5% GST on works Contract constituting more than 75% Earth work in work order

This Article discusses on  rate of GST on works contract 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, local authority, a Governmental Authority or a Government Entity Provided that where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority, as the case may be.

For the purpose of understanding the questions involve, following relevant provisions of the GST law are highlighted:

(1) Under the GST, the works contract 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.”

(2) The rate of GST for Works Contract service has been prescribed in serial number 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 & notification no.24/2017-Central Tax (Rate) dated 21.09.2017 as:

“…………… Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, 2017, 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 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.” Would be 6% (CGST) + 6% (SGST)=12%.

(3) In the notification no. 39/2017 integrated tax rate against serial no.-3 states as under:

Now the question when the benefit of the notification no. 39/2017 will be available in works contract involving predominantly earth work (that constitutes more than 75per cent, of the value of the works contract). For this purpose, the nature of work needs to be examined.

The term “Earth Work” has not been defined under any GST provisions. The Webster Dictionary defines Earth Work as” an embankment or construction made of earth specially one used as a field fortification. The Collins dictionary defines Earth Work as “excavation of earth as in engineering construction; a fortification made of earth. The Wikipedia defines Earth Work as “Earth work are engineering works through the processing of parts of earth surface involving quantities of soil or unformed rocks.

After going through different definitions of earth work, I find that Bulk earthworks include the removal, moving or adding of large quantities of soil or rock from a particular area to another. They are done in order to make an area of suitable height and level for a specific purpose.

It is evident that the work order should be for supply of services with material and when the major part of the contract involves earth work i.e., more than 75% of the work involves earth work, the said  work order qualifies for the benefit of Serial No 3 of notification 39/2017 dated 13.10.2017 issued under the GST Act, being Composite supply of works contract as defined in clause 119 of sec-2 of the CGST Act, 2017, involving pre dominantly earth work i.e. constituting more than 75% of the value of work in contract) provided to Central Government, State government, Union Territory, Local authority, a government authority or a Government Entity. GST will be applicable at the rate of 5%.

Also Read-5% GST payable on Earth Work constituting more than 75% of work order- AAR