WCT VAT on issue of materials to subcontractors
There are cases where contractor issues materials to the subcontractor for consumption in the subcontracted work. These issued materials may be issued at (a) actual procurement price (b) at fixed agreed price (irrespective of the actual procurement price) as agreed in the work order, or at (c) price higher than procured price, say, adding 5% of material cost towards material handling charges to the material cost. Contractor recovers these materials by raising debit note to the subcontractor. In these transactions, shall the contractor pay VAT? The subcontractor uses these materials only in the subcontracted work.
I feel the terms of the Subcontract Work Order have to be read carefully to understand the tax impact.
Since, you have said contractor recovers the value of materials supplied by way of debit note and these goods are used for the aforesaid Subcontracting work, it does not amount to sale irrespective of whether it is on cost/at markup price. Hence VAT wont be applicable as this does not tantamount to sale.
I also invite responses from our learned experts in the forum.
Thank you for your clarification.
suppose if the contractor opts for composition scheme, still can he sell te material to subcontractor/others by raising tax invoice ? if yes, can the contractor set off input tax on purchase against output tax payable ?
You may refer Sec 15(5)(c). It clearly says, he will liable to pay tax at the rate specified in Sec 4 without deduction of Input tax on purchases. So he cant claim Set off of Input tax credit.
If the contractor issued material to subcontractor for executing the work.then is there any tax to be leveid on subcontractor , if so how can we raise the bill on sub contractor and what are the tax implications on this under composition scheme if followed by contractor..?