Works contract

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Govardhan Reddy (Querist)
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23 October 2013 pls explain the implications of VAT in works contract where 1) contract is of composite nature and no material is supplied by contractee for for the contract. 2) contract is of composite nature and free material is supplied by contractee. 3) contract is of composite nature and material is supplied by contractee on cost recovery basis .

CA UMESH DULAL

CA UMESH DULAL (Expert)
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23 October 2013 If you have opted for composition scheme, then pay the tax at the rate applicable to you on total amount billed by you

if you have not opted for composition scheme,
take deduction on account of labour and other service.

if you have maintained proper books and can derive the value of goods transferred, then pay tax on value of goods transferred.

otherwise, check the type of your work contract and vat rule to find the abatement of labour and other service portion

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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23 October 2013 In addition to the above points Please note : Sl No (1) is normal contract,labour at actuals +profit(GP)(or 30% in some cases) to be reduced fro the gross receipts and pay vat on the balance after taking set off of ITC.Sl No(2) this is pure labour contract and no VAT liability arises. Sl No(3) ,Here you have to include the value of material(goods consumed) in the invoice,collect output tax from the contractee and pay in full to the govt(if TDS not done).In this case ITC will not be available because the contractee has purchased most of the material on his name and paid for it.The contarctor may avail ITC of the goods purchased and used in the works.TDS made by the contractee can be claimed as set off against the payable output tax.Cost of the contract raises by the ITC value and there will be tax on ITC.....mjk

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Govardhan Reddy

Govardhan Reddy (Querist)
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24 October 2013 thank u sir..

Govardhan Reddy

Govardhan Reddy (Querist)
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24 October 2013 but let me tell you in our company there are some contracts in which contractors will provide the required material as well as labour for the contract. in this contract if the contractor provides separate bill for labor and material, do we need to pay VAT on the value of material used in the contract?
pls guide.