Analysis on new GST rate for works contract services w.e.f 1st January 2022

Mukesh Kuriyal , Last updated: 30 May 2023
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Government Has Amended Tax Rate For Service Provider Providing Works Contract Services From 5%/12% To 18% Vide Notification No 15/2021 C.T(Rate) Dated 18.11.2021 Amending Notification No 11/2017 C.T.(Rate) W.E.F 01.01.2022. These Changes Have Brought By Merely Deleting Few Words And Its Very Tough To Come To The Conclusion That On Which Item The Rate Is Increased/Same. I Have Tried To Analyze It In Detail By Not Only Going Through The Old Notification/New Notification But Also Through Indian Constitution.

What is works contract under GST?

Under GST, a works contract is treated as a supply of services. The definition of a works contract includes any agreement for carrying out construction, installation, fabrication, erection, maintenance, repair, alteration, or renovation of any immovable property. It can also involve the transfer of goods in the process.

Tax Rate On Works Contract Services Before 01.01.2022 (Amendment) i.e Till 31.12.2021

Till 31.12.2021

S No	Item	Service Type	Service Provider	Supplied To
S No	Item	Service Type	Service Provider	Cent Govt/ State Govt/ UT/ Local Authority	Governmental Authority/ Govt Entity	Others
Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-
1	(iii)	(a) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); (b) canal, dam or other irrigation works; (c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal	Contractor	12	12	18
1	(ix)	providing services specified in item (iii)	Sub Contractor	12	12	18
2	(iv)	(a) a road, bridge, tunnel, or terminal for road transportation for use by general public; (b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana; (c) a civil structure or any other original works pertaining to the "ln-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban);- N.No.1/2018 dated 25.01.2018 (d) a civil structure or any other original works pertaining to the "Beneficiary led individual house construction / enhancement" under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (da) a civil structure or any other original works pertaining to the "Economically Weaker Section (EWS) houses" constructed under the Affordable Housing in partnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)N.No.1/2018 dated 25.01.2018 (db) a civil structure or any other original works pertaining to the "houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/ Lower Income Group (LIG)/ Middle Income Group1 (MlG-1)/ Middle Income Group-2 (MlG-2)" under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban); N.No.1/2018 dated 25.01.2018 (e) a pollution control or effluent treatment plant, except located as a part of a factory; or (f) a structure meant for funeral, burial or cremation of deceased. (g) a building owned by an entity registered under section 12AA of the Income Tax Act, 1961 (43 of 1961), which is used for carrying out the activities of providing, centralised cooking or distribution, for mid-day meals under the mid-day meal scheme sponsored by the Central Government, State Government, Union territory or local authorities. N.No.1/2018 dated 25.01.2018	Contractor	12	12	12
2	(xii)	Construction services other then (iii),(iv),(v),(vi),(vii),(viii),(ix), (x)	Sub Contractor	18	18	18
3	(v)	(a) railways, excluding including N.No.1/2018 dated 25.01.2018 monorail and metro; (b) a single residential unit otherwise than as a part of a residential complex; (c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; (d) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority under-(1)the "Affordable Housing In Partnership"component of the housing for all (urban)mission/pradhan mantri awas yojna;(2)any housing scheme of a state government; (da) low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March,2017; N.No.1/2018 dated 25.01.2018 (e) post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or (f) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.	Contractor	12	12	12
3	(xii)	Construction services other then (iii),(iv),(v),(vi),(vii),(viii),(ix), (x)	Sub Contractor	18	18	18
4	(vi)	(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or (c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.	Contractor	12	12	18
4	(ix)	providing services specified in item (vi)	Sub Contractor	12	12	18
5	(vii)	involving predominantly earthwork (that is, constituting more than 75per cent. of the value of the works contract)	Contractor	5	5	18
5	(x)	providing services specified in item (vii)	Sub Contractor	5	5	18
6	(viii)	in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the offshore area beyond 12 nautical miles from the nearest point of the appropriate base line.	Contractor	12	12	12
6	(xii)	Construction services other then (iii),(iv),(v),(vi),(vii),(viii),(ix), (x)	Sub Contractor	18	18	18

In short (Tax Rate Before 01.01.2022)

For Contractors

1. For Works Mentioned In Item(iii) And (vi) GST Rate Was 12% For Providing Services To Central Government/State Government/Union Territory/Local Authority/ Governmental Authority/ Govt Entity And 18% For Providing Services To Others*.

