procedural aspects of vat - atimysore.gov.in week sep/bihar/day 10... · ca sanjay m dhariwal...
TRANSCRIPT
CONTENTS
Reconciliation of returns and annual reports
Sale of Assets
Analyzing events occurring after balance sheet
date
Analyzing data under allied laws, viz. Excise,
customs and service tax
Analyzing commodity classification (HSN/CTH
Codes)
RECONCILIATION OF RETURNS AND ANNUAL
REPORTS
• The objective under VAT law is to ensure that all the dealers are complying with the VAT Laws through independent professional examination.
• The turnover has to be compared with the Financials to know whether the dealer has disclosed the right turnover and has discharged the VAT liability.
• The difference in reconciliation of returns and annual reports will be due to non accounting of sales invoices and purchase invoices and other varied reasons.
RECONCILIATION OF RETURNS AND ANNUAL
REPORTS
Sales
Total Turnover as per Monthly returns xxxx
Total Turnover as per KVAT Audit Report xxxx
Difference in Total Turnover xxxx
Reasons
Non Accounting of sales Invoice
Difference in CST Turnover
Other reasons
xxxx
RECONCILIATION OF RETURNS AND ANNUAL
REPORTS
Sales
Taxable Turnover as per Monthly returns xxxx
Taxable Turnover as per KVAT Audit Report xxxx
Difference in Total Turnover xxxx
Reasons
Tax Collected
Freight charges
Discount
Labour and like charges
xxxx
RECONCILIATION OF RETURNS AND ANNUAL
REPORTS
Purchase
Total Purchase as per Monthly returns xxxx
Total Turnover as per KVAT Audit Report xxxx
Difference in Total Purchase xxxx
Reasons
Non Accounting of Purchase Invoice
Difference in CST Purchase
Other reasons
xxxx
RECONCILIATION OF RETURNS AND ANNUAL
REPORTS
Input Tax credit
Eligible input tax credit as per Monthly returns xxxx
Eligible input tax credit as per KVAT Audit Report xxxx
Difference in Eligible Input tax credit xxxx
Reasons
Eligible input tax credit on capital goods
Other reasons
xxxx
RECONCILIATION OF RETURNS AND ANNUAL
REPORTS
Other issues 1)Test check
2)Monthly returns- Disclosure monthly or annually
3) Management Certificate for
a) Stock
b) Classifications of goods and rate of taxes
c) Monthly return filed
d) Visit register of the department
e) Non declared sales
f) Input tax credit on registered purchases
SALE OF ASSETS
The term Sale has been defined under section 2(29)
of the Karnataka Value Added Tax Act, 2003 as
under:
“Sale” with all its grammatical variation and cognate
expressions means every transfer of the property in
goods (other than by way of a mortgage, hypothecation,
charges or pledge) by one person to another in the course
of trade or business for cash or for deferred payment or
other valuable consideration and includes (a) .. (d)
SALE OF ASSETS
Any transfer of property in goods by one person to another in the course of business is liable to tax under the KVAT Act. Hence sale of fixed assets is liable to VAT.
Therefore the dealers are liable to discharge VAT on sale of fixed assets even though the dealer is not dealing in purchase and sale of the assets in the course of his business.
However there is contrary view held by the Hon’ble Karnataka High Court in the case of Ciniplex Pvt Ltd.
SALE OF ASSETS
Hon’ble High Court of Karnataka in the case of
CINIPLEX PVT LTD V STATE OF KARNATAKA [2012] 53
VST 84, wherein it was held that sale of used/discarded
Metal detectors, water coolers and lockers by assessee
engaged in business of sale of food articles, snacks and
beverages is one time sale of discarded goods. The
assessee is not a dealer in these goods and hence not
liable to tax on sale of such discarded goods.
ANALYZING EVENTS OCCURRING AFTER
BALANCE SHEET DATE
Events occurring after the balance sheet date are
those significant events, both favourable and
unfavourable, that occur between the balance sheet
date and the date on which the financial statements
are approved by the Board of Directors in the case of
a company, and, by the corresponding approving
authority in the case of any other entity.
ANALYZING EVENTS OCCURRING AFTER
BALANCE SHEET DATE
Two types of events can be identified:
a) those which provide further evidence of
conditions that existed at the balance sheet date; - Adjustment to assets and liabilities
b) those which are indicative of conditions that
arose subsequent to the balance sheet date – Disclosure to be made
ANALYZING DATA UNDER ALLIED LAWS, VIZ
EXCISE, CUSTOMS, AND SERVICE TAX
• Excise
• Turnover declared under excise and turnover declared under VAT
• Whether VAT is charged inclusive of excise duty
• Verification of transactions whether excise is collected separately or in the excise invoice – to check evasion of VAT on excise duty.
• Cross check if exports turnover is declared under VAT whether the same is followed under excise. If not then the reason for differential approach
ANALYZING DATA UNDER ALLIED LAWS, VIZ
EXCISE, CUSTOMS, AND SERVICE TAX
• Service Tax
• Check whether sale of goods transactions are
declared or shown as service provided to evade
VAT.
