VAT deduction on EPC works contracts depends on a notified estimated value; excess tax retention is unauthorised and refundable

Section 22(3A) of the Andhra Pradesh Value Added Tax Act applies only where tax is separately added to an already estimated contract value; where no estimated value was notified at the tender stage, the deduction mechanism falls under section 22(3). The note explains that in an EPC works contract, the contractor had already sought quantification and the competent tax authority had fixed taxable turnover for deduction. On that basis, excess tax deducted from running bills was not authorised under the statutory scheme and could not be retained without remittance or assessment adjustment. The excess amount was therefore refundable.

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Issues: Whether the contract fell under section 22(3) of the Andhra Pradesh Value Added Tax Act, 2005 or section 22(3A) of that Act, and whether the excess tax deducted at source from the running bills was authorised and refundable.

Analysis: The tender notice did not notify any estimated contract value when bids were invited, and the internal benchmark value was arrived at only after receipt of tenders. The contract was for an EPC works contract where the contractor was required to undertake investigation, design and execution and quote a lump sum price. The petitioner had already sought quantification under section 22(3) read with rule 18(1)(f), and the competent Commercial Tax issued form 501D fixing the taxable turnover for deduction. Section 22(3A) applies only where tax at the prescribed rate is separately added to the estimated value of the contract. On the material placed, that condition was not satisfied. The deduction made by the contractee was only to be remitted to the tax department subject to assessment adjustments, and retention of excess amounts without remittance was contrary to the statutory scheme.

Conclusion: Section 22(3A) was held inapplicable, the higher deduction was held unauthorised, and the excess amount was held refundable to the petitioner.

Final Conclusion: The writ petition succeeded and the respondents were directed to return the excess tax deducted at source.

Ratio Decidendi: Section 22(3A) of the Andhra Pradesh Value Added Tax Act, 2005 applies only where tax is separately added to an already estimated contract value; in the absence of such notified estimate, deduction must be governed by section 22(3) and excess retention is impermissible.

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