2. For Works Mentioned In Item (iv) ,(v) And (viii) GST Rate Was 12% For Providing Services To Any Body**.

3. For Works Mentioned In Item (vii) GST Rate Was 5% For Providing Services To Central Government/State Government/Local Authority/ Governmental Authority/ Govt Entity And 18% For Providing Services To Other.

For Sub Contractors

1.For Works Mentioned In Item(iii) And (vi) GST Rate Was 12% For Providing Services To Central Government/State Government/Local Authority/ Governmental Authority/ Govt Entity And 18% For Providing Services To Other(Through Principal Contractor).

2. For Works Mentioned In Item (iv) ,(v) And (viii) GST Rate Was 18% For Providing Services To Any Body(Through Principal Contractor).

*other means-not falling under six mentioned category.

*anybody means-anyone including six mentioned category.

I Know That Many Of You Are Of View That All Subcontractor Had The Tax Liability Of 12% (Or Similar Rate Of Contractors) But That's Not Correct As Per Notification. Although It Is Against The "Principals Of Natural Justice" But The Fact Remains That As Per Notification Only Subcontractor Providing Services Mentioned In Item (iii) And (vi) Were Eligible For 12% ,Item(vii) Were Eligible For 5% And Rest All Falls Under 18%.Some Of Us Also Rely On The Decision Of Several AAR But Before That We Should Know That To Whom The Advance Ruling Is Applicable??

To Whom The Advance Ruling Is Applicable

An Advance Ruling Pronounced By AAR Or AAAR Shall Be Binding Only On The Applicant Who Has Sought The Advance Ruling And On The Concerned Officer Or The Jurisdictional Officer In Respect Of The Applicant. This Clearly Means That An Advance Ruling Is Not Applicable To Similarly Placed Other Taxable Persons In The State. It Is Only Limited To The Person Who Has Applied For An Advance Ruling.

Now let's go through tax rate for works contract services effective from 01.01.2022

Tax Rate On Works Contract Services Before 01.01.2022 (Amendment) i.e From 01.01.2022

From 01.01.2022

S No	Item	Service Type	Service Provider	Supplied To
S No	Item	Service Type	Service Provider	Cent Govt/ State Govt/ UT/ Local Authority	Governmental Authority/Govt Entity	Others
Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-
1	(iii)	(a) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); (b) canal, dam or other irrigation works; (c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal	Contractor	12	18	18
1	(ix)	providing services specified in item (iii)	Sub Contractor	12	18	18
2	(iv)	(a) a road, bridge, tunnel, or terminal for road transportation for use by general public; (b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana; (c) a civil structure or any other original works pertaining to the "ln-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban);- N.No.1/2018 dated 25.01.2018 (d) a civil structure or any other original works pertaining to the "Beneficiary led individual house construction / enhancement" under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (da) a civil structure or any other original works pertaining to the "Economically Weaker Section (EWS) houses" constructed under the Affordable Housing in partnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)N.No.1/2018 dated 25.01.2018 (db) a civil structure or any other original works pertaining to the "houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/ Lower Income Group (LIG)/ Middle Income Group1 (MlG-1)/ Middle Income Group-2 (MlG-2)" under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban); N.No.1/2018 dated 25.01.2018 (e) a pollution control or effluent treatment plant, except located as a part of a factory; or (f) a structure meant for funeral, burial or cremation of deceased. (g) a building owned by an entity registered under section 12AA of the Income Tax Act, 1961 (43 of 1961), which is used for carrying out the activities of providing, echanized cooking or distribution, for mid-day meals under the mid-day meal scheme sponsored by the Central Government, State Government, Union territory or local authorities. N.No.1/2018 dated 25.01.2018	Contractor	12	12	12
2	(xii)	Construction services other then (iii),(iv),(v),(vi),(vii),(viii),(ix), (x)	Sub Contractor	18	18	18
3	(v)	(a) railways, excluding including N.No.1/2018 dated 25.01.2018 monorail and metro; (b) a single residential unit otherwise than as a part of a residential complex; (c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; (d) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority under-(1)the "Affordable Housing In Partnership" component of the housing for all (urban)mission/pradhan echan awas yojna; (2) any housing scheme of a state government; (da) low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30^th March,2017; N.No.1/2018 dated 25.01.2018 (e) post-harvest storage infrastructure for agricultural produce including cold storage for such purposes; or (f) echanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.	Contractor	12	12	12
3	(xii)	Construction services other then (iii),(iv),(v),(vi),(vii),(viii),(ix), (x)	Sub Contractor	18	18	18
4	(vi)	(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or (c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.	Contractor	12	18	18
4	(ix)	providing services specified in item (vi)	Sub Contractor	12	18	18
5	(vii)	involving predominantly earthwork (that is, constituting more than 75per cent. of the value of the works contract)	Contractor	5	18	18
5	(x)	providing services specified in item (vii)	Sub Contractor	5	18	18
6	(viii)	in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the offshore area beyond 12 nautical miles from the nearest point of the appropriate baseline.	Contractor	12	12	12
6	(xii)	Construction services other then (iii),(iv),(v),(vi),(vii),(viii),(ix), (x)	Sub Contractor	18	18	18