• Analyze whether certain transactions are
covered under service tax or VAT. Example
hiring of movable goods, transfer on intellectual
property rights or C & F Agent service.
ANALYZING COMMODITY CLASSIFICATION
HSN Code is the Harmonised System of Nomenclature and has 8 digit
code.
The eight digit code shows the HSN at 8 digit level under the name
"Tariff Item".
The first two digit of the code provides chapter number, the next two
digits gives the Customs Tariff Head (CTH) grouping. The third set of
two digits in the code gives the Customs Tariff Sub-heading.
This six digit code is aligned with Harmonized System of
Nomenclature adopted by World Customs Organization.
The last two digits provide Customs Tariff Sub-sub-head for the entry.
They are specific to India.
Thus the Code is the same as that in other countries only at six digit.
ANALYZING COMMODITY CLASSIFICATION
• As far as VAT is concerned the rules of interpretaion of
Central Excise Tariff Act, 1985 is applicable.
• However, where any commodities described against the
Heading or sub-headng and the aforesaid description is
Different from the corresponding description in the Central
Excise Tariff Act then only those commodities described
under VAT will be covered and other commoditeis though
covered by corresponding description in Central Excise
Tariff will not be covered in VAT
About us
NATIONAL INFORMATICS CENTRE is a
Govt of India organization under Min. of ICT
NIC, Karnataka State Unit started functioning
from 1987
• Provides state-of-art IT solution with offices at the State and at District HQ
• Nation-wide Satellite Communication -NICNET
Services
System Study, Analysis, Design & Development of Software
Issue of Digital Certificates
Networking
Training
Web design & hosting
Video Conferencing
e-mail & Internet facilities
Hardware & Software for paid projects through NICSI
What is e-governance
E-governance is the application of Information and
Communication Technology (ICT) for delivering
government services, exchange of information
communication transactions, integration of various
stand-alone systems and services between
government-to-customer (G2C), government-to-
business (G2B), government-to-government (G2G)
as well as back office processes and interactions
within the entire government framework.
Benefits of e-governance
1 • Simplification of processes
2 • Transparency
3 • Accountability
4 • Online Service Delivery
5 • Anywhere and Anytime
6 • Seamless integration with other system
7 • Effective Monitoring
Online Request
Online Delivery
Status Checking
Online Process
Time-bound Processing
Effective Service Delivery
1 • Systems Requirement Specifications
2 • Design the System
3 • Software Development/Coding
4 • Developer Testing/User Acceptance Testing
5 • Roll out Plan (Pilot and Phased)
6 • Software Change Management
Not owning the project / Depending on outsiders
Inaccurate estimates of needed resources
Badly defined systems requirements
Poor reporting of the project’s status
Not planning of the project – Schedules, Roles, etc
Poor communication among stakeholders
No Monitoring Cell (e-governance cell)
Information Security (IS)
The protection of Information and Information
Systems from unauthorized access, use,
disclosure, disruption, modification or
destruction in order to provide confidentiality,
integrity and availability
• Maintaining and assuring the accuracy and consistency of data over its entire life-cycle Integrity
• Available when it is needed
• IT system is functioning properly Availability
• Data is not available for un-authorized / un-classified people Confidentiality
• Validate the parties invloved are who they claim to be Authenticity
• Implies one’s intention to fulfil their obligations to a contract Non-repudiation
Information Security - Key Concepts
• Administrative
• Logical
• Physical
Security Controls
• Unclassified
• Restricted
• Confidential
• Secret
Data Classifications
• Identification
• Authentication
• Authorisation
Access Controls
Information Security – Some Concepts
Natural Disasters
Technical Failure
Software Mal-
functioning
Stakeholders Intentions
Hacker Attacks
Threats to Information Security
Data
Define Security Policy & Procedure
Define Roles & Responsibilities of stakeholders
Create awareness and training
Conduct 3rd party Security Auditing
Backup & Disaster Recovery Plan
Information Security Management
1 • Organization of Information Security
2 • Asset Management
3 • Human Resource Security
4 • Physical and Environment Security
5 • Communication and Operations Management
6 • Access Control
7 • IS acquisition, development and maintenance
8 • IS incident management
9 • Business Continuity Management
10 • Regulatory Compliance
Information Security Policy and Procedure
e-initiatives
• Land Records Management System Bhoomi
• Rural Digital Services - Various Certificates Processing & delivery system
RDS
• RTO (Regional Transport Office) Automation
Vahan & Sarathi
• Guaranteed Service Delivery Monitoring System
Sakala
• Court Case Management System Court
System
e-initiatives
• VAT Processing System for Commercial Taxes
E-VAT
• Management System for Ration Cards and Public Distribution System
Ahara
• Panchayat Automation System Pancha tantra
• File and Letter Monitoring System FMS/LMS
• Online Seat allotment system for Professional Colleges
CET
• Online Recruitment/Counselling System Recruitment
The Commercial Taxes Department
• The Commercial Taxes Department in Karnataka contributes
about 61% of the revenue by way of own taxes to the State
• Collects about Rs. 37,000 crores per annum.
