Works Contract - failure to deduct tax - Penal Consequences to Awarder and Contractor

[Ramachandran and Ramachandran Associates Subramanian]

The facts :

i. The Awarder has engaged the Contractor for a Civil Contract of Rs 2 crores

ii. The Contractor has been permitted to pay tax under the Compounding Scheme and has submitted the Certificate obtained from the Assessing Authority to the Awarder. Rate of Tax at the rate of 3 percent .

iii. The Awarder has been making advance payments periodically.  However, the Awarder was not deducting Tax at the rate of 3 percent .  No tax was also remitted by the Awarder.

iv. The Contractor has not so far raised any Tax Invoice as contemplated in the VAT Rules. The Contractor has been accounting it as Advance Receipts.

v.The Contractor has recently been served a notice from the Intelligence Wing of the CT Department seeking to impose penalty for filing untrue returns etc.,

vi.The  Awarder at the behest of the Contractor has now remitted the tax at the rate of 3 percent on all the Advance Payments made. The Awarder has also issued Certificates evidencing payment of Taxes to the Contractor.

The questions are :

1. When the Awarder has to deduct tax and remit the same, is there any liability on the part of  the Contractor  especially when the Contractor has furnished the permission from the Assessing Authority for the Compounded Tax ?
2. What  are the consequences in the case of the Awarder for failure to deduct and remit tax at the time of making payments ? And for delay in payment of taxes ?
3. When the Awarder has subsequently paid  the taxes  will there be any penal consequences for delayed payment of taxes  in the case of the Contractor ?

AI Summary

Contractor Faces Penalty for Untrue Returns; Awarder's Failure to Deduct VAT Leads to Penalties and Interest. A civil contract worth Rs 2 crores was awarded, with the contractor permitted to pay tax under a Compounding Scheme at a 3% rate. However, the awarder failed to deduct and remit this tax from advance payments, and the contractor did not issue any tax invoices. The contractor received a penalty notice for untrue returns. The awarder later remitted the tax and issued certificates to the contractor. Questions arose regarding the contractor's liability and consequences for the awarder's failure to deduct and remit tax. It was clarified that failing to deduct and pay TDS under VAT laws results in penalties and interest.