Vibhash Kumar Sah (CA) (73 Points)
08 July 2009Dear All,
We are Vat Registered sub contractrator of Road Construction in Andra Pradesh. The Main Contractor has given us some Machinery on hire. On the bill of hire charge the contractor has imposed Vat @ 12.5%. Can we take credit of this Input Vat. We have not opted for composite scheme of Vat.
Thanks & Regards,
Vibhash Sah
RAJU
(LEARNER)
(1089 Points)
Replied 09 July 2009
Dear Sir,
Since Hiring falls within the definition of `Sale` and as the machinery is used for the purpose of works contract, credit can be availed from the output tax liability of construction works contract.
Regards
Dharmaraju
Vibhash Kumar Sah
(CA)
(73 Points)
Replied 09 July 2009
Dear Dharmaraju
Thanks, but i need more specific clarification. how input credit can be taken without increasing my output vat liability.
RAJU
(LEARNER)
(1089 Points)
Replied 09 July 2009
Dear Sir,
As per Section 2(19) of Karnataka VAT Act, 2003, input has been defined as any goods purchased by a dealer in the course of his business for re-sale or for use in manufacture of processing or packing or storing of other goods or any other use in business.
Input tax paid on hiring of machinery is very much essential to carry out the work. Without the use the work cannot be completed and thereon there can be no output tax liability. It is similar to use of machinery for manufacture of goods.
Vibhash Kumar Sah
(CA)
(73 Points)
Replied 09 July 2009
Dear Dharmaraju,
For calculating the output tax, we take (the total of material consumed in construction +10% for value addition) as assessable value. Now if we take input credit of hire charge VAT then we have to include the amount of hire charge in our assessable value.
RAJU
(LEARNER)
(1089 Points)
Replied 09 July 2009
It depends on the terms of contract. Normally, in case of work contract a distinction is made between labour and material portion. If you can explain your billing pattern, it will be easy to suggest the alternatives.
Vibhash Kumar Sah
(CA)
(73 Points)
Replied 09 July 2009
Its a lump sum contract without having segregation of Material & Labour. We have taken this contract on back to back basis from a contractor, i.e., we are sub-contractor. The machinery/Plant has been given by the contractor to us on hire basis.
RAJU
(LEARNER)
(1089 Points)
Replied 09 July 2009
Since it is a lumpsum contract there is no requirement to add hire charges separately (As it is not agreed). You would have considered the cost of hire charges while quoting the contract price. I presume that the contractor will be billing for hire charges and will be collected the VAT separately. In such an event, you are eligible to claim credit of input tax paid on hire charges since it is used for execution of works contract liable for output tax.
Manoranjan Rout
(Accountant)
(50 Points)
Replied 04 September 2012
DEAR SIR MY CONSTRUCTION WORK IS GOING ON IN UTTAR PRADESH , THERE IS A HIRING PARTY RAISED A BILL TO US WITH VAT 5%, CAN WE TAKEN THE INPUT CREDIT ON THIS BILL.
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