Levy of VAT / Composition Tax on Deemed Sales (Works Contracts)

Provisions of levy of VAT / Composition Tax on Deemed Sales (Works Contracts) under the State VAT Acts & Rules and CST

  1. Deemed Sales (Work Contracts) are taxed under the provisions of the respective State’s VAT Act, as there are no separate Works Contract Acts now.
  2. For execution of local works contract transactions, the State VAT (WC) is applicable and for execution of interstate works contract transactions, the Central Sales Tax (C.S.T.) is applicable as covered under the CST Act.
  3. It may be noted that No VAT / CST is applicable on the pure labour Jobs (i.e. No material of the Contractor / Job worker should be involved)
  4. Under the State VAT Acts, VAT is applicable on the `Material Value” of the Contracts only as determined by the normal or composition options and under the C.S.T.Act also CST is applicable on the `Material Value’ only.
  5. In the contracts , `where both the sale of goods and rendering of Taxable service are involved, both VAT & Service Tax is payable on the same contract price subject to the relevant abatement provisions under both the VAT & Service Tax Laws.
  6. Proper charging clauses in respect of VAT/CST should be incorporated in the Agreements between the Contractor and Contractee to avoid litigation.
  7. Under the VAT System both the Contractor and the Contractee can avail full VAT set off/Credit subject to the condition of items not falling in the Negative List.
  8. The Contractee can ask for the price reduction from the Contractor to pass on the `VAT Benefit’ availed by the Contractor on his local purchases.

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