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WCT: TAX ON SALE OF GOODS IN WORKS CONTRACTS CASES

 

By: Keshav Dayal                
Ex Member Tribunal, U. P. Trade Tax

        Works contract involving transfer of property in goods is an indivisible contract. It is indivisible in the sense that value of goods to be incorporated in any form in the works and value of labour & other services to be rendered in execution of the contract have not been subject matter of bargain separately. Single amount has been subject matter of bargain. A works contract is an entire one and indivisible contract. In certain cases, a contract may be more than a works contract and it may involve a works contract as well as a contract for transfer of immovable property.

        There may be two contracts embodied in a single instrument, one for supply or sale of goods and other for labour and other services. Because a single instrument covers two contracts, the transaction does not become a works contract. In this respect, following observations, of the Hon'ble Supreme Court in the case of Hindustan Aeronautics Limited vs State Of Karnataka decided on 16 December, 1983 1984 AIR 744, 1984 SCR (2) 248, are important:

"In every case, the Court would have to find out what was the primarily object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into the contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale."

        In India, tax on sale of goods is levied under the Sales Tax Law (VAT Law) and tax on labour & services is levied under the Service Tax Law. Service tax is levied by the Central Government under the law enacted by the Parliament whereas sales tax is levied by different States under the VAT law of respective States.
         Sub-clause (b) of Clause 29-A of Article 366 of the Indian Constitution defines transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract as sale of such goods by the person who makes such transfer and a purchase of such goods by the person to whom property in such goods is transferred.
        The Central Sales Tax Act, 1956 and VAT laws of various States define term ‘works contract’ in almost similar terms. VAT law of Uttar Pradesh defines the term ‘works contract’ as under:

(au) "works contract" includes any agreement for carrying out, for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.

      The Central Sales Tax Act, 1956 defines the term ‘works contract’ as follows:

"works contract", means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property;

      In reference to works contact, the Honourable Supreme Court has, in the case M/s. Larsen & Toubro Limited & Anr. Versus State of Karnataka & Anr., Civi AppealL No. 8672 OF 2013, decided on September 26, 2013, held in various paragraphs of the judgment as follows:
60. … Sub-clause (b) refers to transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The expression “in some other form” in the bracket is of utmost significance as by this expression the ordinary understanding of the term ‘goods’ has been enlarged by bringing within its fold goods in a form other than goods. Goods in some other form would thus mean goods which have ceased to be chattels or movables or merchandise and become attached or embedded to earth. In other words, goods which have by incorporation become part of immovable property are deemed as goods. The definition of ‘tax on the sale or purchase of goods’ includes a tax on the transfer of property in the goods as goods or which have lost its form as goods and have acquired some other form involved in the execution of a works contract.
 
76. In our opinion, the term ‘works contract’ in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. The Parliament had such wide meaning of “works contract” in its view at the time of Forty-sixth Amendment. The object of insertion of clause 29-A in Article 366 was to enlarge the scope of the expression “tax of sale or purchase of goods” and overcome Gannon Dunkerley-I3. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term ‘works contract’. Nothing in Article 366(29-A)(b) limits the term “works contract” to contract for labour and service only. Learned Advocate General for Maharashtra was right in his submission that the term “works contract” cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some “works”.
 
93. After all, the term “works contract” is nothing but a contract in which one of the parties is obliged to undertake or to execute works.
94. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled:
(i) there must be a works contract,
(ii)
the goods should have been involved in the execution of a works contract, and
(iii)

the property in those goods must be transferred to a third party either as goods or in some other form.

 
97. Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. Article 366(29-A)(b) does contemplate a situation where the goods may not be transferred in the form of goods but may be transferred in some other form which may even be in the form of immovable property.

