Article on Determination of Tax liability on Constructions Services provided to Central and State Government, or Local Authorities under GST Law w.e.f. 18.7.2022.
I have prepared an article on recent amendments relating to Constructions Services provided to Central and State Government, or Local Authorities as per recommendations of GST Council in its 47th Council meeting on 28th & 29th June,2022, at Chandigarh.
The council proposed to enhance existence 12% to 18% rate of tax on certain construction services relating to “Roads, Bridges, Railway, Metro, Effluent Treatment plant, Crematorium, Historical monuments, Canals, Pipelines, Plant for water supply, educational institutions, Hospitals etc., and Sub-Contractor thereof, and Involving predominantly earth work and sub-contract thereof under GST w.e.f. 18.7.2022. I have discusses about how to determine the tax liability on Constructions Services” provided to Central and State Government, or Local Authorities under GST w.e.f. 18.7.2022.
Section 2(119) of the CGST Act,2017,”Works Contract “ means a contract for building, construction, fabrication , completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alternation 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.
Government Contract means” A Contract to which the Central Government or a State Government is a party can be called a Government Contractor and the party who is required to execute the contract for or on behalf of Government is referred to as a Government Contract”.
As per 47th the GST Council recommendation CBIC has given a Notification No.03/2022- Central Tax (Rate), dt. 13.07.2022, enhanced rate GST from 12% to 18% from 18.07.2022. As per N.NO.03/20220- Central Tax (Rate) dt.13.07.2022 the below Works Contracts involving in Construction, Erection, Commissioning, Installation , Completion , fitting out , repair, maintenance, renovation , or alteration of the following works contract services provided to the Central or State Government or Local Authorities.
(i) Historical monuments, Archaeological site or remains of National Importance , Archaeological excavation or Antiquity,
(ii) Pipelines, Conduit or plants for water supply, Water treatment or Sewerate treatment or disposal,
(iii) Canals, Dams or Other irrigation works,
(iv) Civil Structure or any other original works meant predominantly for use other than for commerce, Industry, or any other business or Profession,
(v) A structure meant predominantly for use as (i) an educational, (ii) a clinical or (iii) an art or cultural establishment, or A residential Complex predominantly meant for self-use or the use of their employees or other persons.
Further, GST Council recommended in its 47th meeting on 28th & 29th June, 2022, held at Chandigarh proposed to enhance GST rate from 5% to 12% on “Works involving predominantly earthwork and sub-contract thereof is taxed @12% w.e.f. 18.07.2022.
Now we have discussed about what is the procedure to be followed to determine tax liability prior to 18.07.2022 and after 18.07.2022 as per Section 14 of CGST Act,2017.
After introduction of GST Act in India, “Works Contract Services” would generally classify as contracts for continuous supply of services, the issuance of invoices in case of continuous supply of services prescribed in Section 35(1) of CGST Act,2017.
So, as per Section 35(1) of CGST Act,2017, in case of continuous supply of services the due date for issue of invoice is as under:-
(a) Due Date of payment is ascertainable: On or before the payment due date,
(b) Due date of payment is not ascertainable : Before or at the time when payment is received,
(c) Payment is inked to the completion of an event: On or before the completion of event.
M/s. ABC Construction Company Ltd, entered into an agreement with M/s. XYZ company Ltd, to provide repairs and maintenance contract for 2 years;
(i) In the above case as per the terms of contract M/s. XYZ Company is liable to pay the charges for repairs and maintenance on 10th of every succeeding month. In such situation due date for issue of invoice will be on or before 10th of the succeeding month whether or not the charges are actually paid.
(ii) In the above case if there is no fixed date which can be ascertained from the contract then the due date for issue of invoice will be date on or before the date on which payment was actually received.
Time of Supply in case of Change in Rate of Tax:
Section 14 of the CGST Act,2017,states that, “Notwithstanding anything contained in Section 12 or Section 13 , the time of supply , in cases where there is a change in the rate of tax in respect of goods or services shall be determined in the following manner, namely:-
(a) In case the goods or services or both have been supplied before the change in rate of tax: (i). Where the invoice for the same has been issued and the payment is also received after the change in rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or
(ii).where the invoice has been issued prior to change in rate of tax but the payment is received after the change in rate of tax , the time of supply shall be the date of issue of invoice; or
(iii). Where the payment is received before the change in rate of tax, but the invoice for the same is issued after the change in rate of tax, the time of supply shall be the date of receipt of payment.
(b) In case of the goods or services have been supplied after the change in rate of tax:-
(i) Where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment, or
(ii) where the invoice has been issued and the payment is received before the change in rate of tax , the time of supply shall be the date of receipt of payment or date of issue of invoice , whichever is earlier, or
(iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax , the time of supply shall be the date f issue of invoice.
PROVIDED that the date of receipt of payment shall be the date of credit in the bank account is after four working days from the date of change in the rate of tax.
Explanation :– For the purpose of this section,” the date of receipt of payment “ shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account whichever is earlier.
With the help of following table we can determine time of supply in case of change in rate of tax relates to” Constructions Services “provided to Central and State Government, or Local Authorities under GST Law w.e.f. 18.7.2022.
|Events before change in effective rate of tax||Events after change in effective rate of tax||Time of supply if goods & services are supplied before change in effective rate of tax||Time of supply if goods & services are after change in effective rate of tax|
|1||Invoice issued/Payment Received||No activity||> Date of receipt of payment or
> Date of issue of invoice whichever is earlier
Invoice Issued/ Payment Received
Supply of Goods & Services
|N A||> Date of receipt of payment or
> Date of issue of Invoice whichever is earlier
|3||Invoice issued||Payment Received||Date of Invoice||Date of receipt of payment|
Date of receipt of Payment
Date of Invoice
The below table explain on Old & New rates are applicable on various scenarios:
|Date of Completion||Invoice generated date and issue.||Date of payment received||Rate of Tax|
Can you please advice on below case:
If a person is not in business of Sale/purchase/construction of Residential house/Apartment. He was living in one house with 4 Floors which he demolished & built a new house on same plot with 4 Floors. Out of those 4 Floors he sales one of the Floor due to shortage of Funds to construct house. Whether the consideration received before registry of said floor be liable to GST?