• Has a total strength of about 7000 employees including 800
officers.
• Administers 9 different Tax laws – VAT, KST, CST, Luxury
Tax, Profession Tax, Entry Tax, Betting Tax and
Entertainments Tax
• The Department is structured in a combination of Territorial
and Functional jurisdictions.
• Has 13 administrative divisions, 118 VAT offices, 20 check
posts, 7 enforcement divisions, 13 appeals divisions and 100
mobile check posts. 17
Commercial Taxes Department Backbone of state’s finances but:
Outdated systems lead to pilferage and corruption.
Cost of compliance very heavy for tax payers – permissions,
frequent visits, harassment
Paper based systems unable to cope with high volumes.
Emphasis on regulatory role and policing
Bogged down by routine work – no attention to analysis
High pilferage
More physical controls
Higher cost of compliance and
discretion
More corruption
Objective of Project
Department as regulator
Frequent visits by dealers
Policing by Department
Paper based information
Old paradigm – Post event confirmation
Department as a service provider
All services at doorsteps
Self Policing by Dealers
Everything is electronic
New paradigm - Pre event confirmation
A new Paradigm
Making
Checkpost
Hassle free
Accessibility
Through
Mobile phones
Policing by
Citizens
Transparency
and
Accountability
E - SUGAM
E - SUVEGA
Comprehensive
Assessment
System
E - GRAHAK
E - CST
E - VARDAN
E - VARADI
E - GRIEVANCE
E - PAYMENT
Services at
doorsteps
M - SUGAM
E-reconcile
Project
Transformation
E- SERVICES of VATsoft
20
E-enforcement
system
21
Dealers
• E-VARDAN – Online registration request & processing
• E-VARADI – Online submission of returns
• E-payment – Online payment of Taxes
• E-CST – Online request & issue of the CST forms
• E-Grievance – Online grievance redressal
• E-Clearance – Online request & issue of Clearance Certificate
• M-Services – Mobile Based Alerts
Dealers/ Transporters
• E-SUGAM/M-SUGAM forms – Online request and download of Form for Goods movement
• E-SUVEGA forms – Online request for Transit Pass for movement of goods through State
CItizens
• e-Grahak/m-Grahak – SMS based information/complaint by public on the dealer
Officers
• E-CAS – Comprehensive Audit System
• E-reconcile – Tax Collection Reconciliation system
• E-enforcement System
• E-DCB – Demand Collection Balance System
• E-Dealer File – Consolidated Dealer Information System and Analysis
E-SERVICES FOR MAIN STAKEHOLDERS
E-Services – ALL Services are online and at the doorstep of the dealer
22
1 • E-VARDAN – Online registration request & processing
2 • E-VARADI – Online submission of returns
3 • E-payment – Online payment of Taxes
4 • E-SUGAM forms – Online request and download of Form for Goods movement
5 • E-SUVEGA forms – Online request for Transit Pass for movement of goods through State
6 • E-CST forms – Online request and issue of the CST forms
7 • E-Grievance – Online grievance redressal
8 • E-Clearance – Online request and issue of the Clearance Certificate
M-SERVICES – MOBILE BASED SERVICES
1 • M-SUGAM request – SMS based request and issue of SUGAM Form
2 • M-TIN Verify – SMS based verification of dealer details
3 • M-CST form Verify – SMS based verification of CST forms
4
• M-SUGAM alert – SMS based daily alert to dealer on SUGAM downloads from his account
5 • M-payment Alert – SMS based alert to dealer on e-Payment receipt
6
• M-SUGAM Verify – SMS based verification of SUGAM form by mobile Check Post Officers
7 • M-Grahak– SMS based information/complaint by public on the dealer
23
THE CHALLENGES
E - governance
BPR – New Laws, Rules &
Procedures
Technological Interventions –
Environment Building Capacity Building
Supervision and Discipline
BUSINESS PROCESS RE-ENGINEERING
1
• Change in law – Policy advocacy
• Unique Selling Proposition was – Checkposts become hassle free.
2
• Change in Rules – Trade Bodies involved in drafting new rules.
• Guaranteed Service Delivery
3
• Change in form – Re-design of forms
• The forms and screens designed by end users.
TECHNOLOGY INTERVENTION
Web based system for 4,50,000 + dealers.
CTDWAN for networking 2000 systems located in 176 offices/check posts.
Integrated with SMS gateway of NIC.
A control room, working 24X7, has been established.
The software development by an in-house team of NIC.
ENVIRONMENT BUILDING – WINNING OVER THE DEALERS
Interactive meets with trade bodies to introduce the concept.
Main selling point – dealers no longer required to come to tax offices to obtain ‘Delivery Notes’ and trucks would get instantaneous clearance at checkposts.
Guaranteed Service Delivery On ground success seen when different
trade bodies started competing with each other to organize training programmes. Department just provided the resource personnel.
