Tax ation in P roject

Business

Topics Covered
Role of F&A in Taxation issues
Taxability of Projects
Contract Structuring
Q&A

R ole of
Finance
&
Accounts

Role of F& A

Bid Support

Project Execution

Bid Support
Proper

Tax inputs

Suggesting

options on tax matters

P roject Ex ecution
Guiding

Procurement for proper

documentation & statutory
compliance

Timely

discharge of tax obligationspayments & statutory returns

Tax ability of P rojects

Excise
Duty

Custom
Duty

CST/
VAT/WCT

Projects
Income
Tax

Octroi

Service
Tax

Entry tax

Levies of Tax es
Central Levies

State Levies

Income Tax

VAT / WCT

Customs Duty

Entry Tax

Excise Duty

Octroi

Service Tax
CST

I ncom e Tax

Tax Deduction at Source

Customer deducts IT TDS on our invoices

from each payment.

TDS Certificates should be collected

timely to avail the credit of tax.

Similarly we have to deduct tax while

making payment to service providers and
issue TDS Certificate.

P aym ents to Foreign Vendors

WHT applicable where payments are made

towards Technical service fees attributable to
engineering services rendered in connection
with projects in India.
Tax Rate to be adopted @ lower of the rate
recommended in DTAA or in the IT Act
WHT rate would be 20% if the Non Resident
Service Provider does not have PAN in India
WHT rates also differ if the Non Resident
Service Provider is deemed to have a PE in
India.

P aym ents to Foreign Vendors

Efforts needs to be made to make all Indian

Taxes to the vendors a/c including service tax

Say amount payable :

Service tax included :
WHT applicable on
Assuming WHT @10%
Net amount to be remitted

Special care need be taken when L/Cs are

opened for the services to take care of WHT

100
10
90
9
81

Double Tax ation Avoidance

Agreem ents:

India has DTAA with most of the countries

Care should be taken where there is only a

limited DTAA with some countries

Foreign Vendor would be entitled to claim credit

for WHT and therefore WHT should not be
considered as additional cost

Ex cise Duty

Ex cise Duty

Excise Duty leviable on manufacture of excisable

goods

No Excise duty payable by us on our billing ( since

we are trading only) except when goods cleared
from own units/fabrication yard

Exemption in certain cases SEZ Unit

Mega Power Project

Ex cise Duty

Excise Duty Credit can be passed on to our

client and they can take the CENVAT Credit if
their output is liable to Excise Duty

Proper procedure and documentation needs to

be followed to enable client to avail CENVAT
credit

Goods should be consigned to the clients

premises directly from the vendor /
manufacturers premises

Service Tax

Service Tax - Basics

Service Tax is applicable on taxable

services
Works Contract Service added as a taxable
service under the Service Tax ambit w.e.f.
July 2007
No service tax in case of (a) Export Services
(b) Services to SEZ units
Service Tax is payable by recipient in India
when services are provided by foreign
vendors

Services R egistered
We are registered under the following

categories:
Works Contract
Consulting Engineer
Civil Construction
Erection Commissioning & Installation
Repairs & Maintenance
Business Support
Renting of Immovable Property
Goods Transport Agency

Service Tax Credit R ules

Service Tax Credit available with respect to 1. Input Services used for providing taxable
output services
2. In relation to manufacture of excisable
products
Credit shall be allowed based on vendor
invoice but only after payment towards input
services and tax thereon to the vendor
Credit will not be allowed if the inputs/input
services are used for final products/output
services which are not taxable.

CST

Central Sales Tax

Central

Sales Tax:

CST Act formulates the principles of determining

when a sale or purchase takes place:
In the course of inter-state trade or commerce
(S. 3)
In the course of import into and export out of
India (S. 5)

States do not have the power to levy tax on

these transactions

Ex em ptions :

Sale in the course of import (S. 5)

Sale in Transit - Inter-state Sale S.6(2)
Sale to SEZ Unit

Sale in the Course of I m port

Contract of Sale occasions import
OR
Sale effected by Transfer of Documents of
title to goods before the goods cross
custom frontiers of India (High Seas Sale)

Sale in the Course of I m port

Contract of Sale occasions import

Integral connection between sale and

import from the foreign vendor

Nexus between ultimate buyer and

exporter

Two sales are inter-linked so as to form

one transaction

Bill of Entry prepared in Customers name

High Seas Sale

Transfer of documents of title to goods

Transfer should take place before goods

cross customs frontiers of India

Transfer should take place before Bill of

Entry is assessed for payment of duty

High Seas Sale agreement necessary

I nter-state Sales

Sale occasions movement of goods from

one state to another
OR

Effected by transfer of documents of title

to goods during the transit

Sale occasioning inter-state

m ovem ent
1.Agreement must have a stipulation,
express or implied, requiring movement of
goods
2.Goods should move from one state to
another in pursuance of the agreement
3.Movement may be as a result of the
contract of sale - privity of contract.
4.Goods moving under works contract also
covered.

