Guideline on WCT - IRCON's INTRANET SYSTEM!!!

IRCON INTERNATIONAL LIMITED
(A GOVERNMENT OF INDIA UNDERTAKING)
CIRCULAR
IRCON/FIN/TAX/WCT CIRCULAR/2003-04 Dt. 10 th March 2003
The Project Head(s)
(All Indian Projects)
SUB.: <strong>Guideline</strong> on Works Contract Tax
The <strong>Guideline</strong>s on Works Contract Tax (WCT) has been finalised and
placed on ‘IRCON Intranet’. A hard copy of the <strong>Guideline</strong>s alongwith
annexure is enclosed for ready reference.
The Projects are expected to comply with the <strong>Guideline</strong>s with
immediate effect.
This has approval of Competent Authority.
Copy for information:
1. PA to MD, DF, DW & CVO
2. All GM/AGM in Corporate Office
3. Advisor - Internal Audit
Sd/-
(S.K.PAL)
(ADDL.GENERAL MANAGER TAX)
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INTRODUCTION
IRCON INTERNATIONAL LIMITED
Corporate taxation cell
<strong>Guideline</strong> on Works Contract Tax
February 2003
Works Contract Tax (here in after referred as WCT) is leviable on the works
contractor on transfer of title in goods (either as goods or in some other form)
involved in execution of works contract. The tax is levied by the State in which the
works contract is executed; and is governed by Sales Tax / WCT Act and Rules of
the State. Every State has separate set of Act and Rules. It is therefore necessary
that the WCT matters are tackled by the projects locally under guidance of
Corporate Taxation Cell (here-in-after referred as CTC). The services of a local
consultant/ tax practitioner/ advocate may also be availed for compliance with the
statutory requirements and liaison with the sales tax department.
The objectives of this guideline are:
• To ensure effective WCT management at different phases of life cycle of a
project (from inception to the closing of the project).
• To prevent profit leakage.
• To ensure statutory compliance under WCT Rules.
• To bring uniformity across the projects.
• To ensure periodical reporting to the CTC.
BIDDING STAGE
The contracts may be classified in two broad categories from the viewpoint of
WCT:
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1. Prices exclusive of WCT- In this case WCT does not form part of the price/cost.
The client agrees to reimburse WCT separately over and above the agreed price.
Therefore vetting of WCT liability by CTC in this type of bids is optional
2. Prices inclusive of WCT- In this case WCT forms part of the price/cost.
Profitability is affected by correctness of WCT liability included in cost.
Therefore vetting of WCT liability by CTC in this type of bid is mandatory
before the same is placed before DF/MD for their consideration/ approval.
LOI/LOA STAGE
1. The project should refer to the Intranet (www.irconnet.com) for general
guidance on various provisions of WCT of the State. In case the same is not
available the project should contact CTC for general guidance.
2. The project should check with the CTC regarding availability of any local
consultant/tax practitioner/advocate already rendering services to IRCON and
the track record of such local consultant/tax practitioner/advocate.
3. In case a new local consultant/tax practitioner/advocate is to be engaged, the
same may be done by the project in consultation with the CTC.
4. The law regarding registration varies from State to State. Some of the States
allow multiple projects to be covered under one registration. The project should
check with the CTC whether IRCON has any existing sales tax/WCT
registration number, which could be used for the new project in the State.
5. In case a fresh registration number is to be taken, application seeking fresh
registration should be moved by the project immediately and in no case beyond
the permissible time limit under the sales tax/WCT law of the State. The
services of the local consultant/tax practitioner/advocate may be utilised for the
purpose.
6. In some States, the works contractors are given an option to pay WCT under a
scheme of composition , which provides for payment of WCT at a flat rate,
lower than the normal rate of tax. The method is hassle free and works out to be
cheaper in some cases. The project should check from CTC whether
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composition scheme is available in the state and also work out the WCT liability
under composition route vis-a-vi normal route to find out most profitable
option, specially in case of contracts with prices inclusive of WCT.
7. If composition option is intended to be exercised, an application should be
moved by the project within the permissible time limit of the sales tax/WCT law
of the State. The services of the local consultant/tax practitioner/advocate may
be utilised for the purpose.