CAPACITY BUILDING – ENABLING THE OFFICERS AND OFFICIALS
All officers/officials imparted week
long mandatory training on E-
governance initiatives and basic
Computer skills.
Administrative Training Institute
and District Training Institutes
used.
Training programme was
completely hands on, with Trainers
selected from the department.
INTEGRATED ANALYSIS
E-RETURN
E-SUGAM: Sales & Purchases
E-CST: Issues and Receipts
E-240 form (audited annual
form)
E-TDS
E-Registration
E-payment & Other Payments
No Service Transaction
Volume Coverage
1 E-returns 4.1 Lakhs 100%
2 E-payment 1.5 Lakh 80 %
3 E-Sugam 24 lakhs 100%
4 E-Suvega 0.25 lakh 100%
5 E-CST forms 1.35 Lakhs 100%
6 E-grievance, NOC 1,500 100%
7 E-registration 5,000 100%
8 E-240 forms (in one year) 0.6 Lakh 100%
MONTHLY VOLUME OF THE TRANSACTIONS
THE OUTCOMES - 1
Advantage Trade
• Services at door steps
• Dealers no longer come to the offices.
• About 30,000 visits of dealers saved/day.
• Zero scope for corruption.
Fast Track Transportation
• Check posts became much more friendly.
• The delays at check posts were reduced.
THE OUTCOMES - 2
Efficient Tax Administration • Tax administration has become more
efficient.
• There was a marked increase in revenue (cannot be ascribed to Sugam only).
• The drudgery of officer has reduced and his/ her accountability has increased.
• Effective analysis of dealer file by officers
Environment friendly • Saves about one ton of paper per day.
• Saves waiting time and fuel consumption at check posts for transporters.
No Key Area Before After
1 Number of persons visiting offices/day 30,000 1000
2 Number of dealers filing e-returns 0 100%
3 % of tax coming through e-payment 0 92%
4 Waiting time at checkposts 7 min 1 min
5 Number of returns processed 5% 100%
6 Review of assessment orders 5% 100%
7 Timely delivery of services Not Av. 99.9%
8 No. of sheets consumed per day 1,00,000 0
9 Time required for issue of transit pass 1 hour 3 min
KEY PARAMETERS – COMPARATIVE ANALYSIS
Very Low0% Low
1%
Average19%
High 55%
Very High23%
Invalid response2%
Dealers - Overall Rating
Very Low0%
Low3%
Average31%
High 49%
Very High13%
Invalid response4%
Practitioners - Overall Rating
IMPACT ASSESSMENT OF E-GOVERNANCE INITIATIVES
BY ERNST AND YOUNG
Very Low0%
Low2%
Average8%
High 65%
Very High25%
Employees - Overall Rating on effectiveness of VAT E-filing system
IMPACT ASSESSMENT OF E-GOVERNANCE INITIATIVES BY ERNST AND YOUNG
78%
61%
83%
70% 71%
76%
59%
73%
44%
81%
55%57%
68%
55%
Computer Literacy
Availability of prof icient ICT conversant
manpower
Ease of use of VAT E – Filing
system
Departmental assistance
Cost ef f iciency Reliability of VAT E – Filing
system
Data / transaction
security wrt e-
Services
Factors facilitating switch to e-Services
Dealers STPs
IMPACT ASSESSMENT OF E-GOVERNANCE INITIATIVES
BY ERNST AND YOUNG
THE UNIQUE FEATURES
1 • It was totally home grown.
2
• An excellent example of convergence of Government agencies and resources.
3 • Magnitude is huge.
4 • Self-policing by trading community.
5 • In the last three years, not even once has the system failed.
6
• Because of in-house team of NIC, managing the software, and updating software becomes hassle free.
7 • This project represents a WIN-WIN-WIN situation.
REPLICABILITY
1
• NIC is supporting North Eastern States - Arunachal Pradesh, Manipur, Nagaland, Tripura, and Mizoram and Union Territories - Diu, Daman and Nagar Haveli in implementing these modules.
2
• E-CST module is replicated in Goa, TN, Chattisgarh, Pondicherry by NIC
• E-payment concept is being replicated for GST system
3
• Number of states have visited and studied the system for replication – Gujarat, UP, Uttarakhand, Chhattisgarh, TN, Bihar, AP, Maharastra, etc.
VAT-Concepts, in
relation to Works
Contract, Leasing,
Hire Purchase
Dr B V Murali Krishna,
JCCT-(eAudit)
e-mail: mkprakruthi@ yahoo.co.in
[email protected], Cell: +9198440 41308
Examples:
Construction of House by the contractor
Construction of Road/Bridge/Barrage
Excavation and construction of Irrigation Canals
Supply and laying of tiles/granite slabs
Laying of UGD Pipes
Installation of Electrical Fittings
Painting of a car/Vehicle
Body Building of the vehicle on Chasis
Dyeing of Textiles/Fabrics
Hiring of vehicle, Machinery, fixtures
Wednesday, September 10,
2014
3
Do you Know….?
