Advance VAT on works contracts limited to the taxable goods component, not labour charges in composite bills.

Advance value added tax under the Bihar VAT framework was confined to the consideration attributable to transfer of property in goods, and not to labour charges included in a composite works contract bill. Section 41 of the Bihar Value Added Tax Act, 2005, read with Rule 29 of the Bihar Value Added Tax Rules, 2005, requires exclusion of labour charges and other non-taxable amounts from advance tax deduction. Where the bills did not separately identify the goods and labour components, deduction could be made only to the extent legally recoverable on the taxable component, and the contractor was directed to resubmit the bills with separate particulars. The writ was disposed of with directions affecting future and unpaid bills.

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Issues: Whether advance value added tax could be recovered from labour charges included in composite bills raised in execution of a works contract, and whether the contractor was required to segregate the amounts attributable to transfer of property in goods and labour charges.

Analysis: Section 41 of the Bihar Value Added Tax Act, 2005 authorises recovery of advance value added tax only from the consideration payable in respect of transfer of property in goods. Rule 29 of the Bihar Value Added Tax Rules, 2005 makes it clear that no deduction is to be made from amounts referable to labour charges or other amounts excluded by the rule while deducting advance tax. Since the bills were composite and did not separately disclose the amounts relatable to goods and labour, the payer was justified in deducting tax only to the extent legally recoverable, and the contractor was directed to resubmit the bills with separate particulars.

Conclusion: Advance value added tax was not recoverable on labour charges, and deduction was confined to the taxable component relating to transfer of property in goods. The writ petition was accordingly disposed of with directions beneficial to the petitioner in respect of future and unpaid bills.

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