101. In light of the above discussion, we may summarise the legal position, as follows:

(i)
For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: (one) there must be a works contract, (two) the goods should have been involved in the execution of a works contract and (three) the property in those goods must be transferred to a third party either as goods or in some other form.
(ii)

For the purposes of Article 366(29-A)(b), in a building contract or any contract to do construction, if the developer has received or is entitled to receive valuable consideration, the above three things are fully met. It is so because in the performance of a contract for construction of building, the goods (chattels) like cement, concrete, steel, bricks etc. are intended to be incorporated in the structure and even though they lost their identity as goods but this factor does not prevent them from being goods.

(iii)

Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. The term “works contract” in Article 366 (29- A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in Article 366(29-A)(b) limits the term “works contract”.

(iv)

Building contracts are species of the works contract.

(v)

A contract may involve both a contract of work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished.

(vi)

The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative.

(vii)

A transfer of property in goods under clause 29-A(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made.

(viii)

Even in a single and indivisible works contract, by virtue of the legal fiction introduced by Article 366(29-A)(b), there is a deemed sale of goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In other words, the single and indivisible contract, now by Forty-sixth Amendment has been brought on par with a contract containing two separate agreements and States have now power to levy sales tax on the value of the material in the execution of works contract.

(ix)

The expression “tax on the sale or purchase of goods” in Entry 54 in List II of Seventh Schedule when read with the definition clause 29-A of Article 366 includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works contract.

(x)

Article 366(29-A)(b) serves to bring transactions where essential ingredients of ‘sale’ defined in the Sale of Goods Act, 1930 are absent within the ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in a works contract is deemed to be sale even though it may not be sale within the meaning of the Sale of Goods Act.

(xi)

Taxing the sale of goods element in a works contract under Article 366(29-A)(b) read with Entry 54 List II is permissible even after incorporation of goods provided tax is directed to the value of goods and does not purport to tax the transfer of immovable property. The value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in works even though property passes as between the developer and the flat purchaser after incorporation of goods.

