Inter-state Works Contract - A New Saga Begins Post-Finance Bill 2002

Font Size

Print

Feedback

Email

Discuss

Related Articles

TN warns stern action against supporters of LTTE

: In the first part of the article carried last week, the author discussed the history of taxation of works contract. This week, he analyses the impact of the amendment proposed in the Finance Bill 2002.

Some of the popular models and the impact of the new amendment on this models are as explained below:

Manufacturer-works Contractor: Under this category the works contractor could be also the manufacturer of the goods to be used in the execution of works contract in another state. In this situation he would be transferring the goods from one state to the site in another state and use the goods in the execution of the contract. Such transaction may attract interstate works contract tax on the value of the goods so transferred and such tax would be charged by the state of origin from which the movement commences. The Supreme Court in the case of Oil India Ltd Vs. Superintendent of Taxes (1975) 35 STC 445, held that “no matter in which state the property passes, a sale which occasions movement of goods from one state to another is a sale in the course of interstate trade”. If the manufacturer-works contractor has more than one manufacturing locations in different states, it is quite possible that against a single works contract, in addition to the local assessment, the contractor will have several inter-state works contract assessments depending upon the number of states from which he moved the goods to the place of execution. However, the contractor may reduce the burden of tax to 4%, if the contractee (owner) agrees to issue form “C” to the contractor subject to fulfilment of the conditions for issue of form “C”. Accordingly a contractee who awards a contract for construction of a telecommunication project or a plant for manufacture of goods may be in a position to issue form “C” to his contractor where as owner of a building under construction may not be in a position to issue form “C”.