Our company is Gujarat-based and we propose to set up a power generation plant. We have engaged a contractor for a lumpsum consideration for undertaking erection, commissioning, installation etc. As per the agreement with our contractor, we are obliged to pay an advance of 10% of the total agreed consideration immediately post-execution of the agreement. Kindly let us know whether we are obligated to deduct works contract TDS (WC TDS) from the advance payments being made, even though no work has actually started at the proposed site.
Section 59B (3) (a) of the Gujarat VAT Act prescribes as follows: “Any person responsible for paying specified sale price to a contractor for carrying out any work in pursuance of a specified works contract, shall at the time of payment of the whole or part of the specified sale price, deduct from such price an amount at the rate as may be specified by the state government by notification in the official gazette of such payment as a tax on specified sales.”
On perusal of the above, it is clearly evident that a contractee is required to deduct WC TDS where: A contractee is responsible for making any payments of specified sale price to the contractor; and the payment is made by the contractee in pursuance of an existing works contract.
Thus, where any payment is made by a contractee to a contractor pursuant to an existing works contract and the payments is towards the specified sales price, the contractee is required to deduct WCT TDS therefrom.
In the instant case, we understand that the payment is an advance payment which has been fixed as a percentage of the total lumpsum consideration. Accordingly, the said payment is towards a portion of the agreed sale consideration.
Hence, basis the provisions highlighted above, WC TDS would be required to be deducted from the aforesaid advance payment.
Determination of transaction value
We are a manufacturer of automotive components. Recently, we were awarded a contract for supply of components to a subsidiary of a vehicle manufacturer. As per the contract, the components are purchased by the subsidiary at a discount. The quotation provided by us discloses the discount as a commission fee. No post-sale services are received by us from the subsidiary in lieu of the discount i.e. there is no flow back of consideration in lieu of the discount.
We understand that the goods are thereafter sold to the holding company (vehicle