The deductions which are allowable while opting to pay VAT on taxable turnover involved in works contracts in composite scheme under Punjab VAT Act 2005 have been prescribed by adding a sub rule 6 to rule 15 of PVAT Rules.

There was no composite scheme for payments of VAT on taxable turnover involved in works contracts under PVAT Act 2005 untill sub section 2-A to section 8 was added by an ordinance dated 21-10-2010. Section 8(2-A) runs as under:

“(2-A)     Every person executing works contracts shall pay tax on the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under this Act:

Provided that where accounts are not maintained to determine the correct value of goods at the time of incorporation , such person shall pay tax at the rate of twelve and half per cent on the total consideration received or receivable, subject to such deductions , as may be prescribed

Thus where no books of accounts are maintained so as to determine the correct value of goods incorporated in works contract then tax @ 12.5% is payable on the whole value of consideration received or receivable subject to deductions which now have been prescribed under newly added Sub Rule 6 of Rule 15.

This composite scheme and the prescription of deductions under this scheme will help ending the prospective litigation in works contracts to a great extent and will also be of great help to the dealers executing works contract, who does not want to maintain  books of accounts  so as to determine the correct value of goods incorporated in works contracts, since the centre point of litigation in works contracts has always been revolving around the allowable expenses that are deductible from works contracts.

The deductions prescribed under newly added rule 15(6) will be applicable not only to the persons opting to pay tax under proviso to section 8(2-A) but also to other works contractors (who are maintaining books of accounts to determine the correct value of goods incorporated in works contracts) as well if the deductions claimed by them under Rule 15(4), are considered to be unreasonably high in view of the nature of contract.

It is further provided under Rule 15(6) that in such cases the contractor shall not be eligible to claim input tax credit and shall not be eligible to issue VAT Invoice. This Rule 15(6) has been added vide notification No No.G.S.R.6 /P.A.8/2005/S.70/Amd.(33)/2011 dated 17-02-2011 and is applicable w.e.f date of publication of the said notification in the official gazette.

Rule 15(6) and the deductions prescribed therein are produced here below for ready reference of all concerned:

“(6)              Where the contractor has not maintained the accounts to determine the correct value of the goods at the time of incorporation or deductions being claimed under sub-rule 4 are considered to be unreasonably high in view of the nature of contract, he shall pay tax at the rate of twelve and a half percent on the total consideration received or receivable, subject to the deductions specified in the table below. In such cases the contractor shall not be eligible to claim input tax credit and shall not be eligible to issue VAT Invoice:-

TABLE

Serial. No. Type of contract Percentage of the total value eligible for deduction
1 (a)  Electrical Contracts:-
(i)   H.T Transmission lines; Twenty percent
(ii)  Sub-station equipment; Fifteen percent
(iii)  Power house equipment and extensions; Fifteen percent
(iv)  11 and 22 KV and L.T distribution lines 12+5;        and Seventeen percent
(v)   All other electrical contracts. Twenty five percent
(b)  All structural contracts Thirty five percent
2 Installation of plant and machinery. Fifteen percent
3 Fixing of marble stabs, polished granite stones and tiles (other than mosaic tiles.) Twenty five percent
4 Civil works like construction of buildings, bridges, roads etc. Thirty percent
5 Fixing of sanitary fittings for plumbing, drainage and the like. Fifteen percent
6 Fabrication and erection of structural works of iron and steel including fabrication, supply and erection of Iron trusses, purfins and the like. Fifteen percent
7 Fabrication and installation of cranes and hoists. Fifteen percent
8 Fabrication and installation of elevators (lifts) and escalators Fifteen percent
9 Fabrication and installation of rolling shutters and collapsible gates Fifteen percent
10 Installation of doors, door frames, window frames and grills. Twenty percent
11 Supply and installation of air conditioners and air coolers Fifteen percent
12 Supply and installation of air conditioning equipments including deep freezers, cold storage plants, humidification plants and dehumidres. Fifteen percent
13 Supply and fixing of furniture and fixtures, partitions including contracts for interior decorators and false ceiling. Twenty percent
14 Construction of Railway coaches and wagons on under carriages supplied by Railways. Thirty percent
15 Construction of mounting of bodies of motor vehicles and construction of trailers. Twenty percent
16 Supply and erection of weighing machines and weigh bridges. Fifteen percent
17 Painting, Polishing and White Washing. Twenty five percent
18 Lying of pipes. Twenty percent
19 Tyre retreading Forty percent
20 Dyeing and printing of textiles Forty percent
21 Printing of reading material, cards, pamphlets, posters and office stationery. Forty percent
22 All other contracts. Thirty percent”

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(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: [email protected], M +919815243335)

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