Sale by transfer of docum ents

Documents of title under section 2(4) of
the Sale of Goods Act: Includes the
following:

bill of lading, L/R, airway bill

dock warrant,
warehouse-keepers certificate,
railway receipt,
any other document used in the
ordinary course of business as proof of
possession or control of goods

Sale by transfer of docum ents

1. Transfer of documents of title to the
goods while the goods are in transit
- By endorsement or
- By mere handing over the documents.
2.The documents can be endorsed by the
authorized nominee. Normally , the
endorsement should read as follows:
Please deliver to m/s --------- or order

3. The endorsed documents should be

handed over under covering letter

VAT

VAT - Basics

VAT has been introduced in more than 20

states from 1st April, 2005 and another 6
states introduced effective 1st April, 2006.
VAT replaced the Local Sales Tax.
Being a state levy some specific rules differ
from one state to another.
CST shall be phased out over a period of
time.

VAT

VAT seeks to avoid double taxation of

commodities & multiplicity of taxes, resulting
in a cascading tax burden
Input Tax Credit is available to manufacturers
and Traders - credit can be availed on the
basis of Tax Invoice
Only three categories of items with VAT
Rates of 0%, 4% and 12.5%
For most of the items procured in E&C
Projects 12.5% rate is applicable except Steel
which attracts 4%

Essentials for VAT invoice

Tax Invoice" & Original

mentioned on the bill.

VAT registration numbers of buyer and seller

are indicated on the invoice.

VAT amount to be shown separately in the

invoice

Invoice

is

Entry Tax

Entry Tax

In certain states, Entry Tax is levied on the

goods brought into the state from other states.
Limited number of items are covered under the
purview of Entry Tax.

Liability to pay Entry Tax is leviable on the

ultimate customer

In some cases entry tax paid is available as

VAT Credit.

Entry Tax where applicable should be

considered for cost estimation for project bids.

Octroi

Octroi

In some states, Octroi is charged at the time

of entry of goods into the limits of the local
area (e.g. Municipal Limits).

The respective Octroi laws have provision for

refund if the goods have entered into the
local area limits only for limited purpose (like
processing) and the goods would again be
taken out of the local area.

If octroi is applicable in the area where

project is executed, it should be factored in
the project cost.

Contract Structuring

Contract Structures & Applicable

tax es
Two contracts Supply & Service
Contract
Supply
Services

Taxes Applicable
VAT / CST
Service Tax

Three contracts Supply, Design Engineering

& Erection Service & Construction
Contract
Supply
Services
Construction

Taxes Applicable
VAT / CST
Service Tax
WCT / Service Tax

Q&A

Q. Which taxes are applicable if we

procure goods from a manufacturer
situated in the state of Gujarat for a
project in the state of Maharashtra?
Excise

Duty & VAT

Excise Duty & CST
Service Tax & CST
Service Tax & VAT

Q. Which tax is payable by service

receiver in India when services are
provided by service provider outside
India
Service

Tax

WHT
Service
None

Tax & WHT both

Q. What is the rate of CST applicable if

concessional forms are issued by the
purchaser?
2%
3%
4%
10%

Q. If we purchase from a trader in Gujarat

for a project in Gujarat which taxes
should be borne as cost?
Excise
CST
VAT
None

Duty

Q. For passing on the CENVAT benefit to

the customer, the Consignee column in
the CENVAT document should show
Name

and address of L&T

Name and address of sub
contractor carrying out erection
Name and address of Customer
Name and address of consultant who
has placed order for L&T

Q. Service Tax is payable on

Any

service provided
Any goods and services provided
Any goods sold
Any taxable service provided or to
be provided

Q. L&T can avail credit of which of the

following tax levied on its purchases
Excise

Duty
Service tax
CST
Customs Duty

Thank You