Goods and Services Tax – GST – By: – CA.Tarun Agarwalla – Dated:- 8-7-2016 Last Replied Date:- 21-7-2016 – Odisha Vat Provisions- A study for construction and real estate sector. Introduction The issue of taxability of works contracts under VAT and Service Tax is something which has confronted assessee leading to frequent referrals to Courts over the years. While the issue of taxability under Sales Tax has led to referrals over the last 50 years or so, the issue with regard to service tax is a more recent one. But often the issue of taxability centres around the basic nature of contracts and the valuation methodology that should be adopted under both Sales Tax/VAT and Service Tax. The subject of works contract is one of the most confusing and litigated issues. The Constitution (Forty Sixth Amendment) Act, 1982 granted powers to State Governments to enact laws for providing the levy of tax on the transfer of property (whether as goods or in some other form) involved in the execution of
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e parties to the contract to the other party thereto for a price. In the 46th amendment of the constitution a new clause 29A have been inserted In article 366:- (29A) tax on the sale or purchase of goods includes- (a) ……. (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; State Sales Tax laws were suitably amended their respective state sales tax laws, then to incorporate the provisions to tax works contract. In the VAT regime similar provisions also been brought out as deemed sale. Under present Odisha VAT act definition of sale include deemed sale since inception of law which is borrowed from Sales Tax act. Under the Odisha Vat Act As per section 2(63) 'works contract' means a contract for construction, building, manufacture processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any property. Any person would be liable
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e dominant nature test would not be applicable and that the sale element of those contracts could be separated and subjected to sales tax or VAT. Point of taxation Indirect tax law provides the point of levy or the point of occurrence of liability to collect or pay to the concerned taxing authorities. Under Odisha VAT act clause 4 of section 11 express the sale of goods shall, for the purposes of this Act, be deemed to have taken place, in the case of works contract, when the goods are incorporated in the course of execution of the works contract, whether or not there is receipt of payment for such sale . Hence in case of works contract or similar contract of construction the liability occurs when the goods have been incorporated. Valuation of goods in the works contract and It is a fact that the VAT can only be levied on the value of goods transferred in pursuance of contract and hence the value of goods out of value of works contract need to be derived or estimated. When the value of
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e to supply of labour and services. Amounts paid to a sub-contractor as consideration for the execution of works contract whether wholly or partly, in a case where the contractor proves to the satisfaction of the assessing authority that tax has been paid by the sub-contractor on the turnover of the goods involved in the course of execution of such works contract.[ this last clause(i) inserted since 01.10.2015] When the value of material as well as labour or like charges cannot be ascertainable, verifiable The proviso to section 11(2)(c) and proviso to Rule 6(e) also address to certain situation where the actual cost of labor, services or like charges could not be ascertained or verifiable. The provision says that, where the works contractor fails to produce evidence in support of expenses towards labour and services etc. or such expenses are not ascertainable a lump sum amount as such charges shall be determined as a percentage of total value of the works contract at the rate provided
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ry dam (i) Concrete dam (j) Spillway (k) Canal lining (l) Other canal structure 40% (m) Wooden/bamboo fair weather bridges 30% 25% 30% 20% 15% 15% 50% 35% 45% 35% 35% 40% 20% 4 Sanitary fitting and plumbing s 15% 5 Painting and polishing 20% 6 Supplying and laying pipes 20% 7 Construction of bodies of motor vehicle and Construction of trailers 20% 8 Services and maintenance of instruments, equipments, appliances, plants and machinery 80% 9 Tire rereading 30% 10 Processing and supplying of photographs and photo negatives 50% 11 Electroplating, electro-galvanizing, anodizing and the like 30% 12 Lamination, rubberisation, framing, coating and similar processes 30% 13 Printing and block making 30% 14 Supply and installing of weighing machine and weigh bridges 15% 15 Sculptural contract/contracts relating to arts 60% 16 Ship & boat building including construction of bridges, juries, tugs, trawlers and draggers 20% 20% 17 Laying of railway sleeper 20% 18 Overhauling or repairing or disma
