(1) Every dealer who executes any works contract shall be liable to pay tax on the sale value of goods involved in the execution of works contract whether or not the transfer of property on such goods occurred in the same form or in some other form, at the rate specified in Schedules for such goods.

(2) However the dealer executing works contract may opt to pay tax by way of composition a tax at five per cent on seventy per cent of the value of the consideration received or receivable. Such option shall be in force for a period of not less than three years.

(3) Deduction of tax at source in works contract.-

(i) Notwithstanding anything contained in this Act, every person responsible for paying any sum to any dealer for execution of works contract shall,at the time of payment of such sum, deduct an amount calculated, at the rates as specified under section 14 or as specified in sub-section (2) of this section:

Provided that no deduction under clause (i) shall be made where.

(a) no transfer of property in goods (whether as goods or in some other form) is involved in the execution of works contract; or

(b) transfer of property in goods (whether as goods or in some other form) is involved in the execution of works contract in the course of inter-State trade or commerce or in the course of import; or

(c) the dealer produces a certificate in such form as may be prescribed from the assessing authority concerned that he has no liability to pay or has paid the tax under section 14 or under sub-section (2) of this section, as the case may be.

Provided further that no such deduction under clause (i) of this sub-section shall be made, where the amount or the aggregate of the amount paid or credited or likely to be paid or credited, during the year, by such person to the dealer for execution of the works contract including civil works contract does not or is not likely to, exceed rupees one lakh.

Explanation.- For the purpose of this section,-

(I) the term .person. shall include -

(i) the Central or a State Government or a Union Territory Administration including National Capital Territory of Delhi;

(ii) a local authority;

(iii) a corporation or body established by or under a Central or State Act or under any law passed by the Union Territory Legislature;

(iv) a company incorporated under the Companies Act, 1956 (Central Act 1 of 1956.) including a Central or State Government undertaking;

(v) a society including a co-operative society;

(vi) an educational institution; or

(vii) a trust;

(II) the term "civil works contract" includes civil works of construction of new buildings, bridge, road, runway, dam or canal including any lining, tiling, painting or decorating which is an inherent part of the new construction and any repair, maintenance, improvement or upgradation of such civil works by means of fixing and laying all kinds of floor tiles, mosaic tiles, slabs, stones, marbles, glazed tiles, painting, polishing, partition, wall panelling, interior decoration, false ceiling, carpeting and extra fittings, or any manner of improvement on an existing structure.

(ii) Any person making such deduction shall deposit the sum so deducted to such authority, in such manner and within such time, as may be prescribed.

(iii) Any person who makes the deduction and deposit, shall within three days of such deposit, issue to the said dealer a certificate in the prescribed form for each deduction separately, and send a copy of the certificate of deduction to the assessing authority, having jurisdiction over the said dealer together with such documents, as may be prescribed.

(iv) On furnishing a certificate of deduction referred to in clause (iii), the amount deposited under clause (ii), shall be adjusted by the assessing authority towards tax liability of the dealer under section 14 or this section as the case may be, and shall constitute a good and sufficient discharge of the liability of the person making deduction to the extent of the amount deposited:

Provided that the burden of proving that the tax on such works contract has already been deposited and of establishing the exact quantum of tax so deposited shall be on the dealer claiming the deduction.

(v) Any person who contravenes the provisions of clause (i) or clause (ii), shall pay, in addition to the amount required to be deducted and deposited, penalty at two per cent per month of such amount for the entire period of default.

(vi) Where the dealer proves to the satisfaction of the assessing authority that he is not liable to pay tax under section 14 or under sub-section (2) of this section, the assessing authority shall refund the amount deposited under clause (ii), after adjusting the arrears of tax, if any, due from the dealer, in such manner as may be prescribed.

(vii) The tax or penalty or interest under this section shall become due without any notice of demand on the date of accrual for the payment by the person as provided under clauses (i) and (ii).

(viii) If any person contravenes the provisions of clause (i) or clause (ii), the whole amount of tax payable shall be recovered from such person and all provisions of this Act for the recovery of tax including those relating to levy of penalty and interest shall apply, as if the person is an assessee for the purpose of this Act.