Introduction to Works Contract in Delhi VAT ( DVAT)
A Works Contract in Simple terms is a contract for carrying out certain
works on any immovable or movable property of others. Article 366(29A)
of Constitution of India has been formulated to impose a tax on transfer
of property in goods involved in execution of a works contract. It
Covers only those contracts which are composite in nature and segregated
by fiction of law so that tax can be on transfer of goods involved.
Normally when any goods is sold, what shall be the applicable tax. Of
course VAT/CST. Similarly when services of any nature are provided to
service provider to service recipient, the applicable statute shall be
Service Tax. Things sound that simple. In Case where a contract has both
aspect of material as well as service it shall be called as Composite
contract.
As Presented above in the Chart, A Composite Contract can be of two
natures viz. Divisible and Indivisible Contract. First let’s discuss the
Treatment of Taxes in Case of Divisible Contracts. (To Establish
Divisbility of Contract is purely on nature of transaction and
Professional Judgement and Lot of times this itself has been the subject
matter of appeals to Judiciary).
In Case Of Divisible Composite Contract, Lets say of `100 say `80 of
Material and `20 of Service Component. Then `80 shall be taxed at the
rate as specified tariff applicable to the item and `20 shall be
considered for computation of service tax.
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