 
      The aforesaid observations have been made by the Hon'ble Supreme Court after considering various decision of the Court and provisions relating to works contract in the Constitution of India.
"Sale of which goods is taxed under a VAT Sales Tax Law" In case of a works contract, property, in any goods which are consumed in the process of execution of the works contract, does not pass from contractor to the contractee (whether as goods or in some other form). Sale of such goods does not take place in absence of transfer of property in such goods. Value of such goods becomes part of labour & other services. For example, in a white washing contract property in abrasive or sand paper does pass to the contractee where such abrasive or sand paper is used for cleaning earlier layer of white wash coating. In certain works contracts fuels e.g. coal, wood, fuel gas may be required for processing of goods which are to be incorporated in the works contract. In such cases, property in abrasive or fuel does not pass from contractor to the contractee. There is no sale of such abrasive or fule and therefore, tax under VAT or Sales Tax Law is not payable in respect of these goods. Contrary, any goods which are incorporated in the works in any form, transfer of property in such goods taks place (whether as goods or in some other form). These are the goods, the turnover of sale of which is to be taxed under the VAT or Sales Tax Law.
       For the purpose of payment and levy of tax on sale of goods in a works contract, we need two things, the turnover of sale of goods and rate of tax applicable to sale of such goods in the works contract. Rates of tax are prescribed or notified by the State Government. These rates may be prescribed or notified in following ways:
(i) A single rate of tax for all goods for all type of works contracts; or
(ii)
A single rate of tax for all goods depending on the nature of the contract (Separate rates for separate contracts); or
(iii)
Different rates for different goods.
"Tax Deduction at Source" This term in its abbreviated form "TDS" has been used since a long time in Income Tax. Under the scheme, certain amount is deducted by the employer or payer from the amount which is payable to an employee or a person. This amount is deposited in Income Tax accout by the person who makes deduction. The person who deducts the amount does two things:
(a)
such person submits details of persons from whose payments amount has been deducted, amount deducted and details of Income Tax challan by which amount deducted has been deposited in the Bank; and
(b)
such person issues a certificate in the prescribed form to the person from whom amount has been deducted alongwith details of deposit of the amount in the Bank in Income Tax account.
        Provision of tax deduction at source does not in any manner absolves the liability of return filing by the person form whose payments amount has been deducted. Such person is required to file income tax return like any other person. Such person, while preparing his income tax return, first computes total income tax payable and thereafter, claims benefit of aggregate of all amounts of tax deduction. There may be three circumstances as under:
(i)
Aggregate of all amounts deducted falls short of total amount of income tax payable; or
(ii)
Aggregate of all amounts deducted exceeds the total amount of income tax payable; or
(iii)
Aggregate of all amounts deducted is equal to the total amount of income tax payable; or
        In first case, income tax payer diposits the amount of difference, in second case, he claims refund of the amount of difference and in third case, he has to do nothing. Exactly same procedure is to be adopted in cases of tax deduction made by the contractor from payments of contractor and same treatment is to be given to any amount deducted at source by the contractee.
"WCT" Many people dealing with tax in cases of works contracts often use abbreviation "WCT" for amount of tax deducted at source. Unless law of any State specifically provides that amount deducted shall be treated in a works contract or in cretain type of works contract or in all cases of works contract as the amount of tax payable by a dealer, term "WCT" cannot be used for amount deducted in cases of works contract. For amount of tax deducted at source in cases of works contract, it will be proper to use the term "TDS (VAT)" or "TDS (WCT").
"Liability of payment of sub-contractor in cases of works contract" Under a works contract, sale of goods is not a normal sale. In a case of works contract, sale of goods is deemed by accretion of goods in the works. In a works contract, transfer of property in goods takes place at the time of incorporation of goods in the works. Where a contract is executed through sub-contractor, property immediately before incorporation in the works belongs to sub-contractor and with the incorporation it becomes property of the contractee. Property in goods never passes to main contractor. Therefore, it is sub-contractor who makes sale of goods in execution of the contract. Therefore, in such cases, sub-contractor is liable for payment of tax. Please see State of Andhra Pradesh & Ors. versus M/s Larsen & Tourbo Ltd. & Ors. (Supreme Court) Civil Appeal No. 5239 of 2008, date of decision August 26, 2008.
"TDS in cases of sub-contractors" Where liability of payment of tax is of sub-contractor, tax deduction should not be made from payments made to main contractor by contracteee. Where a contract is executed partially through sub-contractors, TDS should not be made by contractee on those amounts which are payable by main contractor to sub-contractor(s). Except where law of a State specifically provides otherwise, tax deduction is mandatory by the main contractor from payments of sub-contractor(s). Following observations of the Hon'ble Supreme Court in M/s Bhawani Cotton Mills Ltd. verses State of Punjab And Anr. 1967 AIR 1616, decided on 10-04-1967:  
"If a person is not liable for payment of tax at all, at any time, the collection of a tax from him with a possible contingency of refund at a later stage will not make the original levy valid."
Tax Deduction at Source at Lower Rate  Where a contractor is of the view that his liability of payment of tax on sale of goods in a works contract will be lesser than the aggregate of amounts of deduction if deduction is made at general rate of tax deduction, he may apply to his assessing authority for issuing direction to the contractee for making deduction at a rate lower than the general rate of tax deduction. Where the assessing authority is satisfied it it will issue direction to the contractee for making tax deduction at such rate as may be mentioned by it in the direction issued by it.
Composition Schemes  Some States, in lieu of actual amount of tax leviable on sale of goods in certain types of work contract cases, provide an alternative method by way of payment of a lump sum or payment of an amount computed as a certain percentage of total value of the contract. Such schemes are known as composition scheme. Where a dealer opts a composition scheme, he is not entitled for claiming benefit of input tax credit in respect of goods consumed or incorporated in execution of the contract.