8. If WCT is reimbursable by the client over and above the contract price (price
exclusive of WCT) and composition option is intended to be exercised by the
project, it should obtain prior confirmation from the client to avoid any future
dispute on the subject.
9. Project should check with the CTC whether the tax authorities of the State
entertain requests for exemption from TDS/Deduction of tax at a rate lower than
the normal rate of TDS, prescribed by the sales tax/WCT laws of the State.
10. If permitted a certificate should be obtained by the project for exemption from
TDS/Deduction of tax at lower rate. Project should ensure submission of
application in prescribed form within the prescribed time limit. The services of
the local consultant/tax practitioner/advocate may be utilised for the purpose.
EXECUTION STAGE
1. Project should take initiative either in person or through the local consultant/tax
practitioner/advocate to collect Registration Certificate from Sales Tax/WCT
Authorities.
2. Project should take initiative either in person or through the local consultant/tax
practitioner/advocate to collect permission for composition tax from Sales
Tax/WCT Authorities.
3. Project should take initiative either in person or through the local consultant/tax
practitioner/advocate to collect certificate for exemption from TDS/Deduction
of tax at source at lower rate from Sales Tax/WCT Authorities.
4. The project should, either in person or through the local consultant/tax
practitioner/advocate, take initiative to submit, such information to the tax
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authorities of the State, in time, as may be required by the sales tax /WCT laws
of the State.
5. The project should ensure that no TDS is effected by the client from the
mobilisation advance. Mobilization advance is not subject to TDS as no transfer
of property takes place at that stage.
6. The project should ensure that all the sub-contractors are registered with sales/
works contract tax authorities and also ensure deduction of TDS from sub-
contractors' bills at prescribed rate, subject to exemption certificates as may be
produced by the sub-contractors.
7. The project should also ensure that the TDS effected from the sub-contractors is
deposited to the Govt. exchequer within the prescribed time limit and the
evidence of such payments are preserved on record.
8. The project should ensure issuance of TDS Certificate to the sub-contractors in
prescribed form, within the prescribed time limit.
9. The project should take initiative to collect TDS certificates from the client and
keep a record of the same.
10. The project should, with the help of the local consultant/tax
practitioner/advocate, assess the monthly/quarterly/annual WCT liability and
arrange to deposit the same to the Govt. exchequer, after adjusting the amount
of TDS deposited by the client. The project should also ensure that the payment
is made before the due date.
11. The project should, with the help of the consultant/tax practitioner/advocate
prepare sales tax/WCT Returns at prescribed interval and submit the same to the
tax authorities on or before the due dates.
12. The project should send periodical reports to the CTC in prescribed format for
information of corporate management.
ASSESSMENT STAGE
1. Project to liaison with tax authorities and consultant/tax practitioner/advocate
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2. Project to ensure presence before the tax authorities either in person or through
the consultant/tax practitioner/advocate for verification of records/hearing to
complete the assessment expeditiously.
3. On receipt of assessment order the project should examine the same thoroughly
with the help of the local consultant/tax practitioner/advocate and send a copy
of the same assessment order along with observation for attention of the CTC. If
the project proposes to make appeal against the assessment order the same
should be clearly mentioned in the observation.
APPEAL STAGE
1. A competent Council to be engaged by the project in consultation with CTC.
2. Project should provide complete details and documents to the Council to
prepare appeal papers, grounds of appeal, stay application etc and send the draft
copy to CTC for examination before submission to the tax authorities. Normally
appeal papers are to be submitted within the specified time limit. Utmost care
has to be taken by the project to ensure that the appeal papers are filed within
the stipulated time limit. Project should inform CTC of submission of appeal in
time.
3. Project should ensure attendance before the tax authorities either in person or
through the Council to complete the appellate proceedings expeditiously.
4. On receipt of appellate order the project should examine the same thoroughly
with the help of the Council and send a copy of the same along with observation
for attention of the CTC. If the project proposes to appeal to next higher
appellant authority the same should be clearly mentioned in the observation.
FINAL CLOSING STAGE
1. Project to intimate Sales Tax/WCT authorities regarding financial closure of the
project.
2. The project should take initiative to cancel the Sales Tax/WCT Registration, if it
is exclusively for the project. The project should also inform CTC of such
cancellation of Registration.
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