Bailment
Barter
Capital
Hiring
Hire Purchase
Hypothecation
Lease
Mortgage
Sale
Service
Works Contract-Job work, Labour work, Material and
Labour work
Wednesday, September 10,
2014
5
Key Provisions of……
Dealer
Business
Sale
Deemed sale-works contract, Leasing, HP
{Sale- CST- 11/5/2002- Deemed Sale}
Input Tax
Out Put Tax
Re-assessment
Tax Period
Wednesday, September 10,
2014
7
Definition of “Goods”-KVAct
Sec 2 (15)- “Goods” means all kinds of movable property (other than newspaper, actionable claims, stocks and shares and securities) and includes livestock, all materials, commodities and articles(including goods, as goods or in some other form) involved in the execution of works contract or those goods used to be in the fitting out, improvement or repair of moveable property, and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale.
9/10/2014 8
Definition of “Goods”-BVAct
Sec 2 (l)- Goods means all kinds of movable
property including livestock, computer
software, any electronic chip used for the
purpose of storing or transmitting data or
voice and all materials, commodities and
articles (as such or in some other form) but
excluding newspapers, electricity, actionable
claims, stocks, shares or security.------
9/10/2014 9
Definition of “Sale”-KVAT
Sec 2 (29) “Sale”- with all grammatical
variation and cognate expressions means
every transfer of property in goods(other than
by way of a mortgage, hypothecation, charge
or pledge) by one person to another in the
course of trade or business for cash or for
deferred payment or other valuable
consideration and includes.- …………..
Sec 2(zc)-BVAT
9/10/2014 11
Definition of “Sale”……
and includes.-……
(a) a transfer, otherwise than in pursuance of a contract, of
property in any goods for cash, deferred payment or other
valuable consideration;
(b) a transfer of the property in goods (whether as goods or
in some other form) involved in the execution of a works
contract;
(c) a delivery of goods on hire-purchase or any system of
payment by installments;
(d) a transfer of the right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred
payment or other valuable consideration;
Wednesday, September 10,
2014
12
Bundle of Rights…..
Owner of property has bundle of rights:
Right to possess,
Right to destroy
Right to use and/ enjoy
Right to usufruct (right to use or enjoy & right
to derive profit )
Right to consume
Right to alienate
Right to transfer
9/10/2014 13
What is transferred…?
Sale
Lease
Bailment
Hire Purchase
All the rights of owner
Only the Right to
use(passage of
control over the
economic benefits)
Delivery of goods for
a particular period
All the rights of the
owner- payment by
installments
9/10/2014 14
Sec 2 (37) :Any agreement for carrying out for cash,
deferred payment or other valuable consideration
the building, construction, manufacture,
processing, fabrication, erection, installation,
fitting out, improvement, modification, repair or
commissioning of any movable or immovable
property
Definition of “Works Contract”:KVA
Sec 2(zh)- Works Contract: means any agreement
for carrying out for cash or deferred payment or
other valuable consideration, the construction,
fitting out, improvement or repair of any building,
road, bridge or other immovable or movable
property
Definition of “Works Contract”:BVA
Types of Contract
Pure Labour Contract-Service
Material Contact-Sale
Works Contract-Material and
Labour(Composite Contract)
Divisible by legal fiction Wednesday, September 10,
2014
17
Article 366
366.Definitions.-(12)”goods” shall include all materials,
commodities, and articles;
(29A)” tax on sale the sale or purchase of goods” includes-(46 Amend..1982)
(a) a tax on the transfer..
(b) a tax on the transfer of property in goods…
© a tax on the delivery of goods on hire-purchase..
(d) a tax on the transfer of the right to use any goods…
(e) a tax on the supply of goods by an unincorporated association or body of..
(f) a tax on the supply , by way of or as part of any service or in any other
manner whatsoever, of goods, being food or any other article for human
consumption or any drink…
and such transfer, delivery or supply of any goods shall be deemed to be a sale
of those goods by the person…
Wednesday, September 10,
2014
19
Evolution of WCT
State of Madras Vs. Gannon Dunkerley & Co (Mad) Ltd.
[1958] 9 STC 353 (SC)
Clause 29(A)inserted in Article 366- 46th Amendment-
Deemed Sale – A legal fiction
A Transfer of property in goods ( whether as goods or in
some other form) involved in the execution of works
contract
Builders India Association Vs Union of India [1989] 73
STC 370 (SC) All restrictions will apply to WCT
Gannon Dunkerley & Co Vs State of Rajasthan (1993) 88
STC 204 (SC)- Constitutional Validity
Wednesday, September 10,
2014
20
Evolution of WCT
Builders Association of India Vs State of Karnataka
(1993) 88 STC 288 (SC)-Theory of Accretion & Deductions
Builders Association Of India Vs State of Kerala (1997)
104 STC 134 (SC)-Composition, No deduction
BSNL Vs Union of India [2006] 3 VST 95 (SC)- Splitting of
Sale element & Service element only in case of
WCT/Catering [(2006) 145 STC 91(SC)-Aspect Theory
State of A P Vs Kone Elevators [2005] 140 STC 22 (SC)-
Contract for Sale or work-Lifts-Sale-Overruled-06.05.2014
Wednesday, September 10,
2014
21
Later References-WCT Mittal Investment corporation Vs Addl Commr of Commercial
Taxes [2001] 141 STC 14 (Kar)- Nature of Agreement
K. Raheja Development Corporation Development Vs State
of Karnataka[ 2005] 141 STC 298 (SC)- Development
Agreement.
