Date:16/05/2008 URL: http://www.thehindu.com/2008/05/16/stories/2008051659931100.htm

Tamil Nadu - Chennai

Incorrect assessment costs State Rs. 3.17 crore

Shyam Ranganathan

CHENNAI: The Comptroller and Auditor General (CAG) has found that the Tamil Nadu Government has lost Rs. 3.17 crore in revenue to incorrect assessment of tax on contracts.

The 2006-2007 report, tabled in the Assembly on Wednesday, pointed out that the Commercial Taxes Department had not responded to its queries for more than six months. According to the Tamil Nadu General Sales Tax (TNGST) Act, a works contract is taxed at 4 per cent, while a sale contract incurs a 12 per cent tax.

Works, sale contracts

The works contract involves extensive skilled labour by the seller to suit the buyer’s needs, whereas the sale contract involves only the sale of product.

In an earlier dispute, the Supreme Court had held that if only incidental labour was performed on a product, it should be treated as a sale contract.

In this sense, a contract for generator sets at Alwarpet should have been treated as a sale contract and taxed at 12 per cent of its value.

However, the report said, the Assessment Authority had argued that the contract was for installation of generator sets and levied tax at 4 per cent.