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Amendments in the Composition Scheme for Works Contract Dealers under Delhi VAT

October 3, 2013

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Amendments in the Composition Scheme for Works Contract Dealers under Delhi VAT

Vide Notification No. 3(5)/Fin.(Rev‐I)/2013‐14/dsvi/801 dated 30.09.2013 with effect from 01.10.2013

HIGHLIGHTS

1. The composition scheme, notified vide No. 3(13)/Fin.(rev‐1)/2012‐13/dsvi/180 dated 28.2.2013 (effective from 1.4.2013), issued u/s 16(12) of the DVAT Act for works contract dealers has been modified vide present notification.

2. The dealers are allowed to withdraw from composition scheme only from the beginning of the financial year. However, in view of the amendments by the present notification, they may ‐

  • withdraw from the composition scheme, if already opted, by filing an application till 31.10.2013; or
  • opt for the composition scheme from 01.10.2013; or
  • switch over from Scheme “A” to Scheme “B”, or vice‐a‐versa, w.e.f. 01.10.2013. It may be recalled that there are two Schemes for the works contractors : (i) Scheme “A”, having lower rate of tax, only for those dealers who are executing works contracts in Delhi; and (ii) Scheme “B”, having higher rate of tax, where the contractors can make central purchases/transfers against declaration forms and import from other countries.

3. The Composition dealer shall be eligible to opt for only one of the Scheme, i.e. Scheme “A” or Scheme “B”, for all categories of works contracts to be executed by him in the financial year.

4. Limit for purchases from unregistered dealers has been increased to 5% (earlier 2%) of total purchase turnover during the year, or Rs.50 lacs (earlier limit of Rs.25 lacs), whichever is lower.

5. In case, a composition dealer fails to comply with the stipulated conditions of the Scheme: Earlier ‐ entire amount deposited was to be forfeited; Now ‐ forfeiture would be restricted to the extent of 50%.

6. The contractor, who was paying tax under the normal scheme, is required to pay tax on the entire opening stock held on the date of option for the composition scheme. This amendment will enable the contractor (opting for this Scheme w.e.f. 01.10.2013 or any subsequent financial year) to adjust his “carry forward amount as per DVAT‐16” against “the amount payable as per SS‐01”; and to carry forward (or claim refund) the remaining amount, if any, in the subsequent tax periods. For example, on the date of option, a dealer is liable to pay tax of Rs. One lakh on his stock on 1.10.2013. He has carry forward amount of tax of Rs. Three lakhs on 30.09.2013. He may adjust his liability of Rs. One lakh from his carry forward amount as per DVAT‐16; and remaining Rs. Two lakhs may be claimed as refund, or carry forward to the subsequent tax periods.

7. If a dealer shifts from scheme “B” to “A”, he shall pay tax on his entire stock on the date of option at the rate specified in section 4 of the Act. It may be noted that such dealer is required to pay tax even on goods purchased within Delhi on which he has not claimed any input tax credit at the time of purchase (since at that time also, he was under the composition scheme).

8. Cases where main‐contractor (MC) and sub‐contractor (SC), both are under the composition scheme:

Earlier, SC could deduct amount of turnover based upon CC‐01 issued by MC. Now, SC shall be eligible to deduct the amount of tax :‐ To be computed on the amount paid to him by MC as mentioned in CC‐01, at lower of the two rates of composition : one opted for by MC, and second by SC. In short, SC could claim deduction, at the most, for the amount of tax paid by MC on such turnover (instead of entire turnover stated in CC‐01).

For example, MC has issued Form CC‐01 for Rs.1,00,000/‐ to his SC. The MC has opted for composition scheme @3%, whereas SC has opted for composition scheme of 6%. In such a case, SC shall be eligible to claim exemption of Rs.3,000/‐ [1,00,000/‐ *3% (lesser rate of tax)] from his liability of Rs.6,000/‐ (6% of Rs.1,00,000/).

