WELCOME

WORKSHOP on TDS

dated the 25th May 2013 at New Delhi

Rakesh Garg, FCARakesh Garg, FCAS S A R & ASSOCIATESS S A R & ASSOCIATES

Rakesh

Garg

, FC

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DVAT-TDS – An Overview DVAT-TDS – An Overview

TDS COMPLIANCES - STEPS To establish, whether it is a works contract. TDS to be

deducted on all WCT including AMC, repair, Furnishing, etc. – All types of works contracts – Big or small

If, Yes; Value on which TDS would be deducted ……>…..> Time of deduction of TDS –

If TDS under VAT and Income Tax is deducted at the same time, there will be least confusion.

Deposit of TDS in Govt. Treasury/Bank Issue of TDS Certificate Filing of TDS Return

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Garg

, FC

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Deduction of DVAT by ContracteeSec. 36(1) - Any person, not being an individual or a Hindu undivided family, who is responsible for making payment to any dealer (hereinafter in this section referred to as “the contractor”) for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether as goods or in some other form) in pursuance of a works contract, for value exceeding twenty thousand rupees …, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by any other mode, whichever is earlier, deduct tax thereon at the rate of [four] percent. [6% - if the deductee is unregistered under DVAT]

DVAT – TDS - PROVISIONS DVAT – TDS - PROVISIONS

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Garg

, FC

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Deduction of DVAT by ContractorSec.36(1A) - Any contractor responsible for making any payment or discharge of any liability to any sub-contractor, in pursuance of a contract with the sub-contractor, for value exceeding twenty thousand rupees ….., for the transfer of property in goods (whether as goods or in some other form) involved in the execution, whether wholly or in part, of the works contract undertaken by the contractor, shall, at the time of such payment or discharge, in cash or by cheque or draft or any other mode, deduct an amount equal to [four] percent of such payment or discharge, purporting to be part of full amount of the tax payable under this Act. [6% - if the deductee is unregistered under DVAT]

DVAT – TDS - PROVISIONS DVAT – TDS - PROVISIONS

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Garg

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Applicable only to the works contracts ------ Not applicable to pure labour jobs or service contracts, which

do not involve any material Not applicable to the contracts where material is not

transferred to the contractee, such as, pest control Not applicable to composite contracts, which are not works

contracts, such as, Event management, Conventions House-keeping

Applicability of DVAT-TDS Applicability of DVAT-TDS

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Garg

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Divisible only through fiction of law (as against the terms of the contract).

Property in the goods is transferred while executing works as per theory of accretion (Immoble.) or accession (moble.)

Every Composite Contract is not Works Contract, e.g., housekeeping contract.

Taxable to the extent of material involved. Merely job work, e.g., job of blasting, leveling, etc., which

does’t involve any material or transfer of property in goods, is not taxable in VAT.

No standard formula. Depends upon facts.

What is Works Contract What is Works Contract

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Garg

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Specification theory has been ruled out by the Courts for determination of any transaction as WCT except in special circumstances, to illustrate: -

Supply of lifts has been held as a sale transaction by the SC in Kone Elevators [(2005)140 STC 22];

Supply of ship held as sale by SC in Hindustan Shipyard [(2000) 119 STC 533];

Hindustan Shipyard vs. Rail. Coach Construction; Supply of printed corrugated boxes by Delhi HC in CIT vs. Dabur

India 198 CTR 375 and supply of printed labels by Maharashtra HC - held as sale for the purpose of sec. 194C of I.T. Act.

Sale vs. Works Contract Sale vs. Works Contract

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Garg

, FC

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A Risky Proposition – Not to deduct TDS as if there are 2 contractsA Risky Proposition – Not to deduct TDS as if there are 2 contracts Ideally there must be two separate contracts; As per other terms also, property in the goods must be tfd.

from contractor to contractee before start of execution – Richardson (1968) 21 STC 245 (SC);

Goods must be supplied free by contractee to contractor for execution of works; and to be properly documented;

Goods must be reflected in the stock of contractee; and Care should be taken in drafting of contracts. States VAT

Deptts. have similar provisions/powers to annul the agreement, if prejudicial to the interest of the Revenue.

Supply + Labour From Same PersonSupply + Labour From Same Person

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Garg

, FC

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Computation of Value, subject to TDS Computation of Value, subject to TDS Ideally TDS should be deducted only on the material value; Labour & Service Charges and Inter-State Sales to be excluded

Nathpa Jhakri JT. Venture vs. State of H.P. (2000) 118 STC 306 (SC); followed the case of Steel Authority of India Ltd. vs. State of Orissa (2000) 118 STC 297 (SC); State of Chhattisgarh vs. VTP Constructions (2007) 12 VST 14 (SC)

Amount of Tax (DVAT) and Service Tax to be excluded If the invoice does not give the bifurcation of goods and

labour, TDS to be deducted on the total value

Value on which TDS to be deductedValue on which TDS to be deducted

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Garg

, FC

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Computation of Value, subject to TDS Computation of Value, subject to TDS After due consideration of the rival stands, we find that the

proposal made on behalf of the petitioners as an alternative to striking down statutory provisions being in consonance with the judgments of the S.C. has to be accepted. This is so as the States propose to do their duty of providing an appropriate mechanism to give effect to the law laid down by the Supreme Court. Accordingly, we hold that impugned provisions for deduction of tax at source will apply only to the taxable turnover, i.e., after deducting service component and turnover relating to sales outside State, in the course of inter-State sales or in the course of import. Larsen & Toubro Ltd. vs. State of Haryana (2011 ) 37 VST 428 (P&H)