Assotech Reality Private limited Vs State of UP [2007(7)
STR 129],
Continental Builders & Developers Vs State of Karnataka
[2008] 64.Kar.L.J 104(HC)(DB)- Developmental Charges
Not exigible to WCT ?
Magus Construction Pvt. Ltd. and another v. Union of India
and others (2008) 015 VST 0017 (Gauhati).
Wednesday, September 10,
2014
22
Later References-WCT Imagic Crative (P) Ltd Vs CCT,Bangalore [2008] 12 VST 366
(SC)-Composite Contract- Sale & Service-Exemption
towards service –Correct-Mutually exclusive
State of Andhra Pradesh & Others Vs Larsen & Turbo Ltd
(L&T) & Others, [2008] 17 VST 1(SC), One Deemed sale
L& T Vs State of Karnataka [2008] 17 VST 460(SC)-KRDC-
Review- Referred to larger bench
L& T Vs State of Karnataka [2013] 26.09.2013 65 VST 1
(SC)- 3 Member Bench-Larger Bench
Kone Elevators Vs State of Tamil Nadu [2014] 06 May
2014(SC) 4:1 Constitutional Bench [2014] 71 VST 1(SC)
Wednesday, September 10,
2014
23
Declared goods- Rate of Tax-WCT
Gannon Dunkerley & Co Vs State of Rajasthan (1993) 88 STC 204
(SC)
Builders Association of India Vs State of Karnataka (1993) 88 STC
288 (SC)
B V Subbareddy Vs DCCT [2008] 11 VST 715 (Kar)(DB)-
Construction of Bridge
URC Construction Ltd Vs DCCT [2008] 11 VST 896 (kar HC)
Afcon Infrastructure Ltd Vs State of Assam [2007}9VST 195
(Assam)- Declared goods Sec 14/15 apply under VAT
Nagarjuna Construction Company Limited Vs State of Kar
[2011] 45 VST 390 (Kar)- Subject to restrictions under CST Act.
Wednesday, September 10,
2014
24
Issue of goods in WCT- Sale ?
N.M. Goel & Co. v. Sales Tax Officer [1989] 72 STC 368
(SC); (1989) 1 SCC 335,
Rashtriya Ispat Nigam Ltd. v. State of Andhra Pradesh
[1998] 109 STC 425 (SC); (1998) 8 SCC 439
Cooch Behar Contractors' Association v. State of West
Bengal [1996] 103 STC 477 (SC)
Rajasthan Taxation Board, Ajmer and others (and other
appeals)-[2004] 136 STC 641 (SC)
Wednesday, September 10,
2014
25
Incidence, Levy of Tax,
Assessment-BVAT Chapter-II Incidence of Tax
Chapter-IV Rate of Tax and Point of Levy
Chapter-VI Returns, Assessment, Re-Assessment and Payment of Tax
Rule 18; Taxable Turnover: In the case of works contract, the amount remaining after deducting from the gross value of the contract the amount on account of the following— (a) Labour charges for execution of the works contract, (b) Amount paid to sub-contractor on account of labour and services, (c) Charges for planning, designing and architects fees, (d) Charges for obtaining on hire machineries and tools used in the execution of the works contract, (e) Cost of consumables such as water, electricity, fuels, etc. used in execution of the works contract the property in which is not transferred in the course of execution of a works contract, (f) Cost of establishment of the contractor to the extent it is relatable to supply of labour and services, (g) Other similar expenses relatable to supply of labour and services, (h) Profit earned by the contractor to the extent it is relatable to the supply of labour and services, and (i) Goods or transactions exempted under section 6 or section 7 of the Act;
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Why Composition: KVAT Act..
An option to be exercised by the dealer
Easy and Simple to Calculate
No need to maintain detailed accounts
Classification of goods/ Nature of works contract is not required
Deductions/exemptions are restricted/ narrow
Levy of Single Rate of Tax
Tax on Total Consideration
Levy is on the consideration relatable to goods/labour
Subject to certain restriction and conditions
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Composition of Tax-WCT
Section 15(1)-COT- Rate of tax not exceeding 5%
4% on the total consideration -by Notification-No FD 55 CSL 2005(7),Bangalore, dated 23-3-2005(Sl No 7),
No FD 116 CSL 2006(13),Bangalore, dated 31.03.2006(Sl No 53)
1.4.2007-Dealer- having more than one type of business, can opt. Ex: Motor vehicle dealer having WCT, can opt for COT for WCT and pay regular tax on motor vehicles.
