Composite works contract TDS may be deducted on gross bill value, with labour and service segregation left to assessment.

In a composite works contract involving structural work and earth work, TDS under the Jharkhand VAT framework may be deducted from the gross bill value at payment stage. The court read Section 44 and Rule 23 with the VAT scheme to hold that the contractee is not required to segregate labour and service components before deduction; that exercise belongs to assessment, where taxable turnover and allowable deductions are determined on the basis of records. The 4% deduction direction from the entire bill, including earth work, was treated as consistent with the statutory scheme and not liable to be quashed.

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Issues: (i) Whether, in a composite works contract involving structural work along with earth work, tax deduction at source could be made on the whole bill amount under Section 44 of the Jharkhand Value Added Tax Act, 2005 and Rule 23 of the Jharkhand Value Added Tax Rules, 2006. (ii) Whether the direction requiring deduction of VAT at source at 4% from the entire value of the bill, including earth work, was contrary to law and liable to be quashed.

Issue (i): Whether, in a composite works contract involving structural work along with earth work, tax deduction at source could be made on the whole bill amount under Section 44 of the Jharkhand Value Added Tax Act, 2005 and Rule 23 of the Jharkhand Value Added Tax Rules, 2006.

Analysis: The statutory scheme permits deduction of tax at source in respect of valuable consideration paid for execution of works contracts involving transfer of property in goods. The Court read Section 44, Rule 23, and the relevant notification together with the broader VAT framework, including Rule 22, which provides for determination of taxable turnover and deductions of labour and service components at the assessment stage. It held that segregation of labour and service charges at the point of payment is not the function of the contractee and would make the TDS mechanism unworkable. The extent of labour and service elements is a factual matter to be examined by the assessing authority on the basis of books and supporting documents.

Conclusion: The contractee was not obliged to exclude labour and service charges before making TDS from the composite works contract bill, and deduction on the whole bill amount was held to be valid.

Issue (ii): Whether the direction requiring deduction of VAT at source at 4% from the entire value of the bill, including earth work, was contrary to law and liable to be quashed.

Analysis: The Court found that the agreement involved composite work and that earth work could not be treated, on the mere description in the agreement, as purely labour and service with no transfer of property in goods. It further held that the notification fixing the rate of deduction was not to be read in isolation, but harmoniously with the Act and the Rules, which already contained the mechanism for allowable deductions and adjustment at assessment. The communication impugned before the Court was treated as a clarification consistent with the statutory scheme rather than an illegal direction.

Conclusion: The impugned direction for deduction at 4% from the entire bill value was upheld and the request to quash it was rejected.

Final Conclusion: The writ petition failed because the statutory framework permitted deduction at source from the composite works contract bill, while the proper segregation of labour and service components was left to assessment and adjustment under the Act and Rules.

Ratio Decidendi: In a composite works contract under the VAT regime, tax deduction at source may be made from the gross payment for effective recovery of tax, and the ascertainment of deductible labour and service components is to be worked out at the assessment stage under the statutory scheme, not by the contractee at the time of payment.

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