Computation of turnover of sale of goods in a works contract In cases of works contracts, turnover of sale of goods is computed by deducting aggregate of values of (i) labour (ii) other services and (ii) amount of profit accrued on such labour and services, from the total value of the contract. The differential amount represents the turnover of sale of goods incorporated in the works. difficulty in computing tax on sale of goods arises due to following reasons:

(i)
Normally a contractor has a common establishment for handling labour, other services and goods. There is no method for aportioning establishment cost towards labour, other services and goods;
(ii)
Values (amounts receivable) of labour & other services and of goods are not known separately;
(iii)
Difficulty arises in segregating values of various goods taxable at different rates of tax.

        Amount receivable for labour & services is not the sum spent towards labour and in rendering other services. It also includes profit earned on labour & other services. For so many reasons, value of labour & services and profit thereon cannot be found from the books of accounts kept by a contractor. Looking into this difficulty, several Sates have enacted a deeming provision for the purpose of determining turnover of goods. These States have prescribed percentage value of total amount receivable for execution of a particular type of contract as percentage value of labour & services and profit accrued thereon. Remaining amount of contract value is deemed as the turnover of sale of goods in which property in the execution of works contract passes from contractor to the contractee. In Uttar Pradesh, Rule 9 of the Uttar Pradesh Value Added Tax Rules, 2008,has been framed as under:

9.Determination of turnover of sale of goods involved in the execution of a works contract.

(1)

Subject to other provisions of these rules, the tax on turnover of sale of goods where such sale is affected by way of transfer of property in goods (whether as goods or in some other form) involved in the execution of a work contract shall be computed on the taxable turnover of sale of taxable goods. For the purposes of determining the taxable turnover of sale of such goods, the amounts specified below shall be deducted if included in the gross amount received or receivable in respect of the works contract:-

(a)
all amounts representing the value of goods consumed in execution of the works contract; in which property in goods is not transferred in the execution of the works contract;
(b)
all amounts representing the value of exempt goods and amount of profit thereon;
(c)
all amounts representing the rent paid or payable in respect of machinery and other equipments taken on hire for use in the execution of such works contract;
(d) all amounts representing the value of service and labour and profit thereon;
(e)
all amounts representing the value of goods in which property has been transferred in the execution of the works contract as a result of sale in the course of inter-state trade or commerce;
(f)
all amounts representing the value of goods in which property has been transferred in the execution of the works contract as a result of sale in the course of export of goods out of the territory of India or sale in the course of import of goods into the territory of India;
(g)
all amounts representing the value of goods in which property has been transferred as a result of a sale outside the State;
(h)
all amounts representing the value of non-vat goods purchased from within the State in the circumstances in which the dealer executing the works contact himself is liable to pay tax on turnover of purchase of such goods;
(i)
all amounts representing value of non vat goods where such goods are purchased by the dealer from a registered dealer.
(j)
the amount representing the cost of establishment and other similar expenses of the contractor to the extent it is relatable to supply of labour and services, and profit thereon.
(k)
amount paid to sub-contractor for the execution of works contract on furnishing certificate obtained from the assessing authority of subcontractor certifying that:-
(i) The subcontractor is registered dealer under the Act;
(ii)
The subcontractor has disclosed turnover in the relevant return of tax period and has paid tax according to the provisions of the Act.
(l)
Proportionate amount of actual cost of land required to be used in construction of building, by the builder contractor where cost of such land is included in the amount received or receivable from the purchaser.
Explanation:
(i)
For the purpose of clauses (a) and (e) to (h), the value of goods referred to in such clauses includes amount of profit thereon.
(ii)
Actual cost of land required to be used in construction of building, by the buiolder contractor means the value of land computed at rate notified by the Collector of the relevant district in accordance with procedure laid down for determination of the value of land for the purpose of payment of stamp duty under the Indian Stamp Act, 1899.
(2)
Where any amount has been deducted by the contractee from the amount of the contract on account of breach of any condition of the contract, such amount shall be deemed part of amount payable to the contractor in respect of such contract.
(3)

Where accounts maintained by the contractor do not show separately the value of labour and services and amount of profit accrued on such labour and services, or accounts maintained by the dealer are not worthy of credence or if the dealer has not maintained accounts, for the purpose of determining turnover of goods in which transfer of property in goods has taken place, in cases other than those mentioned in the table below, an amount, representing twenty percent of gross amount received or receivable, shall be deducted towards labour and services and amount of profit accrued thereon and in the cases described or mentioned in column 2 of the table given bellow, amount of deduction towards such labour and services and amount of profit accrued thereon shall be computed at the rate percentages, given in column 3 against the entry in column 2 of the table, of the amount received or receivable.

