Material value under CST in case of works contract

[Guest]

Dear Team,
 
Please guide me on following issue:-
 
Can we apply standard deduction method (which is as per state VAT) for ascertaining material value  in case of Interstate work contract (CST being charged) because there is no % defined in the CST?
If No, what would be amount for CST on 100% bill value (material plus labour)
If Yes, please provide reference in CST like notifiction, section, rules et

Thanx

[YAGAY andSUN]

The interstate sale or purchase of goods made in pursuance of a pre-existing works contact and , in such works contract, shall be deemed as sale or purchase in the course of trade and  interstate trade and there cannot be any local deemed sale in such case.

However the terms of contract and facts of the each case play a decisive role in determining the interstate  sales in works contract.

You may refer following judgments, viz:-

1. Projects and Services Centre vs. State of Tripura (1991) 82 STC 89 (Gauhati).
2. E.C.E Industries Ltd. vs. State of Punjab   (2007 (12) TMI 405 - Punjab-Haryana High Court)= (2008) 14 VST 40 (P&H).

 

[Guest]

Dear sir,

Thanks for your valuable guidance

My question is, on how much amount we can charged CST, rate is consolidated basis i.e. material & labour( Rs.2500 per sq feet)

Can we charge CST  on 70% of 2500  as material value (as per standard deduction of VAT provision, please specify CST provision for supporting of this practice)  & servce tax on 30%

or

 CST will charged on 100% i.e. on Rs.2500 (if standard deduction can not apply) & service tax on 30%

Please guide me which option is acceptable & as per law.

 

[YAGAY andSUN]

In divisible contract, where you can determine the value of goods used in execution of WCT, you can charge CST as applicable or where you are maintaining the separate book of accounts for goods and services there you can charge the CST as applicable on the goods.

Further, service tax under WCT @ 4.8% will be charged on the total contact value or you can vivisected the value of the contract as mention in the Rule 2A.  Kindly also refer the BSBK case in this regard.

[Guest]

There is no confusion in case of divisible contract.

 Please consider it   as a case of indivisible work contract (interstate).

 Problem is only in case of indivisible WC where Material & labor value can not be segregated.

 

[YAGAY andSUN]

• Concept & Levy of C.S.T. on Inter state Works Contracts

The Central Government amended the definition of ` Sale’ under the Central Sales Tax Act, 1956, from 11.5.2002. With the said amendment, the states are empowered to levy C.S.T. on the interstate works contract. By the said amendment, the concept of `Interstate works contract’ was introduced in the C.S.T. Act by inserting in the definition of `Sale’ , the words “Transfer of Property in goods involved in execution of works contract” .

When the Contractor dispatches his goods from one State to another under a individuals works contract, it is a interstate works contract. The sections 3,4,5 of the C.S.T. Act are applicable to such deemed sales in the interstate works contract. Accordingly, the State of dispatch can collect the Central Sales Tax on such deemed interstate sales . The Contractors may not be allowed the interstate depot transfers in the cases of indivisible works contracts since such dispatches are made to the sites of the contractee situated in other state and the same are earmarked for the specific contractee. The Contractor would invoice to the Contractee from the state of dispatch and would charge CST as applicable , with or without C/D Forms.

Recently, the CST,1956, was further amended to explain, the deductions available on the total contract price to the Contractor to arrive at the material value. Please note that in interstate works contracts also, the C.S.T. is payable only on the Material Value/Price’ of the Contract and not on the Labour’ portion of the Contract.

The examples of interstate works contract would be that of Contractor from Mumbai, dispatching goods from his Mumbai plant to the site in Chennai (Tamil Nadu) under a indivisible works contract or A Manufacture in Mumbai dispatching his own material to a processor in Surat and the processor returns back the processed material back to the Mumbai Manufacturer. The Surat processor would charge 4% CST against `C’ form on the material value of his invoice amount being a interstate works contract in his hands .

Please note that when it is an interstate works contract, the Contractee would raise an invoice on the Customer situated in other state with applicable rate of CST on the Material value of the contract, but the Customer would not deduct any amount towards TDS since there is no provision of T.D.S. under the CST Act. TDS is to be deducted only in the local works contracts where the Contractor has charged VAT/Composition Tax.

In short, if the Contractor dispatches goods from his state to the State of the Contractee (Customer) under an indivisible works contract, it is a interstate Works contract in the hands of such Contractor subject to levy of CST which is collected by the state of dispatch . However, in the interstate works contracts also , C.S.T. is payable only on the `Material Value’ of the Contract .

AI Summary

Material value for CST determines tax liability in interstate works contracts; CST applies only to the goods component, not labour. Interstate works contracts generate deemed interstate sales for CST: CST is chargeable by the State of dispatch and is payable only on the material value (goods component) of the contract, not on labour. If the contract is divisible or separate accounts for goods exist, CST may be charged on the identifiable goods value; in indivisible contracts the State of dispatch may still collect CST on material value, with recent amendments clarifying deductions to compute that value.