Erection Commission - Works Contract Tax, VAT + CST

[Ramesh M]

Dear Expert, I have confusion about Works Contract Tax !!

We are manufucaturing Engineering goods like Machinaries in Hyderabad and selling to Odisha under CST (covering entire goods value). While sending our goods for the feasible of transportation we are dismantling and loading into trucks and same is assembling at site, for which we are charging to customer as Erection charges and we are paying service tax on it. Now customer is deducting Works Contract Tax, which we executed works at their premises, is it right ? if it is yes !! under which act. I am paying CST while transferring goods for entire goods value and paying service tax for labor charges which was done at our customer premises. How works contract tax will attract, please guide me.

Posts / Replies

[PAWAN KUMAR]

Dear Sir,

As per my view, It is the case of Work Contract Tax. You are supplying goods along with services. For the purpose of transfer of property in goods, you are raising your invoice and for the service portion you are raising your service invoice along with service tax.

[Bhuwan Joshi]

Works contract indicates a contract where there is single contract for material supply and services. In present case, since there are two separate contracts and separate bills therefore no works contract is there.Therefore your customer should not insist on Works contract tax.

[Ramesh M]

Pawan Ji, I am supplying goods and i am billing only for goods value as per supply order with paying excise duty, then after wards I am installing equipment and i am charging service charges to customer against service order with paying service tax. In this scenario whether Works Contract Tax attract or not, while doing installation mostly we will use manpower, very little consumables like welding rods, other than this we will supply entire material including hardware in supply contract

[PAWAN KUMAR]

Dear Ramesh Ji,

As you are supplying machine (unassembled) to your client. for the supply of such machine, you have an separate contract with your client.

Now you have another contract for erection of such machines. In the erection, you use your manpower along with some consubles such as welding rods. This is the case of work contract where service along with the material being executed. you are chaging service tax inclusive of your consumables cost. (Please read rule 2A (amended) of service tax valuation rules 2006).You client is correctly deducting wct as this is the case of work contracts tax.

[Pradeep Khatri]

Dear All,

In our opinion, No STDS would be deducted on Interstate Works Contract at all.

Goods involved in a works contract have been included in the definition of sale w.e.f. May 11, 2002. For inter-State works contract, it is essential that the goods should have moved from one State to another in pursuance of a contract of sale. Thus contracts wherein goods occasion the movement in pursuant to an existing works contract are taxable under CST Act.

Parliament has set out in Sections 3, 4 and 5 of the Central Sales Tax Act, 1956, principles for determining when a sale or purchase of goods can be said to take place in the course of inter-State trade or commerce, when a sale or purchase of goods can be said to take place outside the State and when a sale or purchase of goods can be said to take place in the course of import or export.

The Supreme Court, in Gannon Dunkerley and Co. vs State of Rajasthan  1992 (11) TMI 254 - SUPREME COURT OF INDIA =(1993 88 STC 204 SC), has held that it is necessary to exclude from the value of a works contract the value of goods which are not taxable by States in view of Sections 3, 4 and 5 of the CST Act.

The Guwahati High Court, in Projects and Services Centre vs State of Tripura 1990 (11) TMI 358 - GAUHATI HIGH COURT = (1991 82 STC 89 Guwahati), held that inter-State purchases of goods used in execution of a works contract will not be subjected to local sales tax levy if: The movement of goods from one State to another is the result of an incident of contract; The goods transferred from the supplier must be the same goods as ordered by the contractee through the contractor; There must be a privity of contract between the supplier and the contractee.

Further, the three-member Bench of the Supreme Court in Steel Authority of India Ltd vs State of Orissa 2000 (2) TMI 729 - SUPREME COURT OF INDIA = (2000 118 STC 297) , while interpreting Section 13AA of the Orissa Sales Tax Act, held that a provision designated to collect tax in advance without excluding transaction falling outside the purview of the State Act is not sustainable. Therefore, so long as the provision authorises the State Government to deduct tax on the entire amount, including the turnover covered by inter-State sale and sales on import, it is unsustainable.

Thus, without doubt provisions for deduction of works contract tax at source, as enumerated in most of the local VAT legislation of States, are not applicable for inter-State works contract. Further, as the CST Act does not have any similar provision for deduction of tax at source in the case of a works contract, inter-State works contract are not subject to any deduction of tax at source.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[Ramesh M]

Thanks to all,

I understood as following

1) My supply contract value 1 Cr - I am supplying goods inter state sales under cst act and i am paying @ 2% on 1 Cr.

2) My Erection contract value 25 Lakhs - I am installing equipment and I am invoicing as following

a) Labour Charges 23 Lakhs @ 12.36 (Service Tax)

b) Consumables 2 Lakhs @ 5% (WCT)

Kindly suggest me above illustration correct ?

Ramesh