Table

Sl. no.

Description of works contracts

Rate

1

2

3

1-

Fabrication and installation of plant and machinery

10%

2-

Fabrication and erection of structural works including fabrication, supply and erection of iron trusses, purline.

10%

3-

Fabrication and installation of cranes and hoists

10%

4-

Fabrication and installation of elevator(lifts) and escalators

10%

5-

Supply and installation of air conditioning equipment including deep freezers, cold storage plants, humidification plants and dehumidifier

10%

6-

Supply and installation of air conditioners and air coolers

10%

7-

Supply and fitting of electrical goods, Supply and installation of electrical equipment including transformers

10%

8-

Supply and fixing of furnitures and fixtures, partitions, including contracts of interior decorations

10%

9-

Construction of railway coaches and wagons on under carriages supplied by railways

10%

10-

Construction of bodies of motor vehicle and construction of trailers

10%

11-

Fabrication and installation of rolling shutters and collapsible gates

30%

12-

Civil works like construction of building, bridge, roads, dams, barrages, spillways and diversions, sewages and drainage system

30%

13-

Installation of doors, doors frames, windows, window frames and grills

30%

14-

Supply and fixing of tiles, slabs, stone and sheets

30%

15-

Sanitary fitting for plumbing, for drainage or sewerage system

30%

16-

Whitewashing, painting, and polishing

40%

 

Explanation: For the purposes of this rule, where period of execution of a works contract is spread over several tax periods or several assessment years, the aggregate, of all amounts of deductions towards labour and services; and amount of profit accrued thereon, shall not exceed the percentage of the gross amount receivable in respect of execution of such works contract.

 

Explanation: For the purposes of this rule,

(a)
where period of execution of a works contract is spread over several tax periods or several assessment years; or
(b)
where part of a works contract awarded to a sub-contractor relates to different category of works contract; or
(c) where whole or part of a works contract is awarded to sub-contractors,
 

the amount towards labour and services and the amount of profit accrued thereon claimed by contractor and subcontractor together, shall not exceed the percentage of the gross amount received or receivable in respect of execution of each category of such works contract.

(4)

For removal of doubts it is hereby made clear that, for the purposes of this rule, in arriving at the turnover of sale of goods involved in the execution of a work contract, amounts of following nature shall not be deducted from the gross amount receivable.

(a)
any amount proposed to be deducted in the name of any tax or fee or any other levy;
(b)
any amount which has been deducted by the contractee from the contractor as demurrage or penalty or a fine or in any other name for breach of any conditions of the contract or otherwise;
(c)
any amount which has been deducted by the contractee from the contractor as compensation.

       Before going to next step of determining turnover of individual goods, I would also like to clarify that amount, arrived at after deducting amount receivable towards labour and services and profit thereon, is the gross turnover of goods in which properly has been transferred in any form and does not include turnover of goods which other wise have been used or consumed in the execution of the contract. For example turnover of fuel used/consumed, lubricants; water, electricity etc. is not included in the turnover arrived at. Value of such goods is part of labour & other services.
       In a works contract, tax is leviable on transfer of property in goods (whether as goods or in some other form) involved in the execution of the works contract. Transfer of property in goods takes place at the time when goods are incorporated in the works.
            In this article, for convenience, goods, those might be involved in the execution of a works contract and in which transfer of property might take place, are being referred to as the goods to be incorporated in the works. Meanings of other similar expressions are to be construed accordingly.
        Now for computing tax on turnover of goods, we see if total turnover of goods is taxable at the same rate of tax then there is no difficulty in computing tax. We can find out amount of tax by using the formula –