Can not claim Input tax on purchases effected-Sec 15(4)
COT Dealer Can collect tax -WCT(1/4/2007)
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COT-Continued Section 15(5)-W.e.f 1.4.2006
WCT dealer buying Interstate purchase goods can opt.
Deduct the Turnover relating to ISP from Receipts and pay WCT on remaining and Regular rate for ISP goods.
Can Claim exemption on Sub contractor turnover.
WCT Dealer buys and sells goods other than WCT-pay out put tax- No Input tax claim-Clarity w e f 1.4.2007-ITC 15(4).
Pay URD tax U/s 3(2)- at tax applicable- Inserted from 1/4/2006 by Act No 6 of 2007.
Section 15(5)e- Effect from 1.04.07, Mycon Construction Co Vs S O K [2009] 24 VST 250 (kar), Amendment prospective effect
Under COT-2005-2006-One Sale-Back to Back Contract-Sub Contractor deduction available- Skyline Constructions & Housing Pvt Ltd Vs ACAR[ 2011] 3 VST 290(Kar DB)
Dealer Opting for Composition-Cannot permitted to resile and seek regular assessment in same year- Koothattukulam Liquors Vs DC Sales Tax- [2014] 72 VST 353(SC)
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WCT- Regular Scheme
VI Schedule- 23 entries-01.04.2006
Rate of Tax : 1 %, 4/5/5.5 % and 12.5/13.5/14/14.5%
Declared goods-Sec 4(1) subject to Sec 14 of CST Act
1956
Exemptions: Rule 3(2)- Taxable Turnover-deduct
Sub Contractor Turnover
Labour and Labour Like Charges
Gross Profit Relatable to L & L Charges
Return of goods, Input Tax Credit, Tax Collected
Separately
Proportionate deduction, to the value of goods when the
total turnover is not sufficient Wednesday, September 10,
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WCT- Labour & Like Charges
Rule 3(2)(m)When not ascertainable: Type of Contracts
Installation of AC and Coolers- 10%
Installation of Plant & Machinery, Lifts, escalators, fixing of sanitary
fittings,—15%
Building of Ship & Boat, barges, ferries, tugs,trawlers, draggers
Painting & Polishing, Construction of Bus bodies/trucks, laying of
pipes-20%
Fixing of marble and granites stones, tiles, -25%
Civil works, Railway coaches-30%
Tyre retreading, Dyeing of printing of textiles -40%
Any other works contract- 25% Ex: AMC in IT Industry
Notes: When deduction under this clause, then no ITC wrt on hire
charges of machinery, tools etc purchase of consumables
Gross Profit shall not apportionable when deduction under this clause
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WCT- Labour & Like Charges
L & L Charges include:
Charges for obtaining on hire or otherwise, machinery and
tools used in the execution of works contract
Charges for planning, designing and architects fees
Cost of consumables used in the execution of works
contract
Cost of establishment to the extent relatable to supply of
labour and services and other similar expenses relatable to
supply of labour and services
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WCT-Input Tax Restrictions
Tax paid on goods as specified in Fifth Schedule, which
are procured other than for resale, or manufacture or any
other process of other goods for sale- Sec 11(2).
Tax Paid on purchases as notified by the Govt or
Commissioner –Sec 11(3)- Cement used in pipe & fittings
and cement bricks.
ITR towards the Sub contractor payment-Sec 11(c)from
1.4.2006-Introduced in Aug 2008/ 01.04.2012
(Cannot claim both Input Tax and Sub Contractor
Turnover of a particular RA Bill)
ITR towards purchase of consumables, claimed as
deduction- Sec 11(c)(ii)-Ex: Dyeing of Textiles Wednesday, September 10,
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Deduction of Tax @ Source
Collection of Tax by Registered dealer, Govt & Statutory Authorities-Section 9.
TDS-works contract-amount equivalent to the tax payable-Sec 9-A
Certificate of Tax Deduction-Form VAT 156
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Assessment
Section 38 of KVAT Act, 9(2) of CST Act
All are deemed to be assessed based on the return filed, except notified by CCT.
Fails to file return-assessment-best of judgment
When the return filed subsequent to assessment, with in a month-liable for penalty & Interest.
Protective assessment-Section 38(5)-reason to believe that dealer will fail to pay any tax, penalty, interest-by prescribed authority-permission from JCCT or Addl commissioner.
Unregistered Dealer-Section 38(7)
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Re-assessment of Tax
Section 39 of KVAT Act/ 9(2) of CST Act
Return furnished-deemed as assessed- or
assessment U/s 38,-Understates the correct tax
liability of the dealer.
The re-assessment is subject to further re-
assessment based on any “further evidence”.
Unit of assessment and Re-assessment is “Month”
under VAT / “quarter” for COT
Procedural/provisional aspect for CST assessment or
Re-ass, etc., is similar to the powers under general
sales tax law of the state. Section 9(2) of CST Act.
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Issues in WCT……
Joint Development Contract-Developer Share/Owner Share
Land Cost in lieu of Construction Cost.
