MVAT - WORKS CONTRACT - ONGOING CONTRACTS

In respect of contracts, which have entered into and commenced before 1st April, 2005 and continued thereafter, the dealer is required to discharge his tax liability, under the MVAT Act, in accordance with the provisions of earlier law (i.e., old Works Contract Tax Act). Thus the dealer shall be liable to pay tax on such ongoing works contracts at the rate/s prescribed (or as per the old composition scheme, if so adopted) under the earlier law. And such a dealer shall not be entitled for any set-off on purchases of goods used in the execution of such on-going works contracts.

MVAT - CONSTRUCTION CONTRACTS

The Government of Maharashtra, vide Notification No. VAT. 1506/CR-134/Taxation-1, dated 30-11-2006, has notified the following works contracts to be the 'Construction Contracts for the purposes of clause (i) of the Explanation to sub-section (3) of section 42 of the Maharashtra Value Added Tax Act, 2002:

A. Contracts for construction of: (1) Buildings, (2) Roads, (3) Runways, (4) Bridges, Railway overbridges, (5) Dams, (6) Tunnels, (7) Canals, (8) Barrages, (9) Diversions, (10) Rail tracks, (11) Causeways, Subways, Spillways, (12) Water supply schemes, (13) Sewerage works, (14) Drainage, (15) Swimming pools, (16) Water Purification plants and (17) Jettys

B. Any works contract incidental or ancillary to the contracts mentioned in paragraph (A) above, if such work contracts are awarded and executed before the completion of the said contracts.

MVAT - WORKS CONTRACT - COMPOSITION SCHEME

Section 42(3) provides for a Works Contract Composition Scheme, whereby a dealer, at his option, may choose to pay tax @ 5% on Construction Contracts (as notified) or in case of other contracts @ 8% on the total contract value. (After deducting there from the amount paid towards sub-contract, if any.)

However, in respect of such (other) contract/s, where the dealer has chosen to pay tax by way of composition @ 8%, the amount of set-off available on inputs will be restricted to 64% of the total amount of set-off for respective goods used in such contract/s.

In case of construction contracts (notified), where the dealer has chosen to pay composition @ 5% (w.e.f. 20-6-2006), the set-off on inputs is available subject to retention @ 4%, as provided in Rule 53.

Such retention/reduction shall not apply to set-off on capital assets, the goods, the property in which not passes in the execution of works contract. (w.e.f. 8-9-2006).

Sub-section (3A) is inserted w.e.f. 1-4-2010 to empower State Government by issue of notification to provide composition scheme for registered dealer who undertakes construction of flats, dwellings or buildings or premises and transfer them in pursuance of an agreement along with the land or interest underlying the land. Accordingly a Notification has been issued providing for a composition scheme whereby a dealer (builder/ developer) can discharge his tax liability by paying composition amount @ 1% without entitlement for any set-off.

Notes:

1. A dealer, executing works contract, whether chooses to pay tax u/r. 58 or under the composition scheme, u/s. 42(3), is entitled to issue tax invoice in respect of all such sales effected by him by way of execution of works contract, by charging tax separately in such tax invoice.
2. A dealer (contractor) is free to choose either sale price method or composition scheme, as he may deem fit, qua each contract. There is no requirement of any prior approval etc.
3. The relationship between the contractor and sub-contractor is considered as that of principal and agent. Thus, the responsibility for payment of tax is joint and several. It has been provided, therefore, that liability to pay tax may be discharged either by the main contractor or the sub-contractor. If the main contractor chooses to pay tax on the entire contract, he may issue a declaration and certificate (in Forms 406 and 409) whereby the sub-contractor shall not be liable to pay tax on the portion of work undertaken by him. Similarly where the sub-contractor undertakes to pay tax, he shall issue a declaration and a certificate, (in Forms 407 and 408), to the main contractor regarding payment of taxes made by him on his portion of works contract. Thus the main contractor will be liable to pay tax only on the difference.
4. Builders/developers opting for 1% composition scheme under section 42(3A) are not entitled for any set-off.

MVAT - WORKS CONTRACT - SALE PRICE

Sl. No.	Type of Works Contract	*Amount to be deducted from the contract price (%)
(1)	(2)	(3)
1.	Installation of plant and machinery	Fifteen per cent
2.	Installation of air-conditioners and air-coolers	Ten per cent
3.	Installation of elevators (lifts) and escalators	Fifteen per cent
4.	Fixing of marble slabs, polished granite stones and tiles (other than mosaic tiles)	Twenty five per cent
5.	Civil works like construction of buildings, bridges, roads, etc.	Thirty per cent
6.	Construction of railway coaches or under carriages supplied by Railways	Thirty per cent
7.	Ship and boat building including construction of barges, ferries, tugs, trawlers and dragger	Twenty per cent
8.	Fixing of sanitary fittings for plumbing, drainage and the like	Fifteen per cent
9.	Painting and polishing	Twenty per cent
10.	Construction of bodies of motor vehicles and construction of trucks	Twenty per cent
11.	Laying of pipes	Twenty per cent
12.	Tyre retreading	Forty per cent
13.	Dyeing and printing of textiles	Forty per cent
14.	Annual Maintenance Contract	Forty per cent
15.	Any other works contract	Twenty five per cent(w.e.f. 1-4-2006)

• The percentage given in the Table should be applied on total contract price after deducting the price on which tax is paid by sub-contractor. It is also provided that if any tax is separately charged by the contractor as per terms of contract then the deduction should be after excluding such separate tax.
• The value of goods so arrived at under Rule 58 (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.
• The dealer, opting to pay tax as per the above scheme, is entitled to take full input tax credit; i.e., full set-off of MVAT paid on purchases eligible for set-off.
• Service Tax, collected separately, shall not form part of the value of contract. Thus no VAT on service tax collected separately. [Ref: Trade Circular 6T of 2015 dated 14th May, 2015].

