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Works contract

Shyam Kanabar (Article) (160 Points)

15 December 2011

Concept of Works contract with Example? AND What is the meaning of stock transfer? AND What is the difference between works contract and stock transfer with justifiable example.

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vishnupriya (CA Final) (1418 Points)
Replied 15 December 2011

WORKS CONTRACT:

Any service provided or to be provided to any person, by any other person in relation to the execution of a works contract.

As per section 65 (105) (zzzza) of Finance Act, 1994, Works Contract mean

(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or

(e) turnkey projects including engineering, procurement and construction or

(f) commissioning (EPC) projects;

Works Contract does not include contract of services in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

The rate of servicetax is 4% under composition scheme and service tax becomes chargeable on receipt of the payment and on the amount for receipt.

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vishnupriya (CA Final) (1418 Points)
Replied 15 December 2011

Difference:

Works Contract resembles providing of service (in general it means sale of service) but stock transfer is not a sale, so it is mandatory to submit Form-F before transfer of stock to avoid tax.

Stock transfer/branch transfer is not subject to tax since there is no ‘sale’.

Stock transfer can be only of standard goods. Stock transfer of tailor made goods for a specific customer is a bogus stock transfer. It can be held as inter-state sale and sales tax may be payable.

If buyer is identifiable before goods are dispatched, it is ‘Inter State’ sale and not a ‘stock transfer’.

If the transfer involves non-standard goods or different types of goods, then that will be works contract.