In short (Change Of Tax Rate On or After 01.01.2022)

For Contractors

1. For The Works Mentioned In Item (iii) And (vi) GST Rate Has Increased From 12% To 18% For Providing Services To Governmental Authority/Govt Entity .

2. For The Works Mentioned In Item (vii) GST Rate Has Increased From 5% To 18% For Providing Services To Governmental Authority/Govt Entity .

For Sub Contractors

1. For The Works Mentioned In Item (iii) And (vi) GST Rate Has Increased From 12% To 18% For Providing Services To Governmental Authority/Govt Entity(Through Principal Contractor)

2. For The Works Mentioned In Item (vii) GST Rate Has Increased From 5% To 18% For Providing Services To Governmental Authority/Govt Entity (Through Principal Contractor).

No Change In Tax Rate On Items (Before & After Amendment)

For Contractors

1. For The Works Mentioned In Item (iii) And (vi) GST Rate Is/Was 12% For Providing Services To Central Government/State Government/Union Territory/Local Authority And Is/Was 18% For Providing Services To Others.

2. For The Works Mentioned In Item (iv) ,(v) And (viii)GST Rate Is/Was 12% For Providing Services To Any Body.

3. For The Works Mentioned In Item (vii) GST Rate Is/Was 5% For Providing Services To Central Government/State Government/Union Territory/Local Authority And Is/Was 18% For Providing Services To Others.

For Sub Contractors

2. For Works Mentioned In Item (iv) ,(v) And (viii)GST Rate Is/Was 18% For Providing Services To Any Body.

3. For Works Mentioned In Item (vii) GST Rate Is/Was 5% For Providing Services To Central Government/State Government/Union Territory/Local Authority And Is/Was 18% For Providing Services To Others.

Meaning Of Six Categories On Which The Rate Of Tax Depends

1. Government

As per section 2(53) of the CGST Act, 2017, 'Government' means the Central Government.

In the same manner, Section 2(53) of the State GST enactment(s) define 'Government' to mean Government of the respective State.

As per clause (23) of section 3 of the General Clauses Act, 1897 the 'Government' includes both the Central Government and any State Government.
Section 2(17): "business" includes - - (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

Central Government And State Government Is 'Person'. These Are Constitutional Entities- State Of Punjab Vs Okara Buyers Syndicate Ltd, AIR 1964 SC 669

It Is Clear From The Above That The Government Is A Person And Thus Supply To And By Government Is Taxable, Unless Specifically Exempted.

Examples

NRRDA(PMGSY) is not 'Government' -F No 354/171/2017-TRU Dated 04.06.2018.
Ordinance Factory is not 'Government' -re[2019]106 taxmann.com 246(AAR Maharashtra).
*** It Has Covered 3 Categories I.E Central Government/State Government/Union Territory).

2. Local Authority

Section 2(69) Of CGST Act Reads As Follows

Local Authority Means -

Panchayat As Defined In Clause (D) Of Article 243 Of The Constitution;
Municipality As Defined In Clause (E) Of Article 243p Of The Constitution;
A Municipal Committee, A Zilla Parishad, A District Board, And Any Other Authority Legally Entitled To, Or Entrusted By The Central Government Or Any State Government With The Control Or Management Of A Municipal Or Local Fund;
A Cantonment Board As Defined In Section 3 Of The Cantonments Act, 2006;
A Regional Council Or A District Council Constituted Under The Sixth Schedule To The Constitution;
A Development Board Constituted Under Article 371[And Article 371j]8 Of The Constitution; Or
A Regional Council Constituted Under Article 371a Of The Constitution;:

Local Body Is Not Local Authority-Local Bodies Constituted By State Or Central Law Are Not 'Local Authorities'-Para 2.4.9 Of CBE &C's Taxation Of Services: An Education Guide Published On 20.06.2012.

