In respect of indivisable Works Contract the GVAT Act, 2003 provides provision regarding Tax Deducted at Source ( for short ‘TDS’) attracts where the specified sale price of the deemed sale of goods involved in the execution of the works contract exceeds Rs. 1 Crore.

The term ‘specified sale price’ as defined in section 59A states that from the contract price not only labour charges shall be deducted but also of the price payable for the goods purchased in the course of inter State trade or commerce or in the course of Import into the territory of India, for the use in the execution of works contract shall be deducted to compute ‘specified sale price’.

TDS provision provide for deduction (i) by a person responsible for payment to a contractor or (ii) by a contractor responsible for payment to a sub-contractor of an amount at the rate of 0.60% in Civil Works Contract and for all other Works Contracts at the rate of 2 % of the payment of the specified sale price in respect of the transfer of property in goods involved in the execution of a works contract such a deduction is to be made at the time of payment of the whole or part of the said specified sale price.

Section 59B provides that if the contractor or the sub contractor executing the works contract is not liable to pay tax on the specified sale invoice in any specified works contract he can make an application to the Commissioner of Commercial Tax and after being satisfied he will issue a certificate not required TDS in respect of the works contract specified in the certificate.

To compute the value of the Works Contract and for the liability to make TDS on the specified sale price the amounts representing the labour charges for execution of the works contract and the price paid or payable for the goods purchased in the course of inter State trade or commerce or in the course of import into the territory of India for the use in execution of such Works contract are to be deducted from the contract price. For this as per section 59B(c) the contractor/sub-contract will furnish a prescribed statement in Form 702 to the payer of the specified sale price and on the basis of such a statement TDS shall be made.

The deducted amounts of TDS has to be deposited in to Government treasury in a challan Form 207 within 22 days from end of respective month of deducting TDS and obtain a Treasury receipt thereof, and furnish a copy of such receipt to the contractor/sub-contractor with a certificate in Form 703 specifying the amount deducted and the prescribed details.

Provision states if the amount deducted is not deposited within the specified time the person shall be liable to pay interest @ 18% from the due date for payment to the date of payment in addition to the amount of penalty. Provision also states that if person dose not deduct the amount as required above or if after deducting does not deposit in treasury in such case he is liable to pay penalty by not exceeding 25% of the amount required to be deducted.

Provision states that deduction of TDS dose not affect the liability of the contractor/sub contractor to the levy of tax u/s 7 on the works contractor executed by him. The contractor/sub contractor can produce certificate furnished by the person deducting the amount and a copy of treasury receipt and claim the credit of TDS amount against liability to pay tax or the lump sum amount payable by him.

Rule 65(5) speaks that person responsible for paying specified sale price to a contractor or sub-contractor for carrying out any work in pursuance of works contract shall furnish yearly declaration in Form 704 before 30 ^th JUNE after the end of every financial year to Commercial Tax Authority concern.  

To deduct above TDS one has to follow the procedure. On August 1, 2009 an amendment was made in section 59B. Two new sub sections were amended namely sub section 4A and 4B. Which states that person liable for deduction of tax shall obtain TAX DEDUCTION ACCOUNT NUMBER . Provision also states that, person failed without reasonable cause to obtain TDN may be liable for penalty of Rs. 10,000. To meet with the said procedure the Government has amended the rule on 24 ^th December 2009. The hard copy of is attaché hereto. The brief of it reads as follows: 

Tax Deduction Account Number Rules - procedure

• The rules has come from effect from 24.12.2009.
• The person claiming credit of the tax deducted by the contractee shall have to submit a statement in Form-216A along with his returns.
• The certificate has to be issued by the person in Form 703 shall be in  duplicate and serially and mechanically numbered . Copy marked “original” be delivered to the contractor, or as the case may be, sub-contractor and copy marked “duplicate” be retained by the person deducting the tax.
• The person deducting tax shall maintain for each year separate account in Form 705 showing the amount of tax deducted, certificate of tax deduction issued, and the particulars of remittances made to the Government.
• The person deducting tax shall furnish to the specified authority quarterly statement in Form 704 within thirty days from the end of the quarter .
• The person responsible for making deduction of tax shall have to apply on line on the website of the department.
• Online application shall be made before 24.01.2010 if he is liable for such registration prior to the publication of rules.
• Persons becoming liable for registration after 24.12.2009, the online application shall be made within 30 days of the entering into works contract.
• The copy of online application be submitted to the Commissioner within seven days of making such application.
• Person making an application is not a registered dealer or an officer of the Government or Local Self Government Body shall submit following documents along with the application:

• Document regarding proof of place of business.
• Proof of domicile.
• The name, designation and specimen signature of the person/s authorized to sign any forms prescribed or appended to any notification.
• And such other documents as may be specified by the Commissioner in this behalf by way of public circular.

• In case of a registered dealer or an officer of the Government or Local Self Government Body, the documents may be specified by the Commissioner in this behalf by way of public circular shall have to be filed.
• The Tax Deduction Certificate in Form 707 shall be issued by the Commissioner if the application if found in order.
• Any person who ceases to be responsible for registration and elects not to have such registration, he may apply on the website of the department in Form 708.
• The Commissioner may cancel the registration from the appropriate date on an application of the person or on his own motion after giving reasonable opportunity of being heard.

We trust that above message would avoid the misunderstanding or future harassment. Kindly comply the law and save your precious valuable time. Note that all the necessary co-operation and assistance will be provided by our office. For Issues related to TDN kindly contact telephone 0261-2477688 or 2463695 or contact over cell phone to MR.HEMANT DESAI 9825259876 or MR. ROHAN DESAI 9898266449.