Deduction from sale price for cost of land & other deductions in case of Construction Contracts related to sale of under construction units by builders/developers:

[Rule 58(1A)]

1. 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, the value of the said goods at the time of the transfer shall be calculated after deducting cost of the land from the total agreement value.
2. 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 Provided that, after payment of tax on the value of goods, determined as per this rule, it shall be open to the dealer to provide before the Department of Town Planning and Valuation that the actual cost of the land is higher than that determined in accordance with the Annual Statement of Rates (including guidelines) prepared under the provisions of the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995. On such actual cost being proved to be higher than the Annual Statement of Rates, the actual cost of the land will be deducted and excess tax paid, if any, shall be refunded. [Rule 58(1A)].
3. The deduction u/r. 58(1) shall be made after deducting cost of land as per rule (1A).
4. No deduction for cost of land is applicable in cases of payment of tax under the composition scheme for builders & developers.

[Rule 58(1B)]

a. Where the dealer undertakes the construction of flats, dwellings, buildings or premises and transfers them in pursuance of an agreement along with the land or interest underlying the land then, after deductions under sub-rules (1) and (1A) from the total contract price, the value of the goods involved in the works contract shall be determined after applying the percentage provided in column (3) of the following TABLE depending upon the stage at which the purchaser entered into contract.

Sr. No.	Stage during which the developer enters into a contract with the purchaser	Amount to be determined as value of goods involved in works contract
(1)	(2)	(3)
(a)	Before issue of the Commencement Certificate.	100%
(b)	From the Commencement Certificate to the completion of plinth level.	95%
(c)	After the completion of plinth level to the completion of 100% of RCC framework.	85%
(d)	After the completion of 100% RCC framework to the Occupancy Certificate.	55%
(e)	After the Occupancy Certificate.	Nil%

 

b. For determining the value of goods as per the Table clause (a), it shall be necessary for the dealer to furnish a certificate from the Local or Planning Authority certifying the date of completion of the stages referred above and where such authority does not have a procedure for providing such certificate then such certificate from a registered RCC consultant.

[Rule 58(1C)]

If the dealer fails to establish the stage during which the agreement with the purchaser is entered, then the entire value of goods as determined after deductions under sub-rules (1) and (1A) from the value of the entire contract, shall be taxable.

2) The value of goods so arrived at under sub-rules (1) & (1A) or, as the case may be, under sub-rule (1B)] 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.

MVAT - WORKS CONTRACTS

There is no separate Act governing works contract transactions, all such transactions are now taxable as deemed sales under the MVAT Act. The rate of tax, on such deemed sales of goods, used in the execution of works contract, shall remain same as prescribed in the aforesaid schedules to the respective goods. However the sale price of such goods has to be determined in accordance with the provisions contained in Rule 58 of the Maharashtra Value Added Tax Rules, 2005.

Accordingly 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 works contract, has to be determined by effecting the following deductions from the value of entire contract in so far as the amounts relating to the deduction pertain to the said works contract:

• Labour and service charges for the execution of the works contract.
• Amounts paid by way of price for sub-contract, if any, to sub-contractors.
• Charges for planning, designing and architects fees.
• Charges for obtaining on hire or otherwise, machinery and tools for the execution of the works contract.
• 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.
• Cost of establishment of the contractor to the extent to which it is relatable to supply of the said labour and services.
• 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.
• Profit earned by the contractor to the extent it is relatable to the supply of said labour and services.

Provided that 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 at his option 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.

MVAT - COMPOSITION SCHEMES

Section 42 provides for Composition Schemes for various classes of dealers, as may be notified by the State Government from time-to-time. The dealers opting for such composition schemes shall pay tax at such rates, with such conditions, as may be prescribed in the scheme. Accordingly, the Government of Maharashtra has notified different types of composition schemes for following classes of dealers:

(i) Retailers (ii) Restaurants, Clubs, Hotels and Caterers (iii) Bakers (iv) Dealers in 2nd Hand Motor Vehicles (v) Works contractors (vi builders & developers (vii) Dealers, who are in the business of giving on hire (leasing) of mandap, shamiana, tarpaulins, etc.

It may be noted the Composition Scheme for Retailers has been redesigned w.e.f. 1st October, 2014. (Refer Trade Circular 17T of 2014 dated 20th September, 2014).

MVAT - BILL OR CASH MEMORANDUM

Section 86(6) requires every registered dealer to issue, at his option, either a Tax Invoice or Bill/Cash Memorandum, for every sale made by him.

(Issue of bill/cash memorandum or Tax Invoice, as the case may be, is mandatory for each transaction of sale exceeding Rs. 50/-).

The dealer, choosing to issue Tax Invoice must comply with the requirements prescribed in sec. 86(2), enumerated above.

The dealers, who have opted for Composition Scheme u/s. 42(1), 42(2) or 42(4), are not entitled to issue a Tax Invoice. Such dealers shall issue a Bill or Cash Memorandum.

A bill or cash memorandum should be serially numbered, dated and signed by the dealer or his servant or manager. Such bill or cash memorandum shall contain such particulars as may be required/as may be prescribed. It shall also contain a declaration as provided u/r. 77(3).

A duplicate copy of all such bills/cash memorandum or Tax Invoice is required to be preserved for a period of eight years from the end of the year in which sale took place. (Earlier the period of preservation was three years only however the period of preservation it is now changed to eight years by an amendment through Mah. Act No. VIII of 2012 dated 25-4-2012).