Examples

Dehradun Municipal Corporation (DMC) Is A Local Authority.

NOIDA Is Not Local Authority-NOIDA Vs CIT(Appeals(2018) SSC 351.

3. Governmental Authority

As per Para2(zf) of the Notification No. 12/2017-CT(Rate), dated. 28.06.2017 Ammended By Notification No 32/2017-CT(Rate), dated. 13.10.2017

(zf) "governmental authority" has the same meaning as assigned to it in the Explanation to clause (16) of section 2 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017);

As Per Explanation in Section 16(2) of the Integrated Goods and Services Tax Act, 2017 (13 of 2017);

Explanation.- For the purposes of this clause, the expression ―governmental authority means an authority or a board or any other body,- -

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with 90 per cent. or more participation by way of equity or control, to carry out any function entrusted to a Panchayat under article 243G or to a municipality under article 243W of the Constitution;

Examples:

Mussurie Dehradun Development Authority(MDDA) is a 'Governmental Authority'

Jaipur Development Authority is 'Governmental Authority'

4. Governmental Entity

As per Para2(zfa) of the Notification NO. 12/2017-CT(Rate) and No 09/2017-IT(Rate)both dated 28.06.2017 inserted w.e.f. 13.10.2017 dated. 28.06.2017,

(zfa) "Government Entity" means an authority or a board or any other body including a society, trust, corporation,

(i) set up by an Act of Parliament or State Legislature; or

(ii) established by any Government,

with 90 per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority..

Examples

NRRDA(PMGSY) Is A Governmental Entity.-F No 354/171/2017-TRU Dated 04.06.2018
IIT Is A Governmental Entity.-F No 354/171/2017-TRU Dated 04.06.2018
NHPC Ltd.Is A Government Entity-NHPC Ltd,In Re[2018]100 Taxmann.Com 16(AAR-Uttarakhand)
WAPCOS Is A Governmental Entity.

One thing which is missing in GST is 'Public Authority'

Meaning Of Public Authority

The Term 'Public Authority' Has Not Been Defined In CGST/SGST Act.

As Per Wikipedia A Public Authority Is A Type Of Public Benefit Corporation That Takes On A More Bureaucratic Role, Such As The Maintenance Of Public Infrastructure,That Often Has Broad Powers To Regulate Or Maintain Public Property.Thus The Term Is Very Broad. Any Activity Of Central Government, State Government Or Any Local Authority Where Public Is Involved Would Get Covered Under Activity As 'Public Authority'.

Examples:

PWD Is A Public Authority.

RTO Is A Public Authority.

How Will The New Tax Rate Apply?

When Supply Happens During Such A Change In Tax Rates, The Time Of Supply Shall Be Determined In Accordance With Sec 14 Of The CGST Act. There Are Two Scenarios Under This.

The First Scenario Deals With The One Where Goods Or Services Have Been Supplied Before The Change In The Rate Of Tax.
And The Second Scenario Deals With The One Where Goods Or Services Have Been Supplied After The Change In The Rate Of Tax.

Sec	Services Provided	Date Of Issue Of Invoice	Date Of Receipt Of Payment	Time Of Supply
14(a)	Before Change In Rate Of Tax(B)	After Change In Rate(A)	After Change In Rate(A)	Receipt Of Payment Or Issue Of Invoice Whichever Is Earlier
		Before Change In Rate (B)	After Change In Rate(A)	Issue Of Invoice
		After Change In Rate(A)	Before Change In Rate (B)	Receipt Of Payment
14(b)	After Change In Rate Of Tax(A)	Before Change In Rate (B)	After Change In Rate(A)	Receipt Of Payment
		Before Change In Rate (B)	Before Change In Rate (B)	Receipt Of Payment OR Issue Of Invoice Whichever Is Earlier
		After Change In Rate(A)	Before Change In Rate (B)	Issue Of Invoice

** Date Of Invoice Can Be Understood As Date Of MB(Measurement)

By This Amendment The Contractor's Will Have To Bear 6% Extra Tax Burden From Their Own Pocket Which Is Going To Be Tough For Them. From The Past Experience(VAT To GST) The Contractor's Are Aware That The Recipient(Department) Won't Pay(This Extra 6%) Them So Easily.

Attached File : 1521146_46634_govt_contractor_sub_contractor_18_.pdf