19 October 2022
Agreement entered in the year November 2017 (at that time products (95% Value) GST 5% and Service(value 5%) GST 18% subsequently as per Notification No.24/2018 dated 31-12-2018 the taxes calculation has been considered 70:30 Product and Service portion Further Rate of GST of products increased to 12% but supplier has supplied all products on before rate change 30-09-2021, Now the situation is what rate of tax considered for works contract whether it should be as per latest rate applicable or as per agreement rates? Kindly clarify thanks in advance
07 July 2024
In the scenario described, where an agreement was entered into in November 2017 specifying GST rates for products and services, subsequent changes in GST rates and notifications have altered the landscape. Here’s how you should consider the GST rate for works contracts:
1. **Original Agreement Rates (Pre-GST Rate Changes):** - The agreement specified GST rates for products (95% value) at 5% and for services (5% value) at 18%. - This was valid until any subsequent changes were notified.
2. **Subsequent GST Rate Changes:** - Notification No. 24/2018 dated 31-12-2018 introduced a 70:30 division for contracts involving both goods and services, affecting the GST calculation. - GST rates for products were subsequently increased to 12% from an earlier lower rate.
3. **Determining the Applicable GST Rate:** - For works contracts executed after the GST rate changes (from the date of notification onwards), the applicable GST rate should generally be as per the latest notification and rate applicable at the time of supply. - Since the supplier has supplied all products before the rate change on 30-09-2021, any works contracts executed after this date should consider the updated GST rates (12% for products as per the latest rates).
4. **Impact on Existing Contracts:** - For contracts initiated before the GST rate changes and executed over a period that spans these changes, it’s crucial to segregate supplies based on the timelines and the applicable rates during those periods. - The proportionate application of GST rates (70:30 in the case of mixed contracts) should reflect the period-specific rates applicable to each component (goods and services).
5. **Compliance and Documentation:** - Ensure that the invoices and contracts reflect the correct GST rates applicable at the time of supply. - Maintain clarity in the calculation and segregation of GST components based on the agreement terms and subsequent notifications.
To summarize, for works contracts executed after the GST rate change on 30-09-2021, the revised GST rates should be applied as per the latest notifications. For contracts initiated before this date, the historical rates agreed upon in the contract would apply, with adjustments made as per subsequent notifications regarding GST applicability and rates. Always consult with a GST professional or advisor to ensure compliance with current regulations and notifications specific to your situation.
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