In recent times the applicability of GST on various works contract services has seen some colossal changes. Few notifications were earlier issued in order to set aside the exemption available on supply to government entities and governmental authorities. Now the GST rate on various works contract services has been increased by amending notification no 11/2017- Central Tax (Rate). The changes in serial no 3 of the notification are interleaved in red below and the omitted entries have been marked out.

(iii)    Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied to the Central Government, State                            Government, Union territory or a local authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of--

• (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     

(iv)    Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, other than that
         covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above], supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance,                     renovation, or alteration of,—

• (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 Awas Yojana;
• (c)    a civil structure or any other original works pertaining to the "In-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban)  Mission/ Pradhan Mantri Awas Yojana (Urban);]
• (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) (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 Group-1 (MIG-1)/Middle Income Group-2 (MIG-2)" under the   Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban);
• (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.Provided that during the period beginning from the 14th June 2021 and ending with the 30th September 2021, the central tax on service of description as specified in clause (f), shall, irrespective of rate specified in column (4), be levied at the rate of 2.5 per cent.]
• (g) a building owned by an entity registered under section 12A [or 12AB] 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.]        

(v)    Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, other than that covered by items (i), (ia), (ib), (ic), (id),             (ie) and (if) above], supplied by way of construction, erection, commissioning, or installation of original works pertaining to,—

• (a)    railways, including 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 the competent authority under—

1. the "Affordable Housing in Partnership" component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;
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;]
• (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.]        

    (va) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of affordable residential apartments covered by sub-clause (a) of clause (xvi) of paragraph 4 below, in a project which commences on or after 1st April, 2019, or in an ongoing project in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item (ie) or (if), as the case may be, in the manner prescribed therein     

[Provided that carpet area of the affordable residential .actually paid at the rate prescribed herein.]
  

 (vi Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above], provided] to the Central Government, State Government, Union territory or a local authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of—

• (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.]     

    (vii)  Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, involving predominantly earth work that is, constituting more than 75 per cent of the value of the works contract) provided to the Central Government, State Government, Union territory or a local authority. 2.5 % to 6 %   
    

(viii) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 and associated services, 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.    6  %
  

 (ix) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main             contractor providing services specified in item (iii) or item (vi) above to the Central Government, State Government, Union territory or local authority.    6 %    

(x) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services specified in item (vii) above to the Central Government, State Government, Union territory or local authority.    2.5 %  6 %   

 (xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (iii), (iv), (v), (va), (vi), (vii), (viii), (ix),(vii),(viii), (x) and (xi) above.        

Updated Serial No 3 of the rate notification

Serial no 3 of the rate notification would now be limited to the following entries

    (vii) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, involving predominantly earth work (that is, constituting more than 75 per cent of the value of the works contract) provided to the Central Government, State Government, Union territory or a local authority.    6%    
    

(viii) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 and associated services, 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.    6 %

(x) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services specified in item (vii) above to the Central Government, State Government, Union territory or a local authority.   6  %
    

(xi) Services by way of house-keeping, such as plumbing, carpentering, etc. where the person supplying such service through electronic commerce operator is not liable for registration under sub-section (1) of section 22 of the Central Goods and Services Tax Act, 2017.    2.5%  Provided that credit of input tax charged on goods and services has not been taken
    

(xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (vii),(viii), (x) and (xi) above.    9 %
 

IMPACT OF THE NOTIFICATION

Earlier the concessional rate of 12% was applicable on supply to central or state governments etc. with respect to entry no (iii) and (vi) by the main contractor and the sub-contractor was also eligible for this concessional rate of tax. The issue was with respect to inward supplies of the sub-contractor which were earlier charged at the rate of 18%. The sub-contractor was also not eligible to go for refund of this excess tax paid and this amount used to accumulate in the hands of the sub-contractor providing services to main contractor. Now from 18th July 2022 onwards, a flat rate of 18% has been fixed on these supplies in order to remove the issues related to inverted duty structure thereby making the whole chain of suppliers charge 18% GST on their respective works contract service.

• By and large all the government contracts are generally taken inclusive of taxes. With the increase in GST rates, the companies would now be required to bear the burden of incremental GST.

 

• The classification issues with respect to works contract service for construction of civil structure predominantly for use other than for commerce, industry or any other business etc. has also been done away with as most of these specific concessional rate entries have been omitted and made part of the residual entry which is subject to 18% GST.

 

• The concessional rate of 12% on road construction, bridge, tunnel or terminal for rad transportation for use by general public is now to be taxed at 18%.

 

• Works contract services related to earth work are now to be taxed at 12% which was earlier 5% .The sub-contractor shall also be required to charge 12% GST to the main contractor. However the sub-sub-contractor shall charge 18% GST to the sub-contractor which will eventually lead to the blockage of working capital in the hands of the sub-contractor.
   

CMA MAHESH GIRI

PARNTER-MM & ASSOCIATES

CHAIRMEN-GST CELL (NIRC OF ICAI-CMA)

EMAIL-CMAMAHESHGIRI@GMAIL.COM

CONTACT -91-971169791