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Time limit to raise tax invoice for service

Durga prasad N (Finance Officer) (57 Points)

08 July 2017

Suppose, an item come for repair, which involves use of spares and service to repair that item. The prominent factor in this activity is service.

When the item is sent back to the customer after repair, the following issues are raised.

1. Tax invoice should be generated immediately OR the invoice can be raised within 30 days of time limit available.

2. If yes, the procedure to be followed while dispatching the repaired items.

3. Further, the GST rate for spares and service is seperate, the seperate invoice for material and spares are required to be raised OR composite invoice is raised.

I request all the professional colleagues to discuss this issue and give the clarity.

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1 Replies

NITIN KOTAK (SERVICE) (1465 Points)
Replied 08 July 2017

Works Contract under GST- How Will GST Impact Works Contract?

Updated on Jun 10, 2017 - 12:14:48 PM

What is a works contract?

A works contract is a mixture of service and transfer of goods. Examples of works contract are construction of a new building, erection, installation of plant and machinery.

Current law

Works contracts consists of three kinds of taxable activities as per the current law. It involves supply of goods as well as supply of services. If a new product is created during the works contract, then such manufacture becomes a taxable event.

Currently, the supply of goods is taxable in the form of VAT and the service is taxable under service tax.

If a new product appears in the process of completing a works contract, Central Excise duty is levied.

So, different aspects of one a single activity are taxed by different laws. This causes a lot of confusion regarding treatment and taxability which is why there are so many legal disputes in related to works contracts.

GST aims to put an end to the uncertainty for the legislature.

Works Contract Under GST

GST Schedule II clearly mentions that the following are supply of service–

construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly,
works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract
Thus GST with its “One Nation One Tax” has removed the confusion regarding the tax treatment.

This means works contract will be treated as service and tax would be charged accordingly (not as goods or part goods/part services).

This treatment of works contract as service and not as supply of goods will bring in much needed clarification to the works contracts. Under the current regime, different states have different schemes for VAT. There are different composition schemes with different VAT rates. Service tax too is complex with 60% abatement on new works and 30% abatement on repair contracts. GST will solve such with a much simpler straightforward calculation

Input Tax Credit is NOT available

Revised Model GST Law mentions that input tax credit is not available for-

works contracts services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service
goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business.
On analysis, one finds this provision is quite contradictory.

For example, any contractor/builder will not enjoy any input tax credit on the input services if he constructs any building. But he will enjoy input tax credit on input service for further supply of works contract service. These two sentences are confusing and contradictory.

Input tax credit is available to a builder while constructing plant and machinery. But input tax credit is not available to any taxable person who constructs on his own account even if it is for business use.

This entire section is confusing and contradictory and further explanations are required.

Abatement is not Mentioned

No abatement has been prescribed for works contract service so far. Currently VAT is payable on the works contract. Service tax is paid @ 15% on either 40% (on new work) or 70% (on repair, maintenance work).

In case no abatement/ composition is provided, it may lead to significant increase in tax burden, especially if such works contract is taxed at Standard GST rate (which is 18%) and even if subjected to lower tax rate (12%).

Composition Scheme is not Available

Composition scheme is not available to works contractors as it is treated as service under GST. Composition scheme is only available to suppliers of goods. This will be a big blow to the small sub-contractors who cannot opt for comp