The Reason: Where MC and SC are paying tax at the same rate, then there is no impact. But, where SC is paying tax, at a higher rate of tax than MC; say, SC @6% and MC @3% : ‐ If SC is allowed deduction of turnover stated in CC‐01, then SC would get benefit of 6% of the turnover, whereas MC has paid only @3%. To remove this anomaly, this amendment has been carried.

Further, MC shall be required to deduct VAT‐TDS at the differential rate, i.e. 3% (6% ‐ 3%) on Rs.1,00,000/‐(earlier, in such cases, no tax was required to be deducted by MC).

9. Other provisions of the Notification dated 28.2.2013 would remain same.

Amendments in the Composition Scheme for Works Contract Dealers under Delhi VAT A ‐ Comparison

Vide Notification No. 3(5)/Fin.(Rev‐I)/2013‐14/dsvi/801 dated 30.09.2013

[Notification No. 3(13)/Fin.(Rev‐I)/2012‐13/dsvi/180 dated 28.02.2013 (effective from 01.04.2013) issued under section 16(12) of the Delhi VAT Act has been modified vide present notification]

These Amendments shall come into force with effect from 01.10.2013.

Reference of the Scheme

Clause/Text ‐ Upto 30.09.2013

Clause/Text ‐ Effective From 01.10.2013

(1)

(2)

(3)

Proviso inserted below the “TABLE”

Enables the contractor to withdraw from the Scheme w.e.f. 01.10.2013 in view of various amendments in the Scheme.

---

PROVIDED FURTHER that the dealers who have already opted for the composition scheme notified on 28/02/2013 will have the option to withdraw from the scheme from the third quarter of 2013‐14 by filing Form WC‐02 by 31/10/2013. They shall in that case pay tax as normal dealers under section 3 of the Act w.e.f. 01/10/2013.

General Condition 1(a)

Maximum Limit for “purchases from unregistered dealers” enhanced.

(1) The composition dealer opting for composition under this notification, shall (a) not purchase or procure goods, other than those specified in the First Schedule appended to the Act, within Delhi, from a person who is not registered under the Act, except to the extent of 2% of his total purchase turnover during the year or Rs. 25 lakhs, whichever is lower;

(1) The composition dealer opting for composition under this notification, shall (a) not purchase or procure goods, other than those specified in the First Schedule appended to the Act, within Delhi, from a person who is not registered under the Act, except to the extent of 5% of his total purchase turnover during the year or Rs. 50 lakhs, whichever is lower;

General Condition 5 (Proviso inserted after Sl. No. 5)

Authorizes the contractor to opt for either Scheme ‘A’ or Scheme ‘B’ for all contracts to be executed by him in a financial year.

A dealer who opts to pay composition tax .............. to the rate applicable to each of such contracts. (First Para ‐same as stated in Column 3; Proviso inserted )

A dealer who opts to pay composition tax under the notification and executes different types of works contracts which are liable to tax at different rates under this notification, shall pay tax according to the rate applicable to each of such contracts:

PROVIDED that the dealer shall be eligible to opt for only one Scheme, that is either Scheme “A” or Scheme “B”, for all categories of works contracts to be executed by him in a financial year.

General Condition 8

In case of non‐compliance of any condition of the Scheme by the contractor ‐ Forfeiture of amount paid is reduced from 100% to 50%.

In case a dealer has opted for this scheme but has failed to comply with the conditions ……….. and the amount deposited by such dealer as the composition tax, if any, shall stand forfeited. (Text in Italic {green colour} inserted; Remaining text unchanged)

In case a dealer has opted for this scheme but has failed to comply with the conditions specified herein or who, at any later stage, is found not eligible for having opted for this Scheme, all the provisions of the Act and Rules including the liability to pay tax under section 3, if any, shall apply mutatis mutandis as if the dealer had never opted for the composition scheme, from the financial year in which default had been committed and the amount deposited by such dealer as the composition tax, if any, shall stand forfeited to the extent of 50%.

