Taxation of works contracts in India has alwys been a contentious issue. Under erstwhile indirect tax laws, States were empowered to impose tax on goods component while Centre was empowered to impose tax on service component of works contract. The works contract being a composite contract involving transfer of title in goods as well as provision of services, was liable to be taxed under VAT (sales tax) and service tax legislations. Both these
legislations provided for presumptive valuation whereby some portion of value was suffering dual taxation.
Source CA Naresh K. Sheth & CA Sidharth Sheth
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