After 11-5-2002 inter-State works contracts are also liable
to tax under the CST Act. A question arises about deciding the value of goods
for levy of tax. Since works contract is a composite contract, involving supply
of goods as well as rendering of services, it becomes necessary to determine the
value of goods from the composite value for levy of tax under the CST Act.
Normally the said value is to be decided as per the guidelines given by the
Supreme Court in case of M/s. Gannon Dunkerly and Co. (88 STC 204) (SC). For
ready reference the relevant portion of the judgment is reproduced below :
“The value of the goods involved in the execution of a
works contract will, therefore, have to be determined by taking into account
the value of the entire works contract and deducting there-from the charges
towards labour and services which would cover :
(a) labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and
services;
(c) charges for planning, designing and architect’s fees;
(d) charges for obtaining on hire or otherwise machinery
and tools used for execution of the works contract;
(e) cost of consumables such as water, electricity, fuel,
etc., used in execution of the works contract the property in which is not
transferred in the course of execution of a works contract; and
(f) cost of establishment of the contractor to the extent
it is relatable to supply of labour and services;
(g) other similar expenses relatable to supply of labour
and services;
(h) profit earned by the contractor to the extent it is
relatable to supply of labour and services.
The amounts deductible under these heads will have to be
determined in the light of the facts of a particular case on the basis of the
material produced by the contractor.”
However to decide the value of goods, as per above
guidelines, is sometimes very difficult depending upon complexity of the
contract. Under Local Sales Tax Laws, a standard deduction method (i.e.,
abatement at fixed percentage) is provided for giving deduction for labour
portion and the balance is considered as value of the goods. Under the CST Act,
enabling provision for prescribing standard deduction rates is made by way of
proviso to S. 2(h) (definition of ‘sale price’) of the CST Act. However, till
today no such standard deduction rates are prescribed. Therefore, a question
arises as to whether a dealer can opt for such deduction rates provided under
the Local Act, for deciding the value of goods under the CST Act. Though the
issue was debatable, but, after the judgment of the Supreme Court in the case of
Mahim Patram (6 VST 248)(SC) it has became fairly clear. In light of the
observations made by the Supreme Court, it is felt that determination of value
of goods in a works contract is a part of assessment procedure and since by S.
9(2) of the CST Act the provisions of the Local Act for assessment are made
applicable to the CST Act also, the provisions about standard deduction can also
apply for determination of taxable value of works contracts under the CST Act,
1956. However after taking deduction of labour charges on standard deduction
basis, the further issue is about dividing the turnover in relation to
particular slab rates, like liable to 4%/12.5%, etc.
The determination of tax rate for a particular turnover under
the CST Act is provided u/s.8 of the CST Act, 1956. There is no other provision
under the CST Act for deciding the rate of tax. Therefore, though one can
determine the value of the goods, the division of the same in different slab
rates is again a complex issue. Under the Local Act, to avoid the difficulties
of reducing contract value by labour charges as well as deciding taxable value
into different slab rates, etc., the composition schemes are provided. Under
such composition schemes the dealer can pay the tax on total contract value
(lump sum) at prescribed percentage. Thus, such composition schemes make
taxation of works contracts easier and simpler. For example, under the MVAT Act,
2002, two composition schemes for works contracts are provided. Under one of the
schemes, on notified construction contract, a dealer can pay at the rate of 5%
of the total contract value, whereas under the other general scheme, a dealer
can pay at the rate of 8% of the total contract value. Such schemes are normally
optional and they are in lieu of tax payable as per normal rates under the Local
Act. As under such schemes there is no determination of rate of tax as per S. 8
of the CST Act, it was felt that such optional composition schemes cannot apply
to inter-State works contracts. S. 8 provides for deciding rate of taxes as per
legal provisions and there is also no alternative composition scheme under the
CST Act for paying tax on lump sum contract value.
However, it appears that the said issue is also now resolved
by the Central Sales Tax Appellate Authority (CSTAA). This authority, which is
set up to determine inter-State tax disputes under the CST Act, when two or more
states are involved, is constituted under the provisions of the CST Act, 1956.
The said authority has recently decided the above issue in the case of
Commissioner of VAT v. State of Haryana, (23 VST 10). In this case the issue
was about the nature of contract as well as determining assessable value of the
contract. The facts were that the contractor had received a contract from the
Government of New Delhi for improvement of roads, etc. For completing the said
work the contractor transported bituminous mixture (known as dense asphalt
concrete) from Haryana to New Delhi. The New Delhi authorities wanted to tax the
transaction as local sale. The Haryana Government protested the same on the
ground that it is inter-State sale from Haryana liable to tax in Haryana under
the CST Act, 1956. CSTAA agreed to this proposition of the Haryana Government.
The next issue under the said judgment was about discharging
of the CST liability on the said contract in Haryana. In Haryana, there was
composition scheme and a contractor could opt for the same. The CSTAA observed
as under :
