Introduction:

Most of the government works contract comes under the slab rate of 12%. But GST rate on Government Sub contract is still widely debated in the Infrastructure sector since the notification governing tax rates is unclear.

What GST Law Says?

As per Sl no 3, clause (ix) of Notification 11/2017-Central Tax (rate) dt 28.06.2017 as amended upto 25.01.2018, works contract service provided by a sub-contractor to the main contractor providing services in relation to construction of canal, dam or other irrigation works etc comes under slab rate of 12%.

Sl No. Heading (HSN Code) Clause Description of Service Effective tax rate (percent.)
3 Heading 9954 (Construction services) (ix) Composite supply of Works contract provided by a sub-contractor to the main contractor providing services specified in clause (iii) or clause (vi) above to Central government, State Government, union territory, a local authority, a governmental Authority or a Government entity 12%
Heading 9954 (Construction services) (iii) Composite supply of works contract as supplied to the Central government, State Government, union territory, a local authority, a governmental Authority or a Government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, –

(a) a historical monument, archaeological site

(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.

12%
Heading 9954 (Construction services) (vi) Composite supply of works contracts as supplied to the Central government, State Government, union territory, a local authority, a governmental Authority or a Government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, –

a) Civil structure or any other original works for other than commerce or business

b) A structure meant for use as educational, clinical, art or cultural establishment

c) A residential complex for self-use or use of their employees

12%

Analysis

It is clear from the above that if main contractor is awarded works contract for construction of canal, dam, irrigation works, pipeline etc (covers everything mentioned in clause (iii) or (vi)), only then Sub contractor comes under the slab rate of 12% and for others works sub-contractors have to pay 18% (other than earthwork mentioned in clause (vii)). It is important to note, construction of roads was mentioned in clause (iv) of the notification. So subcontract for construction of roads comes under 18% slab. But decisions given by GST Authority for Advance ruling suggests otherwise.

The Authority for Advance Rulings, Uttarakhand NHPC Ltd , Ruling no 17/2018-19, Dated Jan 30,2019,  The Authority wordings were reproduced below

I observe that the purpose or object of the GST Council is to extend benefit to the last chain of said supply and reason for the same is to provide equal opportunities and equal level playing fields to business entities and avoid discrimination. Thus I am of the view that the recommendations made by the GST Council in this regard makes it clear that if GST rate on the work contract is 12% or 5% then sub-contractor is also liable to discharge his GST liability @ 12% or 5% as the case may be. Similarly if GST rate on the said work contract is exempted or 0%, then supply of service in the form of work contract by the sub-contractors will also come in the purview of exempted or 0%. Thus I observe that if the principal contractor is providing an exempt work contract service to Government in terms of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended from time to time) and in such case it work contract is partially or wholly sub-contracted then the sub-contractors would also be exempted from payment of GST.”

The Authority for Advance Rulings, Maharastra, Shree Construction order no 09/2018-19/B-65 dt 11.07.2018, the Authority wordings are

Even though, we being sub-contractor providing civil construction services to main contractor effecting original works contract for Railways which is not covered in 9954 (ix) and 9954 (x), we believe that the rate applicable to us. is 12% only which is the rate applicable for Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,- (a) railways excluding (including substituted from 25/01/2018) monorail and metro” 

Though construction of Railways is covered under clause (v), The AAR accepted for 12% slab rate for the sub-contractor. 

Conclusion:

If we go by the intention of the act and above 2 advance rulings, it is possible for the sub-contractors to charge 12% to the main contractors if the main contractor is covered under 12% slab rate. But it is prone to litigation. My suggestion is take expert advice from your Auditor or me before deciding on tax rate.

Author Bio

Qualification: CA in Practice
Company: Kellaka & Associates
Location: Bangalore, Karnataka, IN
Member Since: 06 Jun 2019 | Total Posts: 3

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12 Comments

  1. AJAY says:

    IF A WORK CONTRACT SERVICES SUPPLIED BY REGISTERD PERSON TO ANY GOVT. CO. WEATHER CENTRAL OR STATE ,
    SO CAN WE CHARGE GST ON SUPPLY OF SERVICES SAC-995461 @ 18 %

    KINDLY CONFIRM THE SAME .

  2. Ranjith M says:

    Dear sir,

    I am civil contractor working in GHMC Hyderabad, I took a road work as sub contract from my friend. Now main contractor auditor is asking me to pay get of 18% saying this work will become private work once it’s given as sub contract.

    My auditor is saying to pay 12% get as main contractor,s get is applicable to sub contractor also.

    Sir please let me know , how much gst is applicable to me for sub contract of road work.

    Looking forward early reply sir..

  3. Mukesh Kuriyal says:

    It is clear that subcontractor are liable to pay 18% GST on works contract other then iii and vi ie irrigation,canal,dam etc.
    I also feel that Only iii and vi are liable for 12%GST proviso that material will be provided by Said entity(Main Contractor) which means not taking benefit of ITC
    Otherwise they will also pay 18%
    This is what I understand.Plz do correct me if I am wrong..
    Mukesh Kuriyal
    Advocate Income Tax/GST

  4. SAMAR NAG says:

    SIR, I WANT TO KNOW THAT I AM A CONTRACTOR & DONE A SUB CONTRACT WORK EXECUTED IN MY HOME STATE ASSAM . NOW I WOULD LIKE TO MAKE A BILL TO THE MAIN CONTRACTOR. THE MAIN CONTRACTOR WHOSE HOME STATE IS CHATTISGARH. NOW YOU SAY THAT CGST + SGST OR IGST WHICH IS APPLICABLE FOR THE SAME.

    1. CA Mani says:

      To Avoid practical problems like e way bill etc, get yourself registered in Chattisgarh and raise CGST+SGST bill. There is nothing wrong in raising IGST bill from Assam registration.

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