Tax deduction on works contracts limited to taxable turnover after excluding labour and inter state sales; contractor declaration required. Deduction under section 27 of the Punjab VAT Act, 2005 for tax at source on payments to works contractors applies only to the taxable turnover after excluding labour and service components and turnover relating to inter State sales or import; contractors must furnish a declaration of taxable turnover to the contractee and designated assessing officer, without prejudice to assessment, interest, penalty and recovery provisions. (AI Summary)
In an application u/s 85 of Punjab VAT Act, 2005 moved by me on behalf of my client, it has been held by the Excise and Taxation Commissioner, Punjab on 04-12-2013 that Judgement of Punjab & Haryana High Court in CWP 14797 of 2010 Larsen & Toubro Limited Versus The State of Haryana and others 2010 (10) TMI 942 - PUNJAB AND HARYANA HIGH COURT is binding on all concerned works contractors.
It has also been further held that since the matter relating to deduction of Works Contract Tax(i.e VAT TDS) u/s 27 of Punjab VAT Act, 2005 only on the taxable turnover part of the works contract i.e after excluding labour and service portion and the sales u/s 3, 4, 5, of CST Act, 1956 and not on the entire contract, stands already decided by the Punjab & Haryana High Court in CWP 14797 of 2010 therefore the said rulling is binding on all the concerneds i.e including the works contractors like applicant.
What was decided in CWP 14797 of 2010 by Punjab & Haryana High Court:In the CWP No. 14797 of 2010 Larsen and Toubro vs State of Punjab, it was decided by the Hon'ble High court that WCT(VAT TDS) shall be deducted only on the taxable turnover part of the works contract and not on the entire contract, it was further directed to the petitioner that he should file a declaration to his contractee and the designated officer stating therein the taxable turnover with every RA Bill.
The operative part of the Judgement of the High Court in the said case is produced here below:
'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 Hon’ble Supreme Court 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 Hon’ble 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. The petitioner will give declaration in respect of such payments to the persons making the payment with a copy to the concerned assessing authority. This will be without prejudice to the provisions of assessment, levy of interest, penalty, recovery and all other statutory provisions. This arrangement will continue till any other appropriate arrangement is worked out by the States of Punjab and Haryana.'
Questions asked in application u/s 85:The following questions were asked in the said application moved u/s 85 of Punjab VAT Act, 2005
1. Whether after the judgement of Punjab & Haryana High Court in Larsen & Toubro Limited Versus The State of Haryana and others 2010 (10) TMI 942 - PUNJAB AND HARYANA HIGH COURT CWP No. 14797 of 2010 dated 26.10.2010, the provisions of section 27 of Punjab VAT Act, 2005 for deduction of tax at source from the payments made to a works contractor shall be applicable only to the taxable turnover i.e after deducting service component and turnover relating to sales outside State, in the cource of inter-State sales or in the cource of import?
2. If the answer to the above question is in affirmative, whether tax u/s 27 of Punjab VAT Act, 2005 of the applicant i.e M/s Dadheech Infrastructure Private Limited shall be deducted by the contractee only on the taxable turnover part of the works contract i.e after excluding service/labour component, turnover relating to sales outside State, in the cource of inter-State sales or in the cource of import and not on the whole contract receipts?
3. Whether the applicant i.e M/s Dadheech Infrastructure Private Limited should also give similar declaration in respect of payments received by it in works contract to its contractee and also a copy to the concerned assessing authority without being prejudice to the provisions of assessment, levy of interest, penalty, recovery and all other statutory provisions as is being directed by the Punjab & Haryana High Court to the petitioner in the said case of Larsen & Toubro Limited Versus The State of Haryana and others 2010 (10) TMI 942 - PUNJAB AND HARYANA HIGH COURT.
Order of the Commissioner:In reply to the said application the Commissioner has decided as follows:
'As the issue already decided by Hon'ble High Court of Punjab and Haryana Court, the undersigned cannot take up this issue u/s 85 of the PVAT Act.
The rulling of Hon'ble High Court in CWP No. 14797 of 2010 is binding on all concerned.'
Concluding Implications of the order of Excise and Taxation Commissioner, Punjab:Although the law was already settled by the Hon'ble Punjab & Haryana High Court in the said csae but still the application was moved so as to get a clarification to the same effect from Department itself, so that in case any contractee follows the law laid down by the Hon'ble High Court in CWP 14797 of 2010, no action against such contractee is taken by any authority in the Excise and Taxation Department, Punjab, on the ground that such law laid down is applicable only to the petitioner in the said writ petition.
The implications of the said order of Excise and Taxation Commissioner, Punjab in response to application moved u/s 85 is that every contractee while deducting WCT i.e VAT TDS of a contractor u/s 27 of Punjab VAT Act, 2005 must deduct such tax only on the taxable turnover part of the contract i.e after excluding labour or service component and the turnover u/s 3, 4, 5 of CST Act, 1956, subject to furnishing of declaration by the contractor to the contractee as well as designated officer, stating therein the taxable turnover, without prejudice to the provisions of assessment, tax, penalty and interest.
No tax u/s 27 of Punjab VAT Act, 2005 which is currently 6 percent , is required to be deducted now onward on the labour part of the works contract subject to the declaration as mentioned above. It will save a lot of working capital of the works contractors.
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