GST Guide for Contractors

What is the rate of GST applicable for providing Contract services?

Solution: Basically Contract services qualify for the definition of Works Contract Services under section 2(119) of the CGST Act, 2017 as it has elements of both provision of services and sale of goods. Government had bifurcated the work contract services basically into two broad heads for the purpose of deciding the rate of tax applicable which are

1. Non-Governmental Works contract services – GST rate applicable is 18% .

2. Governmental Works contract services – GST rate applicable is 12 %.

Broad classification along with detailed description is provided hereunder

Type	Particulars	Rate
Non Govt	Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. (Provisions of paragraph 2 of this notification shall apply for valuation of this service)	9% CGST + 9% SGST
Non Govt	composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017	9% CGST + 9% SGST
Govt	Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, 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	6% CGST + 6% SGST
Govt	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, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,- (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 Awas 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	6% CGST + 6% SGST
Govt	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 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- (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	6% CGST + 6% SGST
Govt	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.	6% CGST + 6% SGST
Non Govt	Construction services other than (i), (ii), (iii), (iv), (v) & (vi) above	9% CGST + 9% SGST

2. What is the procedure for invoicing in case of services provided to Government Organizations?

Solution: There is no separate procedure for invoicing in case of services provided to Government Organizations, invoice needs to be issued in accordance with section 31 of CGST Act, 2017 only.

Here, Electrical contract being a work contract  it is classified as service and when a registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as has been prescribed in the  Rule 46 of CGST Act, 2017. Thus it can be seen that in case of goods, an invoice has to be issued before or at the time of supply. In case of services, however, invoice has to be issued before or after provision of services. If the invoice is issued after provision of service, it has to be done within the specified.

3. What is the time of supply in this nature of services?

Solution: Time of supply of services is earliest of:

1. Date of issue of invoice.

2. Date of receipt of advance/ payment.

3. Date of provision of services (if invoice is not issued within 30 days of service)

Let us understand this using an example:

Mr. X provides services worth Rs 10000 to Mr. Y on 1st January. The invoice was issued on 20th January and the payment for the same was received on 1st February.

In the present case, we need to 1st check if the invoice was issued within the prescribed time. The prescribed time is 30 days from the date of supply i.e. 31st January. The invoice was issued on 20th January. This means that the invoice was issued within a prescribed time limit.

The time of supply will be earliest of –

1. Date of issue of invoice = 20th January

2. Date of payment = 1st February

This means that the time of supply of services will be 20th January. In case the invoice is issued after 31^st January then time of supply will be 1^st January.

4. What is the place of supply in this nature of services?

Solution: Generally, the place of supply of services is the location of the service recipient.

In cases where the services are provided to an unregistered dealer and their location is not available the location of service provider will be the place of provision of service.

If such service is provided directly in relation to an immovable property i.e. any services provided by architect, engineer etc. then place of supply will be the place where the immovable property is located or intended to be located.

5. What are the GST forms that are applicable for our business and what is the due date for filing of such forms?

Solution: GST Returns applicable for the Electrical Contractor as under ( Rows marked in blue are for those under composition levy)

Return Form	Description	Frequency	Due Date
GSTR 1	Details of outward supplies of taxable goods and/or services affected.	Monthly	11th* of the next month with effect from October 2018 until September 2020.
			*Previously, the due date was 10th of the next month.
		Quarterly	End of the month succeeding the quarter.
		(If opted for those where To is <1.5 Crs)
GSTR 3B	Simple return in which summary of outward supplies along with input tax credit is declared and payment of tax is affected by the taxpayer.	Monthly	20th of the next month for all taxpayers.
			As of now due dates have been extended
GSTR 4	Return for a taxpayer registered under the composition scheme under section 10 of the CGST Act (supplier of goods) and CGST (Rate) notification no. 02/2019 dated 7th March 2020 (Supplier of services).	Annually	30th of the month succeeding a financial year.
GSTR 9	Annual return for a normal taxpayer. (GSTR-9 filing for businesses with turnover up to Rs 2 crore made optional for FY 2017-18 and FY 2018-19.)	Annually	31st December of next financial year.
GSTR 9A	Annual return to be filed by a taxpayer registered under the composition levy anytime during the year.(GSTR-9A filing for composition taxpayers waived off for FY 2017-18 and FY 2018-19.)	Annually	31st December of next financial year.
GSTR 9C	Certified reconciliation statement (Audit under GST applies to those registered persons whose Annual aggregate turnover exceeds rupees two crores^ in that FY. ^The limit is enhanced to Rs 5 crore for the GSTR-9C of FY 2018-19 as per the CBIC notification dated 23rd March 2020)	Annually	31st December of next financial year.

6. What is the concept of e-invoicing and how does that impact our business?

Solution: ‘E-invoicing’ or ‘electronic invoicing’ is a system in which B2B invoices are authenticated electronically by GSTN for further use on the common GST portal.

Under the electronic invoicing system, an identification number will be issued against every invoice by the invoice registration portal  to be managed by the GST Network. IRP will generate IRN and QR code which needs to mandatorily be printed on invoice generated from ERP/Software used by businesses.

All invoice information will be transferred from this portal to both the GST portal and e-way bill portal in real-time. Therefore, it will eliminate the need for manual data entry while filing GSTR-1 return as well as generation of part-A of the e-way bills, as the information is passed directly by the IRP to GST portal. E Invoicing is applicable as of now for those invoices whose Turnover during the preceding financial year is more than 500 Crores(PAN wise).

