In a landmark Judgement the Madras High Court hold that a contract price comprises of three components viz. cost factors, profit margin
Bhaskar Thakkar
Passionate Golfer & Founder BT Associates (Indirect Tax - Consulting firm) & GSTidea.com (Knowledge Sharing Portal on GST)
Background:
Petitioner entered into an agreement with Tamil Nadu Water Supply and Drainage Board for laying under Ground Sewerage. The contract price was inclusive of TNVAT and Excise Duty components.
It was mentioned in the contract that deduction at source towards sales tax shall be made at 2% for civil works contract and at 5% for all other works contract. Under the GST Regime the distinction between civil works and other works became irrelevant since all the works contract for construction activities came to be taxed at 12%. Due to change in tax regime it became necessary to re-work the terms of the contract.
The Government of Tamil Nadu issued G.O.Ms. No. 296 Finance (Salaries) Department, dated 09.10.2017. The Government took note of the fact that the price bid to be quoted should be inclusive of taxes and duties. Accordingly, they came out with different formulas to determine taxes which got subsumed in the all inclusive contract. The Government came out with a formula as set out in paragraph No. 10 of the said Government Order.
"Paragraph 10"- Considering the necessity to provide for a transparent means of estimating subsumed tax Government direct that the following methodology be adopted for estimating the value of subsumed taxes in the contracted value of work: