TDS On Works Contract
This query is : Resolved
31 May 2011
We are going to enter into contract with Elevetor supplier.They are going to raise invoice charging VAT For Material and Service Tax For Installation.A Single invoice will be issued showing value of Material and Value of Installation.
What should be rate of TDS ? Under which section? Also provide reference judgement if any ?
However if Supplier is registered as work contractor with any authority and raising invoice as per same format. Is there change in percentage of TDS or change under section ?
Reply asap.
We are going to enter into contract with Elevetor supplier.They are going to raise invoice charging VAT For Material and Service Tax For Installation.A Single invoice will be issued showing value of Material and Value of Installation.
What should be rate of TDS ? Under which section? Also provide reference judgement if any ?
However if Supplier is registered as work contractor with any authority and raising invoice as per same format. Is there change in percentage of TDS or change under section ?
Reply asap.
31 May 2011
ITS A CONTACT OF SALE AND INSTALLATION IS PART OF SALE NO TDS WILL BE THERE
The Andhra Pradesh High Court P.S. & Company v. State of Andhra Pradesh 56 STC 283 issued guidelines on a conspectus of the decisions of the Supreme Court to determine whether a contract is ‘works contract’ or ‘contract for sale of goods’ :
(a) The essence of the contract or the reality of the transaction as a whole has to be taken into consideration in judging whether the contract is for sale or for work and labour.
(b) If the thing to be delivered has any individual existence before delivery as the sole property of the party who is to deliver it, then it is a sale.
(c) If the main object of the contract is the transfer from A to B for a price of the property in a thing in which B had no previous property, then the contract is a contract of sale.
(d) Where the main object of work undertaken by the payee of the price is not a transfer of chattel, qua chattel, the contract is one of work and labour.
(e) If the bulk of the material used in the contract belongs to the manufacturer who sells the end-product for price, that will be a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for work and labour.
(f) A contract where not only work is to be done but execution of such work requires goods to be used may take one of the three forms as under :
(i) the contract may be for work to be done for remuneration and for the supply of materials used in the execution of the work for a price.
(ii) it may be a contract for work in which use of the materials is accessory or incidental to the execution of the work.
(iii) it may be a contract for supply of goods where some work is required to be done as incidental to the sale. Where the contract is of the first type it is a contract consisting essentially of two parts – one for the sale of goods and the other for work and labour. The second type of work is clearly a contract for work and labour not involving sale of goods. The third type is contract for sale where the things are sold as chattel and some work is undoubtedly done but it is done merely as incidental to the sale.
The line of distinction to be drawn for applicability of section 194C is that the contract shall be of the nature of works contract and not contract of sale.
A contract of sale is a contract whose main object is the transfer of the property and delivery of the possession of a property as it is or substantially in the same form to the buyer. Where the main object of the work undertaken by the payee is not the transfer of property in substantially the same form, the contract is one for work and labour.
One can broadly say that when the element of labour and/or skill expended on the materials is relatively small in value, the transaction would most probably be considered as sale of goods.
However, whether a particular contract is one for sale of goods or contract of work and labour would depend upon the main object or predominant intention of the parties which is to be gathered from the terms of contract, the circumstances and custom of trade. Case law decided with reference to Sales Tax Laws may be referred to.
CA MANOJ GUPTA
JODHPUR
09828510543
The Andhra Pradesh High Court P.S. & Company v. State of Andhra Pradesh 56 STC 283 issued guidelines on a conspectus of the decisions of the Supreme Court to determine whether a contract is ‘works contract’ or ‘contract for sale of goods’ :
(a) The essence of the contract or the reality of the transaction as a whole has to be taken into consideration in judging whether the contract is for sale or for work and labour.
(b) If the thing to be delivered has any individual existence before delivery as the sole property of the party who is to deliver it, then it is a sale.
(c) If the main object of the contract is the transfer from A to B for a price of the property in a thing in which B had no previous property, then the contract is a contract of sale.
(d) Where the main object of work undertaken by the payee of the price is not a transfer of chattel, qua chattel, the contract is one of work and labour.
(e) If the bulk of the material used in the contract belongs to the manufacturer who sells the end-product for price, that will be a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for work and labour.
(f) A contract where not only work is to be done but execution of such work requires goods to be used may take one of the three forms as under :
(i) the contract may be for work to be done for remuneration and for the supply of materials used in the execution of the work for a price.
(ii) it may be a contract for work in which use of the materials is accessory or incidental to the execution of the work.
(iii) it may be a contract for supply of goods where some work is required to be done as incidental to the sale. Where the contract is of the first type it is a contract consisting essentially of two parts – one for the sale of goods and the other for work and labour. The second type of work is clearly a contract for work and labour not involving sale of goods. The third type is contract for sale where the things are sold as chattel and some work is undoubtedly done but it is done merely as incidental to the sale.
The line of distinction to be drawn for applicability of section 194C is that the contract shall be of the nature of works contract and not contract of sale.
A contract of sale is a contract whose main object is the transfer of the property and delivery of the possession of a property as it is or substantially in the same form to the buyer. Where the main object of the work undertaken by the payee is not the transfer of property in substantially the same form, the contract is one for work and labour.
One can broadly say that when the element of labour and/or skill expended on the materials is relatively small in value, the transaction would most probably be considered as sale of goods.
However, whether a particular contract is one for sale of goods or contract of work and labour would depend upon the main object or predominant intention of the parties which is to be gathered from the terms of contract, the circumstances and custom of trade. Case law decided with reference to Sales Tax Laws may be referred to.
CA MANOJ GUPTA
JODHPUR
09828510543
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31 May 2011
Sir,
Thanks for your reply.
But one of our experts reply to charge TDS @2% considering it as WORKS CONTRACT.He argues that as the contract would be completed only when the installation is done by company.
Moreover, He suggest us to deduct TDS On Whole amount.
Plz guide us.
Thanks for your reply.
But one of our experts reply to charge TDS @2% considering it as WORKS CONTRACT.He argues that as the contract would be completed only when the installation is done by company.
Moreover, He suggest us to deduct TDS On Whole amount.
Plz guide us.
01 June 2011
Even if tds has to be deducted then show material price & installation charges separately in invoice and tds should be on installation price only.
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