Input Tax Restriction- Owner Share
Sub Contractor Turnover-Owner Share
Sub Contractor Turnover restriction- Immovable property/Commercial Property leased
Labour & Like Charges restriction- Immovable property/Commercial Property leased
Under COT, if JD, Add back Construction cost of Owner share, if the Land Cost is claimed as exemption/un declared.
Land Owner can be considered as prospective flat buyer-JD
Taxable Event on goods-as goods or in other form- Before accretion, or at the time of accretion or after accretion (incorporation)
Taxability- Interstate WCT ? PO or Contract/Agreement..
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Specific Issues under works
contract, leasing…. Rate of Tax on On Iron & Steel when used in same form or other
form
Levy of Tax In case of Back to Back Contracts
VAT Liabality in case of “Agreement to sell” Contracts
VAT applicability on Service tax component & other statutory
liabalities
Exemption of Land value or UDI in Residential Constructions.
Theory of Accretion or Incorporation- Deemed sale of goods
Finance lease/ Operating lease
Theory of Effective Control & Possession- Under leasing
Theory of Effective Control- Incase of Software or IPR ?,
because the ownership always lies with Owner ?
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Leasing-Right to use
1. Transferee has the legal right to use the goods in his own
capacity
2. For the period of transfer such right to use is to the exclusion
of the transferor
….Owner can not transfer the same right to another person
3. Normally effective control and possession with the owner
Types of leases:
Operating leases: Normally no option to purchase the property
at the end of lease period
Financial leases: Option available to purchase
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Leasing….
Aggarwal Brothers Vs State of Haryana and Another
[1999] 113 STC 317 (SC)-Hire of Shuttering Material- Transfer of
Right to Use
State of Andhra Pradesh and another Vs. Rashtriya Ispat Nigam Ltd.
[2002] 126 STC 114 (SC)- Effective Control with the owner-No
Transfer of Right to Use
20th Century Finance Corpn. Ltd. and Another Vs. State of
Maharashtra [2000] 119 STC 182 (SC)
Taxable event- Situs of Leasing- Place of execution of
Agreement/Contact-In case of existence of goods
Delivery of goods- In case of future goods/Oral Contact
Vitan Departmental Stores & Industries Limited Vs State of Tamil
Nadu [2014] 68 VST 70 (Mad)-Transfer of Right to use Names,
Marks, Systems, Insignia, Symbols and Goodwill-Exclusive right to
franchisee
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Leasing….
Tata Consultancy Services Vs State of Andhra Pradesh
[2001] 122 STC 198 (SC) Transfer of Right to Use
goods— Software Programme-Branded/Unbranded-Ref to
larger Bench
Bharat Sanchar Nigam Ltd. Vs Union of India [2006] 3
VST 95 (SC)- No Tr of Right to Use-Electromagnetic
waves –Not goods
Indus Towers Ltd Vs DCCT-Enf-1, Bangalore [2012] 56
VST 369 (Karn DB)- No Transfer of Right to use, it is
only a licence to access the facility, Right to use of the
Passive Infrastructure.
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Hire purchase
Possession is transferred (and not mere custody);
Hirer has the obligation to purchase the goods on
payment by installments
Mere hiring is not sale of goods
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Case Laws- Bihar WCT
Supply & Execution of Power Supply System at a mine and Supply &
Erection of electrical equipment for a Plant- It is works contract and it
was not liable to sales tax under the CST Act, 1956 [1971] 27 STC
487 (Pat)
Jamshedpur Contractors' Association and Others Vs State of Bihar and
Others [1989] 75 STC 132 (Pat) – Works contract valid, Supply of
goods(N M Goel case) levy, Declared goods sec-14 of CST
Hindustan Dorr-Oliver Ltd. and Another Vs Union of India and Others
[1989] 75 STC 211 (Pat) . Once the sub contractor is assessed, same
turnover can not be assessed under Main Contractor( The goods in
question would be liable to sale tax only once-Property in goods passes
only once)
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Case Laws- Bihar WCT
Builders Association of India and Others Vs State of Bihar and Others.
[1992] 85 STC 362 (Pat)- Provision for compulsory deduction of tax at
prescribed rate from bills and invoices raised by Contractor-Invalid-Sec
25A [ labour and CST transactions ? [2000] 117 STC 41 (Pat) L & T
Case
Beekay Engineering Corporation Vs State of Bihar [1992] 87 STC 509
(Pat) .works contractor can purchase goods against “C” form
Rungta Projects Limited and Another Vs State of Bihar and Others
[1998] 108 STC 234 (Pat) : Right to use- effective control &
Possession is required
Gammon India Limited Vs NTPC Limited and another [2009] 25 VST
77 (Pat)-Deduction of Tax on Labour charges-Not permissible-BVAT-
Sec 41 Rule 19
Amar Kumar Birley Vs State of Bihar and Others [2012] 48 VST 151
(Pat) – Job of taking photograph of customers-Not a works contract
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Performance always comes from
passion and not from
pressure…..Always be passionate…..
Love what you do and do what you
love…..
Success is yours……..
47 9/10/2014