Modalities ‐ 2 – First

Proviso substituted

Authorizes the contractors, already paying tax as normal dealers, to opt for the Scheme w.e.f. 01.10.2013.

A works contract dealer ……….. composition is opted (Same as stated in Column 3; No change),

Provided that a dealer who is paying tax under section 3 of the Act on the date of this notification, may opt for this scheme by filing an application in Form WC 01 appended to this notification within a period of thirty days from the date of this notification:

Provided further ……..… this notification (Second proviso ‐

same as stated in Column 3;

No Change)

A works contract dealer who is paying tax under section 3 of the Act, can opt for this scheme by filing an application in Form WC 01 appended to this notification within thirty days from the first day of the financial year with effect from which composition is opted:

Provided that a dealer who is paying tax under section 3 of the Act on the date of this notification or paying tax under the composition scheme notified on 28.02.2013 may opt for this scheme from the third quarter of 2013‐14 by filing an application in Form WC 01:

Provided further that the dealer who is paying composition tax under the erstwhile Notification No. F.3(78)/Fin.(T&E)/2005‐06/1508 kha dated 17th March 2006 may opt for the composition scheme under this notification by filing an application in Form WC 01 appended to this notification within a period of thirty days from the date of coming into force of this notification.

Modalities ‐ 3 (Text in Italic {green colour} inserted)

The contractor, who was paying tax under the normal scheme, is required to pay tax on the entire opening stock held on the date of option.

This amendment enables the contractor, opting for this Scheme w.e.f. 01.10.2013 or any subsequent financial year, to adjust his “carry forward amount as per DVAT‐16” against “the amount payable as per SS‐01”; and to carry forward (or claim refund) the remaining amount, if any, in the subsequent tax periods.

A dealer paying tax under section 3 of the Act …………… in proof of payment of tax in DVAT 20. (Text in Italic {green colour} inserted ; Remaining –Text unchanged)

A dealer paying tax under section 3 of the Act and opting to pay tax under this Scheme, shall be required to pay tax, at the rates specified in section 4 of the Act, on the entire opening stock of goods held by him on the first day of the period with effect from which the dealer opts to pay the tax under this Scheme. The dealer shall furnish, along with his application for availing for the composition scheme, the details of such stock and the payment of tax thereon in Form SS 01 appended to this notification along with the copy of challan in proof of payment of tax in DVAT 20. However, as per the Form DVAT‐ 16 filed by the dealer, if the dealer has certain tax amount to his credit at the end of the second quarter of the year 2013‐14 or at the end of the previous financial year, as the case may be, he shall be entitled to adjust the amount payable as per SS‐ 01 with the said tax amount at his credit. After the said adjustment, if the dealer is still left with some tax amount at his credit, he may, at his option, either claim refund of the remaining amount or carry forward the same to subsequent tax periods.

Modalities ‐ 3A inserted

Authorizes the contractors to shift from Scheme ‘A’ to ‘B’ (and vice‐a‐versa) w.e.f. 01.10.2013 or any subsequent financial year; and specifies its modalities.

In case, a dealer shifts from scheme ‘B’ to ‘A’, he shall pay tax on entire opening stock. Please note that such dealer is required to pay tax even on goods purchased within Delhi on which he has not claimed any ITC. It will amount to double taxation on such stock.

---

(3A) A dealer who is paying tax in scheme “B” under composition may opt scheme “A” (and vice‐versa) by filing an application to this effect in form WC‐01 by 31st October, 2013 for the last two quarters of the year 2013‐14 or within a period of 30 days from the 1st day of the year for that year with effect from which he opts to change the scheme:

Provided that in case of a dealer changing from scheme “B” to scheme “A’’, he shall be required to pay tax at the rate specified in section 4 of the Act, on the entire opening stock of goods held by him on the first day of October, 2013 for the year 2013‐14 or on the first day of the year with effect from which the dealer opts to change the scheme. The dealer shall furnish, along with his application for changing the scheme, the details of such stock and the payment of tax thereon in Form SS 01 along with the copy of challan in proof of payment of tax in DVAT 20.