Tax amount =Turnover of sale of goods × rate percent of tax /100

       But where total turnover of goods consists of goods taxable at different tax rates then we have to find out turnover of goods for each tax rate slab separately. For example, a contract of building construction may involve bricks, cement, sand, marble, iron steel, badarpur, wood, colour, paint and hardware. In Uttar Pradesh, sale of iron-steel is taxable @4%, sale of bricks, hardware and sand is taxable @5%, sale of paints, colours, marble and timber (wood) is taxable @13.5% and sale of cement is taxable @15.5%.
       Therefore, for the purpose of computing tax on all goods, we will need separate values (turnover) of goods taxable at same rate of tax, i.e.

(i)

Turnover of goods taxable @4%;

(ii)

Turnover of goods taxable @5%;

(iii)

Turnover of goods taxable @13.5%;

(iv)

Turnover of goods taxable @15.5%;

        We see that no provision has been made for the purpose of determining such turnover of goods for each tax rate slab. (I do not know, if some State has provided such mechanism). In such circumstances, we are left with only remedy that we should segregate the total turnover in the ratio of their purchase prices assuming that purchase values of same goods earn equal percent of profit or loss. For this purpose we should know the purchase values of goods in which property has been transferred and the rate of tax applicable to sale of such goods.
        We must not forget that we have to find out purchase values of those goods in which property is transferred during the relevant tax period. Goods incorporated in the works during a particular period may be the goods purchased during the same tax period as well as goods purchased in some earlier tax period. Purchase values of only those goods are to be considered which have been incorporated in the works for which payment has become due irrespective of date of purchase of such goods.
         Now for goods of each tax rate, we will compute ratio of gross turnover to their purchase value. For this purpose we will add purchase values of all goods taxable at different tax rate slabs separately and work out value addition factor as under:-

Value addition factor = Gross turnover of sale of all goods / Gross purchase value of all goods

       Now for each tax rate slab, we will compute WCT as under:-

(1)
WCT for goods atracting tax rate slab of 4% =(purchase value of such goods ×  value addition factor) × 4 / 100
(2)
WCT for goods atracting tax rate slab of 5% =(purchase value of such goods ×  value addition factor) × 5 / 100
(3)
WCT for goods atracting tax rate slab of 13.5% =(purchase value of such goods ×  value addition factor) × 13.5 / 100
(4)
WCT for goods atracting tax rate slab of 15.5% =(purchase value of such goods ×  value addition factor) × 15.5 / 100
             Total WCT will be aggregate of amounts as computed above.

        For a particular tax period, amount receivable, in respect of the contract executed, is the amount for which normally running bill is raised. Where more than one bills have been raised for the works contract executed during a tax period then sum of amounts will be taken as amount receivable.

        The moment at which transfer of property takes place, the Hon’ble Supreme Court has held that in a works contract transfer of property in goods takes place at the time of incorporation of goods in the works. We know that as soon as sale gets completed the payment becomes due.

        Where sale is subject to approval, the sale will be complete only after the purchaser gives its approval. On completed sale, the selling dealer is required to pay tax, irrespective of payment mode or date.

        Now we take an example of construction of buildings. Let us assume that during a particular month, the contractor is entitled to receive Rs. 1,50,00,000.00 in respect of works contract executed during such month. Purchase values of goods in which property has been transferred are as follows:-

Sl. No.
Name of goods
Purchase value of goods
Tax rate percent
1. Bricks
50,00,000.00
5
2. Cement
15,00,000.00
15.5
3. Timber (wood)
3,00,000.00
13.5
4. Marble
5,00,000.00
13.5
5. Sand
1,00,000.00
5
6. Iron-steel
15,00,000.00
4
7. Badarpur
1,00,000.00
13.5

