Works contract
As per Sec. 2(119) of CGST Act, 'Works Contract' means a contract for 12 types of contract, which are as follows:
• Building
• Construction,
• Fabrication,
• Erection,
• Installation,
• Fitting out,
• Improvement,
• Modification,
• Repair,
• Renovation or
• Commissioning of any movable or immovable property
Thus even when there is a transfer of property in goods during execution of any works contract, such supply will be included in Works Contract only.
E.g: construction of a new building, installation and commissioning of Towers, etc.
It is a combination of goods and services but is neither a composite nor a mixed supply as defined under the CGST Act.
Tax rate: It has been decided to consider works contract purely as a service at 18% GST rate decided in 14th GST Council.
As per Schedule 2:
• All the works related to construction of a complex, civil structure, building or a part thereof, which also includes a complex or building tagged for sale to a buyer, wholly or partly.
• Transfer of property in goods (whether as goods or in some other form) involved in the completion of a works contract.
It is to be noted, that works contract under GST will be applicable only for immovable properties.
Composition scheme : Not applicable
The composition scheme for services under GST is restricted only for those persons supplying restaurant services. This means that any works contracts service provider will need to register as a normal supplier on crossing the threshold as specified, i.e. 20 lakhs.
Hence this increases the compliance requirements and compliance costs for sub contractors also.
Time of supply - As per services
Time of Supply for the purpose of determining a regular works contract under GST would be the earliest of the following dates -
• Date of issue of invoice: If the invoice is issued within 30 days from the date of completion of the service.
• Date of completion of service: If the invoice is not issued within 30 days from the date of completion of the service.
• Date of receipt of payment: Earliest of Date of payment entered in books of account OR Date on which payment is credited to the bank account.
If the supplier receives an amount up to INR 1000 in excess of the invoice amount, the time of supply for the extra amount shall be the date of issue of invoice
Time of supply in case of continuous services
• Where the due date of payment is ascertainable from the contract: (The date on which the payment is liable to be made by the recipient of service, whether or not any invoice is issued or any payment has been received by the supplier of service.)
• Where the due date of payment is not ascertainable from the contract: (Each such time when the supplier of service receives the payment or issues an invoice, whichever is earlier)
• Where payment is linked to the completion of an event: (The time of completion of that event)
Place of supply - as per services
Under GST, location of the immovable property will be considered as the place of supply. Like any other service under GST, providing works contract services in a different state, will require separate registration to be taken at that state. Thus, irrespective of whether a works contractor is located in the same state as that of the immovable property or in a different one, the tax applicable will always be CGST + SGST / UTGST.
Service Provider:
Composite supply of Works contract as defined in clause 119 of section 2 of CGST Act is liable for 18% GST rate with FULL Input Tax Credit (ITC) OF Inputs And Input services as specified in the 14th GST council.
Service provider of WCS can avail credit on Input tax paid on Inputs and Input services
Service Receiver:
Section17(5)(c): Input tax credit shall not be available in works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service
• In case where works contract is a sub contractor , main contractor can claim the credit on tax paid on SUB CONTRACT i.e. input service for further supply of WCS
• In case of works contract of plant and machinery , service receiver can claim credit on tax on that works contract of PLANT &MACHINERY
• In other cases Input tax credit shall not be available for service receiver i.e., tax paid on works contract cannot be claimed by service receiver
The author can also be reached at maheshbobbili.ca@gmail.com
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