2.  A works contract is a contract
for sale as well as for provision
of goods and services but which
is indivisible in nature. It is an
entirely distinct type of a
contract, the essence of which is
a meld of sale of goods and
provision of services which is
necessary for the fructification
of such an obligation.

3. Works Contract Tax first evolved after
the ruling of courts in the case of:-
 State of Madras vs. Gannon Dunkerley
& co. (madras) Ltd.
 Gannon dunkerley and Co. vs. State
of Rajasthan

4.  “366. Definitions: In this Constitution,
unless the context otherwise requires, the
following expressions have the meaning
hereby respectively assigned to them,
 (29A) ‘tax on sale or purchase of goods’
includes
 (a) A tax on transfer, otherwise than in
pursuance of a contract of property in any
goods for cash, deferred payment or
other valuable consideration;
 (b) A tax on the transfer of property in
goods (whether as goods or in some other
form) involved in the execution of a works
contract;

5. Tailoring Work – Hindustan Shipyard
Ltd vs. State of Andhra Pradesh
Retreading of old tyres – Elgi tyres
& tread vs. Dy CCT
Photographic work – Bharat Sanchar
Nigam Ltd.
Annual Maintenance Contract – HCL
info system Ltd. Vs. COT
Job work

6.  It is a sale and the
relation is between
a buyer and seller.
 The sale is chattel
qua chattel
 It is a deemed sale
and the relationship
is between a
contractor and
contractee.
 Property in goods
passes by accretion,
accession or
blending during the
course of work.

7.  Sale is taxable
under sales tax
laws.
 Sale can be of
standard goods or
tailor made goods.
 Transfer of
property in goods
is deemed sale and
taxable under
sales tax laws.
 It is only tailor
made i.e, for a
specific contractee

8. Section 2(ja) of Central sales tax laws defines works
contract as : ‘works contract’ means a contract for
carrying out any work which includes assembling,
construction, building, altering, manufacturing,
processing, fabricating, erection, installation, fitting
out, improvement, repair or commissioning of any
movable or immovable property.
Definitions of Works Contract in Haryana VAT Act,
Orissa Vat Act and of Bihar VAT Act are similar to
the definition in CST.

9. In works contract, sales tax can be levied only on the ‘value of goods involved in execution of works
contract’
 The value of goods involved in execution of works contract will have
to be determined by taking into account the value of entire works
contract and deducting there from the charges towards labour and
services .
 Deductions permissible while calculating ‘value’ -
 Labour charges for execution of the works
 Amount paid to sub contractors for labour and services
 Charges for planning, designing
 Charges for obtaining on hire or otherwise machinery and tools used
for the execution of works contract
 Cost of consumables – water, electricity, fuel used in execution of
works contract

10.  Sometimes it is difficult to find the correct value of goods
in case of indivisible contract. Hence a composition
scheme is available on an optional basis.
 The contractor can opt to pay sales tax on total value of
contract at a fixed rate.
Cost of establishment of the contractor to the
extent it is relatable to supply of labour and services
Other expenses relatble to supply of labour and
services and
Profit earned by the contractor to the extent it is
relatable to supply of labour and services.
Depreciation, interest, maintenance expenses also
can be deducted.

11.  For the purposes of service tax, the term
works contract has been defined as:
“works contract” means a contract wherein
transfer of property in goods involved in the
execution of such contract is leviable to tax as
sale of goods and such contract is for the
purpose of carrying of construction, erection,
commissioning, installation, completion, fitting
out, repair, maintenace, renovation, alteration
of any movable or immovable property or for
the carrying out any other similar activity or a
part thereof in relation to such property -
Section 65B(54) of Finance Act 1994

12.  Rule 2A of Service Tax (Determination of
Value) Rules 2006 makes provision for
valuation of works contract –
a) Calculate value of service (as per rule 2A(i)
i.e. service pay service tax at normal rate
of 12.36% on such value.
b) Pay service tax (as per rule 2A(ii)
‘composition scheme’ on 40%/ 60% / 70% of
of total value of works contract.

13. Works contract service =
gross amount charged for works contract – value of transfer
in property in goods involved in the execution of
works contract

14.  Gross Amount Includes :-
Labour charges for execution of the works
Amount paid to a sub contractor for labour and services
Charges for planning, designing and architect fees
Charges for obtaining on hire or otherwise, machinery and
tools used for execution of the Works contract
Cost of consumables such as water, electricity, fuel, used
in the execution of works contract
Cost of establishment of the contractor related to supply
of labour and services
Other similar expenses related to supply of labour and
services and
Profit earned by service provider related to supply of
labour and services.

15.  Original works i.e., new construction,
erection commissioning, installation)
 Maintenance or repair or reconditioning
or restoration or servicing of any goods.
 Other works contract including
maintenance, repair , completion and
finishing services such as glazing,
plastering, floor and wall tiling,
installation of electrical fitting of
immovable property.
 If Construction contract includes value
of land.
 40% of
total
amount
 70% of
total
amount
 60% of
total
amount
 25%