Levy of Tax on BOT Contract involving transation in the nature of Works Contract and Registration requirements there of. - 281/CDVAT/2010/42 - Delhi Value Added Tax

DEPARTMENT OF TRADE AND TAXES

NOTIFICATION

Delhi, the 25th November, 2010

Subject: Levy of Tax on BOT Contract involving transation in the nature of Works Contract and Registration requirements thereof.

No: 281/CDVAT/2010/42- Sh. K. K. Dahiya, Additional Commissioner (Special Zone), Department of Trade & Taxes has filed an application U/S 85 of the DVAT Act, 2004 seeking clarification/ruling U/S 85 of the DVAT Act, 2004 on the following two points;-

(a) Whether BOT Contract are transaction in the nature of Works Contract as define in section 2 (zc) & (zo) of DVAT Act, 2004?

(b) If the answer to question is affirmative, whether the BOT Contractors are liable for compulsory registration U/S 18 of the DVAT Act, 2004?

The said application has been flied for the purpose of notifying the exact legal position in respect of taxability and registration in BOT contracts in the nature Works Contract, both to the authorities subordinate to Commissioner (VAT), Govt of NCT of Delhi and the entities/dealers who are carrying on or who may undertake such transactions.

2.While explaining the nature of transaction of BOT contracts and its technical aspects, the applicant in the application dated 27-10-2010 has stated that in Delhi, there are number of BOT Contracts (Build, operate, transfer) in operation. Whether the Contracts are, in connection with DMRC, AIRPOTS, ROADS or POWER etc.- all such contracts incorporate material in the execution of such protects in Delhi, and liable to VAT.

3. Conceptually the BOT Contractor first builds a BOT property as per the requirement of owner/organization at site decided by the owner/organization.

The revenue streams in such contracts is toll charges that a BOT Contractor receives from the fusers users of the BOT property as per terms and condition given in the Contract signed by a BOT contractor and the owner/organization.

4. It is an admitted fact that all BOT Contracts are partially or flatly transferred on hack-to-hack basis to a number of sub contractors for a consideration.

5. From the analysis of the claim of transactions in BOT cases in detail, it is to say that BOT Contractors import/locally purchase materials and give the same to various Contractors on free of charges (FOC) basis for use or the sub-contractors purchases the material, and transfer the Goods in the project. These transactions have huge revenue implications under Delhi VAT Act and Central Sales Tax Act.

6. In one of the cases in Special Zone, a BOT Contractor was showing purchases and claiming input tax credit / TDS certificates benefits hut was not showing the taxable turnover in the returns. From the perusal or returns, it was noticed that the dealer is showing carry-forwards in each month. There is every likelihood that similarly, other dealers might he escaping tax liability on the ground that they are not liable to pay the tax, as they did not receive any payment from the contractees.

7. The question raised in the above said application in respect of which ruling has been sought is, whether BOT contracts are a transaction in the nature of WOrks contract or not, and if yes, whether the BOT contractors are liable for compulsory registration. In this connection. it is relevant to refer to the definition of term “Sale” as it figures in clause (zc) of sub-section (1) of section (2) of the DVAT Act, 2004 which read as under: -

“Sale” with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for oilier valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the central government or of any slate government, to another) and includes-

(i) ………………..”

(ii) ……………….”

(iii) ………………”

(iv) ………………”

(V) Transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract;

(vi) ………………”

(vii) ………………”

(viii) ………………”

8. It is also relevant to refer to the term, “works contract” as contained in clause (zo) of sub-section (1) of’ Section 2 which lays down that “works contract” includes any agreement for carrying out for cash or for deferred payment or for valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting Out, improvement, repair or commissioning of any movable or immovable property;

9. Equally relevant is to refer to the definition of term “Goods” as contained in the clause (m) of sub-section (1) of Section (2) which read as under: -

“Goods” means every kind of movable property (other than newspaper, actionable claims, stocks, hares and securities) and includes-

(i) Livestock, all materials, commodities, grass or things attached to or forming part of the earth which are agreed to be served before sale or under a contract of sale; and

(ii) Property in goods (whether as goods or in some other form) involved in the execution of a works contract, lease or hire-purchases or those to be used in the fitting out, improvements or repair of movable property;

10. It is also relevant to refer to the term “dealer” as contained in clause (1) of sub-section (1) of Section (2) which lays down that: -

“dealer’ means any person who, for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of his business, buys or sells goods in Delhi directly or otherwise, whether for cash or for deferred payments or for commission, remuneration or other valuable consideration and includes, -

(i) a factor, commission agent, broker, del credere agent or any other mercantile agent by whatever name called, who for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of the business, buys or sells or supplies or distributes any goods on behalf of any principal or principals whether disclosed or not

(ii)……………”

(ii)…………….”

(iii)……………”

(iv)………….”

(v)…………..”

(v)…………..”

11. A careful examination of the BOT contracts reveals that such Contracts involve transactions in the nature of Works Contract as defined in Section 2 (zc) & (zo) of DVAT Act, 2004 and therefore are covered under the definition of “work contract” under DVAT Act, 2004.

So the nature of transactions of sale and purchase as explained in the application filed by Sh. K. K. Dahiya, Additional Commissioner (Special Zone) and keeping in view the provisions of DVAT Act, 2004 referred to above, the ruling on the questions raised by the applicant in his application u/s 85 of the DVAT Act, 2004 is given as follows;

a) The BOT contracts are in the nature of works contract as defined in Section 2 (zc) and (zo) of the DVAT Act, 2004.

b) The BOT contractors arc, therefore, liable for compulsory registration u/s 18 of the 18 of the DVAT Act, 2004.

c) Similarly, all contracts relating with related formats of such contracts as BOO, BOOT, BOMT and other similar contracts, shall be liable for compulsory registration under Section 18 of the aforesaid DVAT Act, 2004.

12. This ruling shall come into force with retrospective effect i.e. w.e.f.01-04-2005(since the inception of DVAT Act, 2004).

 

JALAJ SHRIVASTAVA,

Commissioner (T& T)

Addl. Commissioner (Special Zone)

T & T Department, Vyapar Bhawan,