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Vinky (Querist)
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15 November 2011 Sir,

I have a business of Civil Contractor & execute work contract with Indian Oil Corp. Ltd. in PUNJAB.

The Indian Oil Corp. Ltd. deducts 4% WCT from my total value of bill & 2% of TDS, [example my total bil is of Rs. 1,00,000/- IOCL deducts Rs. 4000/- as WCT (work contract Vat)& Rs. 2000/- as TDS (Income Tax)].

I purchase items applicable under 4% tax & also 12.5% tax, I also purchase 4% tax goods against Form "C" from Haryana to execute the work.

I have filed my returns of sales tax as under for year 2007-2008 :-

Payment Received = Rs. 1,00,000-00
Less Labour = Rs. 33,000-00
------------------------
Rs. 67,000-00

Tax payable @ 4% on Rs. 67,000/-

Tax Payable 4 % = Rs. 2680-00
Tax deducted by IOCL @ 2% = Rs. 2000-00
vat paid on purchase 4% = Rs. 1000-00
vat paid on purchase 12.5% = Rs. 500-00

Total VAT payable = Rs. 2680-00
Total Vat + WCT = Rs. 3500-00
-----------------
Refund Rs. 820-00

As above i have filed my returns.

My case is under for Assessment & ETO is saying that he will charge as follows:-

Payment Received = Rs. 1,00,000-00
Less Labour = Rs. 33,000-00
------------------------
Rs. 67,000-00

As per ETO,Vat payable according to the purchase

50% as 12.5% & 50% as 4%

i.e 33500 @ 12.5% = Rs. 4187-50
33500 @ 4.0% = Rs. 1340-00
--------------------
Tax Payable Rs. 5527-50
Tax deducted by IOCL @ 2% = Rs. 2000-00
vat paid on purchase 4% = Rs. 1000-00
vat paid on purchase 12.5% = Rs. 500-00

Total VAT payable = Rs. 5527-50
Total Vat + WCT = Rs. 3500-00
-----------------
More Tax Payable Rs. 2027-50
Penalty Rs. 3344-00
-----------------
Rs. 5371-50

I was thinking i will get refund according to the above filed returns but the ETO is asking for additional Tax & penalty. He is making it to Rs. 5.00 Lac.

Please help me out, I have heard of composite tax scheme by center also, where we need not to file returns & need not to pay any additional taxes or get refunds.

Can i opt that scheme now.

plz help me out my profit margins are too low.

will the CST purchase of iron on which 4% tax is applicable will also be included & the ratio of 50:50 of purchase local 4 % and 12.5% will change ?

Please help me out.

Kishanlal Paliwal

Kishanlal Paliwal (Expert)
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16 November 2011 The nature of transaction in your case may be termed as "deemed sales" and thus covered under WCT.

Thus the Sales Tax could be levied on the material portion only (not on the labour).

Composition Tax is a methodology to get the breakup of Material and Labour portion artificially by virtue of laws and judgements.

I understand that the breakup is already decided between you and the contractee.

You are advised to consider as follows;
1. make a comparision taking into account the mixture of Material of Labour proportion as per your business norms.
2. The rate of composite tax applicable.
3. The method of your record keeping is also very significant factor for this.
4. The limit of Turnover Tax, if applicable in your state. This is a additional tax burden on the big contractors.
5. You would not be entitled to get any set off benefit under state Sales Tax Laws.
6. The VAT on deemed sales (i.e. Contract with material and labour) has been provided by all states adopting VAT and provides for following three options;

6a – Actual Labour Deduction (Legal Option)

6b – Standard Labour Deduction (Legal Option)

6c - Composition Tax (Non Legal or Alternative Option)

under this VAT on material value is calculated (not on the material cost). However, the Contractor has to maintain proper books of accounts and the other records to identify the material value of the Work Contract.

A very carefull analysis desired before concluding the facts and certainly you are the only BEST JUDGE!!

With due authorities by virtue of the law/judgements

Vinky

Vinky (Querist)
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16 November 2011 Plz help, the punjab state govt dosent' allow composite tax. whereas we are intrested in composite tax @ 4 %

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MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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17 November 2011 Mr Vinky,
There are some errors in your returns. You say IOC have deducted Rs4000/- but reported wrongly as Rs2000/ only.You rectify it. After deducting labour of Rs33,000/- the entire balance need not be purchases only. It also includes some expenses. You also declare your actual purchases supported by bills. The ETO has to accept them. He can not make his own estimation without any basis upto Rs5 lakhs.Composite scheme can not be for past period. It can be opted for future.That will be convenient to you.As per the caculations shown by you you have to get refund of (4000+1500=5500-2680=2820)Rs2820.The ETO may be threatening to extract some bribe. For the puechases made against 'C' form you have to pay full tax without deductions. MJK