Under the VAT System, the Contractee/Customer can avail the full VAT Credit/Set off of the VAT paid to the Contractor through the tax Invoices, provided such purchases are not in the Negative list of set off/VAT Credit.
However, in the cases where the Contractees / Customers do not get any VAT set off / Credit, they should note the following points to reduce their VAT Cost,
(a) To decide the Best option of “Levy of VAT/Composition Tax” before the execution of the Works Contract Commences.
(b) To insist the Contractor to buy maximum inputs from local vendors only and the VAT Credit thereof should be passed on to the Contractee by reducing his sale price , accordingly .
( c ) In case of free issues supplied by the Contractee / Customer to the Contractor , if the price of the contractor is `Net off’ the material value supplied by the Contarctee then there is no negative VAT impact to the Contractee . Otherwise, there is VAT cost in the hands of the contractee with regards to the VAT paid on the purchases made by the Contractee and given as free issues to the Contractor.(d) Prescribed % of TDS payment to the government and timely issuance of TDS certificates to the Contractors.
(e) To insist the Contractor to show the VAT applicable, separately on the invoice (Tax Invoice, in the case if the Contractee can avail the credit)
(f) To add the clause in the agreement with the Contractor, “If any additional liability on Account of VAT (WC) arises at a future date shall be borne by the Contractor”.