Tax paid by contractee on goods supplied to contractor, is allowable as ITC to such contractor

The Punjab & Haryana High Court has held in an important case namely Lajpat Rai Chanana V State of Haryana & others (2011) 38 PHT 390 (P&H) that input tax credit to a works contractor executing the works contract will be justified if the contractee has already paid the tax on the goods supplied by him to the contractor.

Brief on the judgment: The assessee was a works contractor for executing various works for the Government and its authorities. For executing the work, the State and its authorities supplied material to the petitioner(Contractor) which was treated as sale. Since the said authorities had paid the tax while purchasing the said material before supplying the same to the petitioner, the petitioner claimed the benefit of input tax credit. It is held by the Hon’ble High Court that in such case assessee (Contractor) is entitled to input tax credit paid by the contractee.

Thus if contractor is able to prove the tax paid by contractee on the material purchased by contractee and supplied by him to the contractor and produces the relevant bill to that effect then the contractor shall be eligible for input tax credit of such tax paid by the contractee.

This important judgement can be downloaded at below link:

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