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erring them along with land or interest underlying the land to opt for a composition scheme notified under section 11(3). Government of Odisha have come out with two notifications dated 16.01.2016 made effective from 01.10.2015. Government of Odisha, department of finance dated 16/01/2016 no 1457/FIN-CT1-TAX-0035/2015- applicable to dealers transferring goods involved in the execution of works contact Government of Odisha, department of finance dated 16/01/2016 no 1461/FIN-CT1-TAX-0035/2015- applicable to dealers who undertakes the construction of flats, dwellings or buildings or premises and transfer of property along with land or interest underlying land to pay tax in lieu of VAT. Composition Scheme for Works contractor Applicability- the scheme would be available to a dealer who is liable to pay tax on the sales effected by way of transfer of property in goods (whether as goods or in some other form (involved in the execution of works contract. Eligibility-The dealer opting for comp
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applicable to the dealer as a contractor. In case the dealer furnish to the assessing authority, the details of the contractee in Form C-4, the assessing authority in form C-3 shall intimate to the contractee (deducting authority) to deduct tax at source at such rate and on such percentage of the gross value of the works, as specified in this notification. Liability- the liability on the works contractor would be in lieu of amount of tax payable by him under section 9 (a). Types of Dealer executing works contract- Type A and Type B Type A Dealer:- registered dealer who opt to pay composition tax under this Scheme shall,- Shall not purchase or procure goods from any place outside Odisha at any time during the period for which he opts to avail this Scheme; and Shall not sell or supply goods to any place outside Odisha 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 Odisha, meant exclu
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B (1) (2) (3) (4) 1. Every registered dealer engaged in execution of works contracts of the following categories and incidental or ancillary activities in connection with or thereto: (1) Civil Contracts, Such as, (a) Civil Construction, improvement, modification, repair and maintenance, electrification, sanitary fittings, flooring, plastering, finishing, white washing, painting, polishing, interior decoration, etc. of any immovable property, including a building or a complex- residential or commercial. (b) Water works and Sewerage works, including treatment plants, whether meant for individual houses/ buildings/ complexes or for the general public. (c) Fabrication & fixing of shutters, doors, gates, windows, grills, furniture, fixtures, fitting outs and other similar contracts. (d) Procurement, erection, fabrication, installation commissioning of any plant, Machinery, equipment, transformers, lifts, elevators, escalators, weighing machines, air conditioners, air coolers, fire-fight
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fabrication, tailoring, embroidery and other similar activities. (iii) Electro plating, electro galvanizing, anodizing, power coating and other similar activities. (iv) Re-treading of old tyres 2% 4% Composition scheme for real estate developer, builder Applicability to dealer- the scheme would be available to a dealer who undertakes the construction of flats, dwellings or buildings or premises and transfer of property along-with land or interest underlying the land to pay tax, by way of composition, in lieu of VAT. Applicable to amount- the scheme can only applicable to All the payments received on or after 01.10.2015 towards construction of flats dwellings or buildings or premises and transfer of property along-with land or interest underlying the land shall be covered under this composition scheme. Eligibility-The dealer opting for composition under this notification- Shall not claim any input tax credit under the Act; Shall not claim any deduction with respect to labour and like c
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he value determined for stamp duty under the Odisha Stamp Rules, 1952, whichever is higher, Rate of Tax applicable- The Applicable rate of tax would be 3.5% on the aggregate amount. Tax Deducted at Source ( TDS) Under section 54 read with Rule 58 of the Odisha Vat Act and Odisha Vat Rules, tax need to be deducted by certain specified persons while paying to a dealer with respect to the works contract being executed by such dealer. However in case the TDS is being made on principal contractor, there will no requirement of TDS in case of all future subcontracts. Further the principal contractor would be able to transfer the tax credit proportionately to the subcontractor account electronically. The applicable rate of deduction is normally at 4% of the value of the works contract [section 54(1)]. However in the case of a dealer obtained a certificate for no deduction or lower deduction the deduction rate will be applicable at such rate for such specific dealer only. [Section 54(5)] If pri
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