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COMPOSITION SCHEME FOR CIVIL WORKS CONTRACTS IN UTTAR PRADESH

 

      Scheme announced by the Government of Uttar Pradesh by G.O. No. KA.NI.-2-1278/XI-2009-9(2)/08 dated 09-06-2009 for accepting composition money in lieu of actual amount of VAT in cases of civil works contracts differs in several aspects from the composition scheme which had been applicable before the date of commencement of VAT i.e. before January 01, 2008. Various people have been asking us certain questions. For the benefit of all, we are listing such queries and our opinion on them.
 

Query 1.
In respect of which civil works contracts, composition scheme, as announced by the Government of Uttar Pradesh, can be opted?
Reply:
Composition scheme in respect of execution of civil works can be opted in respect of following types of works contracts of civil nature:
  (i) Construction of buildings;
(ii) Construction of roads;
(iii) Construction of bridges;
(iv) Construction of barrages;
(v) Construction of dams;
(vi) Building or construction of causeways or spillways;
(vii) Work relating to drainage and sewerage.
 

Aforesaid works contract may also include any or all of the works of the following nature:

  (i)
Fitting or installations of structures, doors, windows, frames, grills, shutters and such other things if they are incorporated in the works after their manufacture at the work site.
(ii) Incorporation of tiles, slabs, stones, sheets, etc.
(iii) Work related to electrification and plumbing.
(iv) White washing and painting.
Query 2.

Where works contract of building construction is awarded separately and contract of electrification of such constructed building is awarded separately, whether composition scheme can be opted for the contract of electrification of such building under the civil work contracts composition scheme?

Reply:

No, Composition scheme announced for civil works contracts cannot be opted in respect of following nature of works contracts if contract relating to construction of building, in which such work is to be executed, is a separate contract:

  (i)
Fitting or installations of structures, doors, windows, frames, grills, shutters and such other things if they are incorporated in the works after their manufacture at the work site.
(ii) Incorporation of tiles, slabs, stones, sheets, etc.
(iii) Work related to electrification and plumbing.
(iv) White washing and painting.
Query 3.

Whether composition scheme, relating to civil works contracts, can be opted in respect of a civil works contract, name of which is not mentioned in the scheme?

Reply:

No, Composition scheme announced by the Government provides exhaustive list of works contracts in respect of which scheme is applicable. Composition scheme is applicable only in respect of civil contracts given in reply to query 1 above. For example, contract related to construction of chimney using fire bricks, bricks, cement, etc. at a brick-kiln or factory premises is not covered under the scheme.

Query 4.

During the same assessment year, for including each contract in composition scheme, whether separate application is required to be presented?

Reply:

No, for each assessment year, application for composition is to be presented once. In respect of new contracts which are received after presenting application, contractor is required to give intimation to the assessing authority within 30 days from the date of receipt of contract.

Query 5.

A contractor opts for composition scheme in the assessment year in which contract is received.The contract continues in the subsequent years too. In subsequent assessment years, no new contract is received. Whether contractor is required to present application for composition in such subsequent assessment years?

Reply:

Yes, for each assessment year, application for composition is to be presented separately. Application, given in one assessment year, is for composition of liability of tax for that assessment year only.

Query 6.
Where a contractor has opted composition scheme for all contracts during an assessment year in respect of civil works contracts covered by the scheme, whether he can change his option of participating in the scheme in the next assessment year?
Reply:
In clause (5) of the scheme, it is mandatory for a contractor to opt composition scheme for year 2007-2008 (from 01-01-2008) and all subsequent years to come.
Query 7.
A contractor gives his option for participating in the composition scheme for an assessment year by presenting application but in subsequent assessment year, he forgets to present application for composition or deliverately does not present application for composition scheme. In these circumstances, how his liability will be decided for the subsequent assessment year?
Reply:
On this point, section 6, of the U. P. VAT Act, 2008, which deals with issue of compounding of tax liability and the scheme announced by the Government are silent. In my personal opinion, his applications for earlier years should also be not accepted and the contractor should be treated outside the scheme from the very beginning. This opinion is based on the logic that the contractor has not fulfilled the conditions of the scheme.
Query 8.
Under U. P. VAT, where a dealer makes purchase of goods from persons other than registered dealers, he is liable to pay tax on such purchase. Whether a contractor, who opts composition scheme relating to civil works, is liable to pay tax on actual basis on purchases, of goods, made from persons other than registered dealers?
Reply:

Scheme announced by the State Government is also subjected to provisions of section 6 of the U. P. VAT Act, 2008.
     Clause (e) of sub-section (1) of section 13 of the said act run as follows:
"(e) Every dealer who is liable to pay tax and who opts for payment of tax or lump sum under provisions of section 6, shall, in respect of all taxable goods, except non-vat goods, capital goods and captive power plant, which are held in stock at the end of the period during which provisions of section 6 remain applicable, be allowed credit of full or partial amount of input tax or deemed input tax, as the case may be, in accordance with provisions of clauses (a) to (d) above, as may be applicable"
        sub-section (2) of section 6 of the Act runs as under:
(2) Any dealer, who opts for payment of composition money under this section, shall not be entitled to claim credit of input tax under section 13 in respect of purchase of goods which are re-sold by him during the period in which he is liable to pay composition money under this section or in respect of purchase of goods which have been used, consumed or utilized in manufacture or processing of goods which are sold by him during such period and where the dealer has claimed credit of input tax in respect of any such goods, the same shall stand reversed and the dealer shall pay such amount of reverse input tax credit in accordance with the provisions of section 14. "

       Compliance of provisions relating to input tax credit, available in section 6 and in clause (e) of sub-section (1) of section 13 in relation to section 6, cannot be made unless tax is paid by the contractor on purchases.

 
      Otherwise also, clause (3), of application for composition, speaks in clear terms that application is for accepting lump sum in lieu of tax payable on transfer of property in goods effected by the firm. application is part of the scheme. Transfer of property in goods is sale of such goods.
 
      Thus it is clear beyond any doubt that a contractor who opts composition scheme shall be liable to pay tax on purchase of goods where such purchase will be made from persons other than registered dealers.
Query 9.
Where transfer in property in goods, in the execution of a works contract, is as a result of inter-state sale in the hands of the contractor, whether tax on such inter-state sale will be covered under composition money fixed by the U. P. Government?
Reply:

Where a contractor makes inter-state purchase of any goods in the circumstances in which sale, of such goods by the contractor in the execution of the contract, falls under section 3 of the Central Sales Tax Act, 1956, tax on such sale is to be paid by the contractor in the State From which he has purchased such goods. Under the composition scheme only sales within the State are covered.

 

DICLAIMER: Opinions expressed here are personal views of the author. Viewers are advised to consult their legal advisors before acting upon any opinion. The Web sit administration and the author disclaims any kind of liability.

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