hi there,
we are civil contractors (highway construction ~ works contract) and while evaluating a project in karnataka, we have a disagreement among ourselves with respect to VAT liability of the project
some of my colleagues are in the opinion that total gross receipts of the project are taxable @ 14%
this view was based on tax rate specified for item-23 of Sch-6 U/s 4 of KA VAT ACT
after doing some research i started to think that since State Govt. can levy tax only on TPG (Transfer of property in Goods) but not on labour component. so taxable turnover has to be ascertained for the given tax period by deducting allowable deductions as per Rule-3(2) and then 14% Output VAT shall be offered as per item-23 of Sch-6 U/s 4
If we assume 50% material component in a works contract after deducting labour, consumables, etc as per Rule-3(2), output VAT will be 14% over 50% = 7% over gross receipts.
and we will pay this amount after adjusting ITC and TDS if any
any comments are appreciated, thanks
CAclubindia