Modalities ‐ 7 substituted

Specifies the revised manner for the maincontractor (MC) for issuance of Form CC‐01 to the sub‐contractor (SC) and deduction of TDS on amount stated in CC‐01.

Earlier, SC could deduct his turnover based upon CC‐01 issued by MC.

Now, in short, SC could claim deduction for amount of tax paid by MC on such turnover (instead of entire turnover stated in CC‐01).

The Reason: Where MC and SC were paying tax at the same rate, there was no impact. But, where SC was paying tax @6% and MC @3%:‐ if SC is allowed deduction of turnover stated in CC‐01, then SC would get benefit of 6% of the turnover, whereas MC has paid only @3%. To remove this anomaly, this amendment has been carried.

Where the composition dealer has made any payment to a registered sub‐contractor, who also opts for composition under this notification, for the execution of works contract, whether wholly or partly, the composition dealer shall issue a certificate to such subcontractor, in Form CC 01 appended to this notification. Such sub‐contractor shall be eligible to deduct from his turnover liable to be taxed under this scheme, the amount mentioned in such certificate by enclosing it with his return. Such amount shall not constitute part of the turnover in Form DVAT 17 of such sub‐contractor. The contractor shall not deduct TDS from payments made to such sub‐contractors in respect of the turnover covered by the certificate.

Where the composition dealer has made any payment to a registered sub‐contractor, who also opts for composition under this notification, for the execution of works contract, whether wholly or partly, the composition dealer shall issue a certificate to such subcontractor, in Form CC 01. Such sub‐contractor shall be eligible to deduct the amount of tax which shall be computed on the amount paid to him as mentioned in CC‐01, at the lower of the two rates of composition opted one each by the contractor and the subcontractor. The said CC‐01 shall be enclosed by the subcontractor along with his return.

Further, the contractor is exempt from deducting TDS from payments made to such sub‐contractors in respect of the turnover covered by the certificate CC‐01:

PROVIDED that in case where the rate of the composition tax of the contractor is lower than that of the sub‐contractor, the contractor shall be liable to deduct TDS at the differential rate of composition tax between the two, from payments made to such subcontractors in respect of the turnover covered by their respective Form CC‐01.

For example, a contractor has issued Form CC‐01 for Rs.1,00,000 to his sub‐contractor. The contractor has opted for composition scheme @ 3%, whereas the subcontractor has opted for composition scheme of 6%. In such case, the sub‐contractor shall be eligible to claim exemption of Rs.3,000 [1,00,000 *3% (lesser rate of tax)] from his liability of Rs.6,000 (6% of Rs.1,00,000). Further, the contractor shall be required to deduct TDS at the differential rate i.e. 3% (6% ‐ 3%) on Rs.1,00,000.

Modalities ‐ 8 inserted

Empowers the DVAT Commissioner – for online submission of various forms

--

(8) Notwithstanding anything contained in this notification, the Commissioner may notify, by a special or general order, that any or all of the forms appended to this notification shall be filed online.

Modalities ‐ 9 inserted

Applicability of Delhi VAT Act & Rules – Residual Provisions.

--

(9) All the provisions contained in the DVAT Act, 2004 and DVAT Rules, 2005 which are not contrary to the provisions of the composition scheme under this notification, shall apply to the dealers opting for composition.

Form CC‐01 – New Columns inserted

7

8

9

Last date for completion of sub‐contract, if any

-

-

7

8

9

Composition

Tax Rate

Total

Composition

Tax

Last date for completion of subcontract,

if any

 

 NOTIFICATION No. 3(5)/Fin.(Rev‐I)/2013‐14/dsvi/801 Dateed 30.09.2013

Topics

Acts Income Tax