Question and Answer

1. Is  AST payable by the Work Contractors who had opted to pay temporary tax under Section 7(c) of the TNGST Act 1959?

Ans:

            Earlier when 7-C was introduced in 1993, there was no parallel provision in the AST Act to levy AST on Works Contract Turnover on which compounding tax was paid.  But these AST was levied by the Department of South India Corporation, Coimbatore took up the issue to the High Court where the Division Bench held that there is no specific provision in AST Act to  levy AST on compounding turnover [124 STC 654 (MAD)].

            In order to get over the situation Explanation V was introduced by Act 23 of 2002 to Section 2(1) (aa) of the AST Act empowering the Assessing Officer to include the Total contract value in the Taxable Turnover for the purpose of levying AST.

            This explanation was challenged by Taher Alis Industries and Projects Ltd., in the Madurai Bench of Madras High Court and it is held that “Imposition of Sales Tax on the total contract value was not within the competence of State Legislature, as it was only the transfer of goods on which tax could be imposed”. Finally ‘Explanation V’ has been held as ‘inconstitutional’. [47 VST 155].

            Thus AST is not payable by the works contractors who are paying compounding tax U/s.7(c).  However, others who are paying tax U/s.3B has to pay AST.

 2.When TDS has to be collected and paid? Either at the time of payment receipts and at the time of raising the bill?

Ans:

Section 7-F, which imposes the condition to deduct tax at source (TDS), speaks only about payment of sums and upon every payment TDS has to be made.  Some contractors raise monthly bill and get monthly payment and they have no confusion.  In some cases, payments are made periodically and bills are raised at the end or in the middle.  Some times the payment will be more or less than the bill raise.  In such cases, TDS made at the time of payment had already been paid by the principle.  It is the duty of the contractor to get back the excess TDS amount if any.

  

3.Is Service Tax includible in the works contract turnover like CENVAT added to the sales value of goods?

Ans:    

            Central Excise Duty (CENVAT) is levied on the production of goods (cw;gj;jp thp).  But duty can be collected by the manufacturer at the time of delivery and to be paid in the next month.  Duty is a presale levy, and expenses incurred before the sale is made.  Any expenses incurred on the goods before sale is to be included in the sale value of the goods and sales tax to be levied on the sale value.  Therefore excise duty element is being added on the sales turnover and sale tax is levied on it. 

            But in the case of service tax on works contract, it is levied on the labour portion after the delivery of the goods.  The labour charges no way increases the cost of the goods and it is totally a different activity after the delivery of the goods is completed.  Hence labour charges, on which service tax is levied, need not be levied.  If it is levied it is purely unconstitutional.