02 February 2012

MVAT Payable in Case of Works Contract

MVAT/Sales Tax Payable on Works Contract carried out in Maharashtra. (Works Contract VAT/Sales Tax in Maharasthra and calculating Works Contract Sale Price)
Section 6 of Maharashtra Value Added Tax, 2002 empowers levy of sales-tax on the turnover of sales of goods specified in column (2) in Schedule B, C, D or, as the case may be, E, at the rates set out against each of them in column (3) of the respective Schedule.
Sales-tax/VAT is payable on turnover of sales. Turnover of sale is aggregate amount of sale price. Determine of Sale price is important issue in Works Contract; as, only transfer of property in goods can be subject to sales-tax/MVAT  and not any other contents of cost such as labour. State Governments have constitutional power to levy sales-tax only on transfer of property in goods.
Determining Sale price in case of Works-Contract has been riddle with confusing, controversies and subject to litigation. To reduce these issues Rule 58 of MVAT Rules describes how Sale Price and Purchase Price in case of Works-Contract is to be determined. 
Rule 58(1) Sale Price in case of any Contract: the value of the goods at the time of the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract may be determined by effecting the following deductions from the value of the entire contract, in so far as the amounts relating to the deduction pertain to the said works contract:-
  1. labour and service charges for the execution of the works; 
  2. amounts paid by way of price for sub-contract, if any, to sub-contractors; 
  3. charges for planning, designing and architect's fees; 
  4. charges for obtaining on hire or otherwise, machinery and tools for the execution of the works contract; 
  5. cost of consumables such as water, electricity, fuel used in the execution of works contract, the property in which is not transferred in the course of execution of the works contract; 
  6. cost of establishment of the contractor to the extent to which it is relatable to supply of the said labour and services; 
  7. other similar expenses relatable to the said supply of labour and services, where the labour and services are subsequent to the said transfer of property; 
  8. profit earned by the contractor to the extent it is relatable to the supply of said labour and services: 
  9. where the contractor has not maintained accounts which enable a proper evaluation of the different deductions as above, or where the Commissioner finds that the accounts maintained by the contractor are not sufficiently clear or intelligible, the contractor or, as the case may be, the Commissioner may in lieu of the deductions as above provide a lump sum deduction as provided in the Table below and determine accordingly the sale price of the goods at the time of the said transfer of property.

Sr. No.
Type of Works Contract
*Amount to be deducted from the contract price (expressed as a percentage of the contract price)
Installation of plant and machinery
Installation of air conditioners and air coolers.
Installation of elevators (lifts) and escalators.
Fixing of marble slabs, polished granite stones and tiles (other than mosaic tiles).
Civil works like construction of buildings, bridges, roads, etc.
Construction of railway coaches on under carriages supplied by Railways.
Ship and boat building including construction of barges, ferries, tugs, trawlers and dragger.
Fixing of sanitary fittings for plumbing, drainage and the like.
Painting and polishing.
Construction of bodies of motor vehicles and construction of trucks.
Laying of pipes.
Tyre re-treading.
Dyeing and printing of textiles.
Annual Maintenance contracts.
Any other works contract.
*Note : The percentage is to be applied after first deducting from the total contract price, the quantum of price on which tax is paid by the sub-contractor, if any, and the quantum of tax separately charged by the contractor if the contract provides for separate charging of tax..
  • In case of a construction contract, where along-with the immovable property, the land or, as the case may be, interest in the land, underlying the immovable property is to be conveyed, and the property in the goods (whether as goods or in some other form) involved in the execution of the construction contract is also transferred to the purchaser such transfer is liable to tax under this rule. The value of the said goods at the time of the transfer shall be calculated after making the deductions under sub-rule (1) and the cost of the land from the total agreement value.
  • The cost of the land shall be determined in accordance with the guidelines appended to the Annual Statement of Rates prepared under the provisions of the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995, as applicable on the 1st January of the year in which the agreement to sell the property is registered:
  • However the deduction towards cost of land under this sub-rule shall not exceed 70% of the agreement value.
The value of goods so arrived at under sub-rule(1) shall, for the purposes of levy of tax, be the sale price or, as the case may be, the purchase price relating to the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.