WORKS CONTRACT
The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017 as “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.”
As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as a supply of services.
Composition scheme is not available to works contractors as it is treated as service as per Para 6 (a) of Schedule II to the CGST Act, 2017 under GST.
Section 17(5)(c) of CGST Act states that 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.
Thus, ITC for works contract can be availed only by one who is in the same line of business and is using such services received for further supply of works contract service. For example a building developer may engage services of a subcontractor for certain portion of the whole work. The subcontractor will charge GST in the tax invoice raised on the main contractor. The main contractor will be entitled to take ITC on the tax invoice raised by his sub-contractor as his output is works contract service. However if the main contractor provides works contract service (other than for plant and machinery) to a company say in the IT business, the ITC of GST paid on the invoice raised by the works contractor will not be available to the IT Company.
Plant and Machinery in certain cases when affixed permanently to the earth would constitute immovable property. When a works contract is for the construction of plant and machinery, the ITC of tax paid to the work contractor would be available to the recipient, whatever business of recipient. This is because works contract in respect of plant and machinery comes within the exclusion clause of the negative list and ITC would be available when Works Contract in GST 230 GST FLYERS used in the course or furtherance of business.
Works Contract under GST would necessarily involve immovable property. In view of the same the place of supply would be governed by Section 12(3) of the IGST Act, 2017, where both the supplier and recipient are located in India. The place of supply would be where the immovable property is located.
In case the immovable property is located outside India, and the supplier as well as recipient both are located in India, the place of supply would be the location of recipient as per proviso to Section 12(3) of the IGST Act, 2017.
As per Section 13(4) of the IGST Act, 2017, in cases where either the Supplier or the Recipient are located outside India, the place of supply shall be the place where the immovable property is located or intended to be located .
1) If the location of work contractor and recipient of the work contract services is in two different state, the supply of services shall be treated as Inter State supply of services and IGST will be charged by provider of work contract service provider. 2) That there is no requirement for a Separate Registration in each state where a Works Contractor is working and he is permitted to make Inter State Supply from the principal state where he is located and registered under GST.
As per Section 13, Point of taxation is determined based on time of supply as stated below: Time of supply will be earlier of the two mentioned below: 1. Date of Issue of Invoice (if Invoice issued within 30 days of supply of services) or Date of Provision of Service (if Invoice not issued within 30 days) 2. Date of Receipt of Payment (Date on which the payment is entered in the books or credit to the bank account whichever is earlier) If Not then, Date of receipt of service in the books of account of the Recipient.
The GST on works contracts for government work being reduced to 12%. And in other cases rate will be 18%.
GST on Goods Transport Agency
In case the GTA service supplier hires any means of transport to provide his output service, no GST is payable on such inputs. To qualify as services of GTA, the GTA should be necessarily issuing a consignment note. Only services provided by a GTA are taxable under GST. Services of transportation of goods by a person other than GTA are exempt.
Under GST laws, the definition of Goods Transport Agency is provided in clause (ze) of notification no.12/2017-Central Tax (Rate) dated 28.06.2017. (ze) “goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called;
If a consignment note is issued, it indicates that the lien on the goods has been transferred (to the transporter) and the transporter becomes responsible for the goods till its safe delivery to the consignee
consignment note means a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage, which is serially numbered, and contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax whether consignor, consignee or the goods transport agency.
The liability to pay GST devolves on the recipients when GTA ( supplier of services of GTA ) who has not paid central tax at the rate of 6%, in respect of transportation of goods by road (in terms of notification no. 13/2017-Central Tax (Rate) dated 28.06.2017 (sr.no.1) as amended by notification no. 2/2017-Central Tax (Rate) dated 22.08.2017, if the recipients (located in the taxable territory) belong to the following category: –
a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or theUnion Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person.
Thus in cases where services of GTA are availed by the above categories of persons in the taxable territory the GTA supplier has the option to pay tax (and avail ITC) @12% (6% CGST + 6% SGST);and if the GTA does not avail this option, the liability to pay GST will fall on the recipients. In all other cases where the recipients do not fall in the categories mentioned above, the liability will be on the supplier of GTA services.
How to determine Place of Supply for a GTA
The place of supply of services by way of transportation of goods, including by mail or courier to–– (a) a registered person, shall be the location of such person (b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.