Works Contract is a vast subject and covers a wide range of contracts relating to immovable and movable property. The objective of this article is to understand and identify works contract value in composite contracts of sale of immovable property (constructed “pursuant to a contract” in this article) and further dissection of the works contract to arrive at the goods value and the service value in a works contract and possibility of differential margin’s in each such activity. In case of a works contract, Value Added Tax (‘VAT’) is a tax levied by state government on the goods (material) value of a works contract and Service tax is levied on service portion of works contract.
In case of real estate projects the builder/developer normally sell undivided share in land, transfer the goods like cement ,steel ,tile ,sanitary fittings and provides construction services which broadly includes design of building, structure, construction activity, finishing activity, etc. In case of real estate projects the builder/developer will supply material or may sub-contract to other agencies with or without material. One would seldom find a real estate developer who would not be covered under the state VAT law as there will normally be supply of material by builder/developer. Accordingly, the builder/developer is likely to be a works contractor under the VAT laws. For the purpose of Service Tax, Services provided by the real estate developer would be covered under either of the two declared services:
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