractor. The contractor shall not deduct TDS from payments made to such sub-contractors in respect of the turnover covered by the certificate.

 About the Author:

CA Ankit Gulgulia (Jain)

Author is practicing Chartered Accountant in New Delhi and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at [email protected].

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