Total   purchase value of goods incorporated in the works= 90,00,000.00

Now, if perecentage value of labour & services and profit on them is 30 percent of amount receivable (say);
Then percentage of value of goods and profit thereon=100- 30 i.e. 70 percent of amount receivable (let us call it goods value percent)
Therefore, total amount receivable for goods incorporated in the works= amount receivable xgoods value percent / 100

Which gives total receivable value of goods = 1,05,00,000.00

Now for each tax rate slab, we will compute value of all goods as under:

(1)   Purchase value of goods for tax rate slab of 4%     =          15,00,000.00

(2)   Purchase value of goods for tax rate slab of 5%     =          51,00,000.00

(3)   Purchase value of goods for tax rate slab of 13.5% =           9,00,000.00

(4)   Purchase value of goods for tax rate slab of 15.5% =          15,00,000.00

Total purchase value of goods incorporated in the works =      90,00,000.00

Value addition factor =total receivable value of goods/ total purchase value of all goods incorporated

Which gives us, Value addition factor=1,05,00,000 /90,00,000
Or Value addition factor=7/6        

Now turnover of sale of goods for –

(i) all goods taxable @4%  = (purchase value of all goods taxable @4%) x value addition factor
  =15,00,000 x 7/6     =17,50,000.00
(ii) all goods taxable @5% = (purchase value of all goods taxable @5%) x value addition factor
  =51,00,000 x 7/6     =59,50,000.00
(iii) all goods taxable @13.5% = (purchase value of all goods taxable @13.5%) x value addition factor
  =9,00,000 x 7 / 6     =10,50,000.00
(iv) all goods taxable @15.5% = (purchase value of all goods taxable @15.5%) x value addition factor
  =15,00,000 x 7 / 6     =17,50,000.00
Now we can compute tax using formula: amount of tax =turnover of sale x rate of tax /100
(i) Tax for goods taxtable @4% =17,50,000 x 4/100       =70,000.00
(ii) Tax for goods taxtable @5% =59,50,000 x 5/100       =2,97,500.00
(iii) Tax for goods taxtable @13.5% =10,50,000 x 13.5 / 100  =1,41,750.00
(iv) Tax for goods taxtable @15.5% =17,50,000 x 15.5 / 100  =2,71,250.00
Total Tax or WCT
=70,000.00 + 2,97,500.00 + 1,41,750.00 + 2,71,250.00
  =7,80,500.00

Where benefit of inter-state sales, sales outside the State or sales in the course of import of goods into the territory of India is to be claimed

        Where WCT payable under the State VAT Law is to be computed, exemption on sales falling under sections 3, 4 & 5 of the Central Sales Tax Act, 1956 is available. These are sales which take place-

    1. in the course of inter-state trade or commerce;
    2. outside the State; and
    3. in the course of import of the goods into the territory of India.

In such a case, for the purpose of computing value addition factor, we will include purchase values of such goods including all expenses in tax rate slab wise gross purchases. But for the purpose of computing taxable turnover of sale of goods, we will not include purchase values of goods falling under section 3, 4 and 5 of the Central Sales Tax Act, 1956.

Thus we see that for computing WCT, we need –
(1)   Total amount receivable for the works executed during the tax period;
(2)   Percentage of labour & service and profit thereon.
(3)  Tax rate slab-wise purchase values of all goods in which transfer of property has taken place during the tax period.
(4)  Tax rate slab-wise purchase values of goods in which property has been transferred as a result of inter-state sale, sale outside the State and sale in the course of the import of goods (section 3 & section 5 of the CST Act) where exemption on such sales is to be claimed.

Computation of purchase values of goods

       For all computations, purchase value should include freight and other expenses incurred including taxes and levies paid or payable in bringing goods to work site. Where purchase value is not available, fair purchase price in the local market may be taken.

WCT COMPUTATION FACILITY:

       This web site www.taxtalkindia.com provides facility for computing sale turnover of goods taxable at different rates and amount of tax payable. On home page, facility VAT Diary Services may be used for the purpose. Guidelines for use of various links have also been provided under the link GUIDELINES.

 

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