Vat liability in case of sub contract

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Viren Kularia (Querist)
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08 February 2013 our client has assigned sub contract to other party which has purchased materials from Tamilnadu state. the sub contractor is not having TIN of state of Tamil Nadu..now as per the consultant the contractor is liable to pay VAT on the purchases made by the sub contractor.
facts
Main Contractor : from Gujarat
Sub Contractor : From Gujarat
Services provided in the state of tamilnadu
material purchase bills were raised in the name of sub contractor
as per the opinion of consultant, the main contractor is liable to pay VAT @14.50% on 40% of total value of the contract..

humble request to clarity the matter..thanks

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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10 February 2013 Mr Viren,
Here the sub-contractor and the main contractor are liable register in the state of TN and pay taxes.The sub-contractor has already made purchases in TN and executed a contract work.He issues a bill on such work entrusted to him to the main contractor. This is the purchase done for the main contractor and he completes the work of his client in TN and issues a bill on it. The sub contractor collects tax from the main contractor and that has to be paid to the govt.The main contractor,on his part,does some tax collection and that is to be paid to the govt.In this way both are liable...MJK

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Viren Kularia

Viren Kularia (Querist)
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12 February 2013 Respected sir, Mr. M J Krishna murty..i received your prompt reply, Thankyu very much. sir, question is that..our consultant explained us that we are liable to pay tax @14.5% on based on works contract system now i am of the opinion that we can pay tax on lumsum basis @4% or other rate as prevailing in the state of tamilnadu.

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Viren Kularia

Viren Kularia (Querist)
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12 February 2013 sir, that consultant intimated us that. we are liable to pay tax @14.5% on total bills issued by us to our party(debtor) but i am of the view that VAT liability should be on the amount of material purchased by our sub contractor(un registered dealer)to provide services to our debtor and not on all bills issued by us to debtor.

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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12 February 2013 Mr Viren Kularia,
Option to pay under composition scheme @4% is always available subject to the conditions laid out in the rules.You can collect tax 14.5% on your bills to the debtor or say client and deduct the input tax paid on the purchases. Here,I understand, the entire work is given to a subcontractor who is unregistered. The purchase bills are in the name of subcontractor,therefore,the main contractor can not take the credit of taxes paid in those bills. As the supplier(i.e.subcontractor) is unregistered the main contractor has to issue self purchase bills and collect VAT @14.5% on the maaterial value+his profit and pay to the govt tthrough returns.Then when the main contractor raises his bills to the client he can collect VAT @14.5%,and in the returns,deduct the tax already paid on behalf of subcontractor and pay balance to the govt.....MJK

Viren Kularia

Viren Kularia (Querist)
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12 February 2013 Respected MJK Sir, thank you very much..now i got the point clarified...thanks a lot..i got that there is no any escapement to the main contractor from the VAT liability.