Value on which TDS to be deductedValue on which TDS to be deducted

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Garg

, FC

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Computation of Value, subject to TDS Computation of Value, subject to TDS The petitioners, being works contractors, entered into

separate agreement with Railways for supply of boulders in connection with construction of bridge in Assam. The boulders were to be procured from various sites in the State of Arunachal Pradesh and the same was in the knowledge of Railways. It was held that supply of boulders from Arunachal Pradesh to Assam was an inter-State sale and the turnover in relation thereto was to be excluded while deducting tax (VAT) at source by Railways. [Rock International vs. State of Assam (2007) 11 VST 111 (Gau)]

Value on which TDS to be deductedValue on which TDS to be deducted

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Garg

, FC

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Computation of Value, subject to TDS –Advance PaymentComputation of Value, subject to TDS –Advance Payment Tax cannot be deducted by the contractee on the advance

payments made to the contractor. [CTT vs. New Holland Traders India (P) Ltd (2009) 22 VST 444 (All)]

Provision of TDS does not apply to all payments; but applies only to those payments, which are for the discharge of any liability on account of valuable consideration payable for transfer of property in goods. [Delhi Electric Supply Undertaking vs. CST (2006) 146 STC 72 (All)]

No TDS on mobilization advance against bank guarantee, repayable with interest. [Hindustan Construction Company Ltd. vs. State of Haryana (1998) 109 STC 660 (P&H)]

Value on which TDS to be deductedValue on which TDS to be deducted

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Garg

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Contractee: Every person, other than an individual and Hindu undivided family, responsible for making any payment to any contractor for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether as goods or in some other form) in pursuance of a works contract.

Contractor : Every contractor, whether an individual or H.U.F. or otherwise, responsible for making any payment to any sub-contractor for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether as goods or in some other form) in pursuance of a works contract.

Who is liable to deduct TDSWho is liable to deduct TDS

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Garg

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Contractee: At the time of credit of such sum to the account of

contractor or at the time of payment thereof in cash or by any other mode, whichever is earlier, on account of valuable consideration payable for the transfer of property in goods.

Contractor: At the time of such payment or discharge, in cash

or by cheque or by draft or any other mode to the sub-contractor for transfer of property in goods.

When to deduct TDSWhen to deduct TDS

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Garg

, FC

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Under DVAT, TDS Rates are very high. In a chain of sub-contracts, it might be 4% + 4% + so on

Powers to issue lower deduction of TDS vests with the Commissioner only

Circumstances:

(i) Where any works contract involves both transfer of property in goods and labour and service, and commissioner is satisfied that the deduction of tax on a part of the sum in respect of the works contract is justified; and

(ii) Where any works contract involves only labour and service and the commissioner is satisfied that no deduction of tax is justified.

Lower TDS CertificateLower TDS Certificate

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Garg

, FC

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RATE OF TDSRATE OF TDS

RATE OF TDS

From 1.2.11 to 15.1.13

From 16.1.13 to

31.3.13

From 1.4.13

If contractor or sub-contractor, as the case may be, to whom payment is made, - - is registered under DVAT Act 2% 4% 4%

- is not registered under DVAT Act 4% 4% 6%

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Garg

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Pay TDS within 15 days of the end of the month in which tax was deducted – (pay Electronically - other than Govt. deductor)

Issue TDS Certificate in DVAT-43 in quadruplicate: Two copies to the deductee (One will be attached with

DVAT Return) One copy to be filed by deductor with quarterly TDS return One copy to be retained by deductor

Credit for TDS can be claimed only when TDS certificate is received by the contractor along with Challan

Payment of TDS & TDS CertificatesPayment of TDS & TDS Certificates

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Garg

, FC

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Penalty for non-deduction of TDS or non-payment A sum not exceeding twice the amount deductible, besides

the tax deductible but not so deducted and, if deducted, not so deposited into Govt. Treasury.

Interest for non-deduction of TDS or non-payment Liable for simple interest at the rate of 15% per annum on

the amount deductible under this section but not so deducted, and if deducted, not so deposited.

Interest shall be calculated from the date on which such amount was deductible to the date on which such amount is actually deposited.

Payment of TDS & TDS CertificatesPayment of TDS & TDS Certificates

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Garg

, FC

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Apply for TAN within 7 days from the date when tax was deductible in DVAT-45

File Quarterly TDS Return within 28 days from end of quarter in Form DVAT-48

Preserve TDS return for 7 years Penalty for late application of TAN or late filing of TDS

Return: A sum of Rs. 200/- per day from the day on which requirement arose until the failure is rectified; Maximum - Rs. 20,000/-

TAN and TDS ReturnTAN and TDS Return

Rakesh

Garg

, FC

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Be careful in determining the nature of activity – TDS is deductible in works contract only

Compare the rate of WCT vs. Sale before awarding an contract to minimize the impact

Since rate of TDS are high – Non-compliance of provisions would be a costly proposition.

Otherwise, also penalty provisions are strict. Be careful, and Take care.

Precautions – To SummarizePrecautions – To Summarize

THANK YOU

Rakesh Garg, FCARakesh Garg, FCA

S S A R & ASSOCIATESS S A R & ASSOCIATESPh: (011) 65960912-13, Ph: (011) 65960912-13,

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