Big relief to Govt. Contractors from GST rate cut on works contracts and Construction related service provided to Central Government, State Government, Union Territory, a local authority or a governmental authority.

The Goods and Services Tax (GST) Council’s decision to roll back the increased tax rate for government works contracts comes as a relief for the Govt. Contractors on increased tax liability on various ongoing projects.

The GST Council’s decision to cut back GST rate on construction contract works to 12% has come as a big relief to Govt. Contractors.

The tax on construction activity, including composite work contracts, was 18% under GST. However, Finance Minister Arun Jaitley announced after the GST Council meeting on 05th August, 2017 and 09th September, 2017 that government works contract, for both Centre and states, will attract 12% GST with input tax credit. Notification No. 20/2017-Central Tax (Rate) New Delhi, the 22nd August, 2017 and Notification No. 24/2017-Central Tax (Rate) New Delhi, the 21st September, 2017 has been issued to give effect for the same decision. 

Notification No. 20/2017-Central Tax (Rate) GST @ 12%, Generally applicable on those work contracts which were 100% exempt under Service Tax Act. Following Composite supply of works contract supplied to the Government, a local authority or a Governmental 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.

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(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 Awaas Yojana;

(c) a civil structure or any other original works pertaining to the “In-situ rehabilitation of existing slum dwellers using land as a resource through private participation” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers;

(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;

(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

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(a) railways, excluding 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-

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;

(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.

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♠  Notification No. 24/2017-Central Tax (Rate) GST @ 12% generally applicable on those work contracts which were taxable under Service Tax after 01.04.2015 and these contracts were exempt under service tax before 01.04.2015. Following Services provided to the Central Government, State Government, Union Territory, a local authority or a governmental 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.

Conclusion  

  • As per my view there will be no loss to the contractors on all the ongoing Govt. Projects, even if GST is not paid by the Govt. departments in addition to the quoted financial bid price because of input tax credit available on purchase and other expenditure.
  • Due to above notification there will be benefit of approx @6 % to the Contractors who has awarded project before considering above notification effect and in which they have quoted rate inclusive of GST in their financial bid. Because now the GST rate is 12% but during analysis they may have considered GST@18% while quoting financial bid.

Thanks & Best Regards,

CA Ankit Kumar Jha (caankitjha@gmail.com)

ACA, M.Com, B.Com

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice.

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18 responses to “Big relief to Govt. Contractors from GST rate cut”

  1. neeraj chandra sahoo says:

    dear sir

    MY GST NO FOR WORK CONTRACT IN UP AT THAT TIME TAKE WORK IN MP WHICH GST TAX IS APPLICABLE FOR ME

    PLS. CLEAR MU DOUBT

  2. neeraj chandra sahoo says:

    Dear Sir
    My gst no in UP for work contract purpose at that time work contract in mp , which tax charge on bill

    Pls. explain

  3. Puneet Kapoor says:

    Sir i am contractor in irrigation and public health department,Himachal Pradesh.Earlier department used to deduct our sales tax but now sfter GST applicable no tax has been deducted by the department.WE are dealing into repair & maintenance of Machinery.We dont knw how much tax we have to deposit as GST and on which amount because some payments are made of tenders which were floated before GST ie.07/2017 and works wer done before GST and some were floated before GST but works were done after GST.

  4. gopi says:

    i had got the work from Chennai government 5% GSt

    the same work iam given to back to back what is the GST Rate ?

  5. Saahil Kapoor says:

    Sir i am manufacturer and supplier of footwear to several defense and civil departments. There were several contracts which were placed to us during pre GST regime having lower VAT rates whereas, those orders were executed during GST regime having higher tax rate but unfortunately lot of departments while making payments to us are denying us the increment in tax rate as result of introduction of GST and has resulted in lot of harrassment at our end. Can you please provide us any Order/Circular/Noting by Govt of India stating that all the goods supplied during GST regime should be paid with GST. I would really appreciate your help in this.
    Thanking you in anticipation.

  6. n.p says:

    what if some work contractors in civil i.e. Government contractors are exempted from service tax? so are they also exempted from GST on work contractors??

  7. NAGARAJ says:

    GST FOR SUBCONTRACT CIVIL WORK

  8. praveen gupta says:

    dear sir
    i am govt contractor & also work with different construction co as sub contractor and work in different state like haryana utter pradesh & delhi
    i have taken gst in delhi add now pl advise me that
    can i do do construction work in haryana & up on delhi gst no

  9. Paresh Kothari says:

    Under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana, If we are giving works contract (act as a subcontractor)services to the agency who is the main contractor (service provider) to the goverment , then what is the rate of tax we as a subcontractor should collect from main dealer?.Is it 18% or 12%.

  10. Hitesh Choudhary says:

    Sir,
    I’m a Subcontractor of main contractor under the Municipal Corporation of Greater Mumbai (MCGM). The entire liability of the work is on me. Now the GST rate for the main contractor is 12% and since the tax liability is on me, I’m ready to take the liability of 12%. I just wanted to conform the GST rate of the subcontractor in this case.
    Please help

  11. ADARSHA says:

    If we are giving works contract (act as a subcontractor)services to the agency who is the main contractor (service provider) to the goverment , then what is the rate of tax we as a subcontractor should collect from main dealer?.Is it 18% or 12%.

  12. chittesh chaturvedi says:

    sir
    what is rate of GST work for operation and maintenance of sewage treatment plant

  13. caankitjha says:

    Section 17 (5) is not applicable where it is an input service for further supply of works contract service. Therefore no blockage of input credit for Provider of work contract service.

  14. CA. C V SURYAM says:

    1) H Mr. Nizam:- The restriction mentioned by you is not applicable to the works contract services.

    2) Mr.Ankith Kumar Jha:- Your article dealt with only one layer of whole contract. But what about the other layers/tiers in a whole contract i.e., this 12% is applicable direct Govt. WCS and it did not discuss about the sub-contractors’ tax liability because there is no clear mention about this in notification like under service tax (Refer Sl. No.29(h) of N. No.25/2012-ST). In such case of confusion, sub-contractors will charge 18% on main contractors which again a serious concern of cash ouflows to main contractor. Isn’t it?

    • caankitjha says:

      Mr. CA. C V SURYAM :- GST @12% is not applicable for subcontractors as, till the time no notification has been issued by the Govt. in respect of subcontractor providing services by way of works contract to another contractor
      providing works contract services which are taxable @12% by way of Notification No. 20/2017-Central Tax (Rate) New Delhi, the 22nd August, 2017 and Notification No. 24/2017-Central Tax (Rate) New Delhi, the 21st September, 2017. Therefore Rate will be 18% for Sub contractor providing work contract service to main Govt. Contractor.

      However in the Pre GST era, subcontractor were exempt under service tax by Notification No. 25/2012 clause 29(h) for providing services by way of works contract to another contractor providing works contract services which were exempt; but no such notification available in GST till the time.

      I am agree with you it may be a serious concern of cash outflows to main contractor or there maybe situation of refund of GST due to excess availability of input tax credit.

      • Sudesh Rathi says:

        It is pertinent to note that as per the provisions of Sec 54 refund can be claimed only for two reasons

        1. Zero rated supplies made without payment of tax.

        2. Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies.

        The word input is defined to mean goods other than capital goods. The section is silent about input services. Sub contractors are service providers therefore in my opinion though tax rate of input services is higher than the tax rate of output supplies the main contractor will not be entitled to claim refunds but can carry it forward.
        Please revert back on the same issues with your views.

  15. NIzam says:

    Dear Sir,

    There is no input available on works contract due to blockage of input by sec 17(5).

    Please clear my doubt.

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