7. What is the basic concept of E-way bill, why it is important and when it is mandatory?

Solution :

Concept of E Way Bill: E- Way Bill is an Electronic Way bill for movement of goods to be generated on the e-Way Bill Portal. A GST registered person cannot transport goods in a vehicle whose value exceeds Rs. 50,000 (Single Invoice/bill/delivery challan) without an e-way bill that is generated on ewaybillgst.gov.in.

Alternatively, E-way bill can also be generated or cancelled through SMS, Android App and by site-to-site integration through API. When an e-way bill is generated, a unique E-way Bill Number (EBN) is allocated and is available to the supplier, recipient, and the transporter.

Importance:  No goods other than those specified by GST council shall be moved without generation of E way bill where in the value of goods is more than Rs. 50,000 (Single Invoice/bill/delivery challan) or the distance is less than 50 kms. This is introduced to curb evasion of tax.

8. What are the critical issues in generating E-way bills and what may be the consequences if E-way bills are not generated in right manner?

Solution: Critical issues faced while generating E-way bills :

1. Movement of goods with the cancelled/expired E-way.

2. Non extension of E-way bill validity in case of delay in delivering the product.

3. Incorrect inputs while giving the details of consignor and consignee address. (Ensure to modify the default address filed)

4. Incorrect value or tax amount.

These are few of the major discrepancies observed which may attract the provisions of Section 122(1) of  Central Goods and Services Tax (CGST) Act, 2017, any movement of goods without the generation of an e-way bill constitutes an offence and a penalty of either Rs.10,000, or the amount of the tax sought to be evaded (whichever is greater) will be levied.

Department can also detain or seize the vehicle :-  Pursuant to the provisions of section 129 of the CGST Act, any vehicle found to be transporting goods without a valid e-way bill can be detained or seized by an officer. The vehicle will be released only after payment of appropriate taxes and penalties. (Penalty will be equal to 100% of the tax) which will be huge. In addition to that the GSTIN of the BPCL will be blacklisted which will cause serious implications. So keeping the stringent provisions of the CGST ACT please ensure to take proper care while supplying any GST product to avoid any unnecessary conflicts.

Further in case of any minor mistakes in the generation of E-way bill like ( Spelling mistakes, Pin code mismatch) a nominal penalty of Rs.1000 will be levied as per Circular No. 64/38/2018-GST

9. When and at what amount shall the GST Invoice to be raised? (at the time of receiving advances or after completion of services)?

Solution: GST invoice needs to be issued as per the provisions mentioned in solution to question 3, value will be the amount agreed upon as per contract. As per Section 31 (3) (d) of the CGST Act, 2017, a registered person shall, on receipt of advance payment with respect to any supply of services, issue a receipt voucher or any other document, containing such particulars as may be prescribed, evidencing receipt of such payment; The receipt voucher shall contain the particulars as contained in Rule 50 of the CGST Rules, 2017.

10. What happens if the Service recipient does not clear our Invoices? shall we bear the GST amount from our pockets or is there is any other way to safeguard ourselves?

Solution: Rule 37(1) provides that registered person who has earlier availed ITC and has failed to make the payment of the value of supply as well as tax thereon shall furnish such details in GSTR – 3B for the month immediately following the period of 180 days. As per Rule 37(2), such amount furnished in GSTR – 3B shall be added to output liability ledger for the month. Since the receipt is obliged to reverse the credit if availed, one can raise a credit note against the supply made if such payment is not received within 180 days. On subsequent receipt of amount a debit note can be raised (However, this procedure is only recommendatory). In case where the receipt has paid only base value and not GST portion we can treat the payment received for the service as inclusive of tax and issue a credit note for the differential amount.

In case of businesses registered as MSME they can register a complaint  in the MSME grievance by giving complaint details of the transaction.

11. What happens if the respective invoice becomes bad debt in future? What about GST paid on that invoice can we file a credit note on later point of time and claim the excess paid GST for future invoices?.

Solution: Already answered in Q10, however care needs to be taken for raising of credit note as the due date for issue of credit is earlier of filing of return for the month of September or Annual return.

12. What is the step by step mechanism of GST in case we are giving our contracts to sub-contractors for execution of work? What if the sub-contractor is an unregistered dealer?

13. What is the concept of TDS under GST and what are the important things that we should know about TDS like how to claim, till when we can claim it as a credit etc.

Solution: Tax Deducted at Source (TDS) is one of the ways to collect tax based on certain percentages on the amount payable by the receiver on goods/services. The collected tax is a revenue for the government.

Who can deduct TDS under GST as per section 51 of CGST Act, 2017 ? (Care must be taken in case of supplies made to undermentioned entities)

• A department or an establishment of the Central Government or State Government; or
• Local authority; or
• Governmental agencies; or
• Such persons or category of persons as may be notified by the Government.

As per the latest Notification dated 13th September 2018, the following entities also need to deduct TDS-

• An authority or a board or any other body which has been set up by Parliament or a State Legislature or by a government, with 51% equity ( control) owned by the government.
• A society established by the Central or any State Government or a Local Authority and the society is registered under the Societies Registration Act, 1860.
• Public sector undertakings.

TDS is to be deducted at the rate of 2 percent on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds two lakh fifty thousand rupees. As stated above, there will an automatic reflection in the electronic ledger of the deductee (supplier) once the deductor files his/her returns. The deductee can claim credit in his electronic cash ledger of this tax deducted and use it for payments of other taxes.

One can claim the TDS credit by accepting the credit reflected in the TDS credit received tab from User services in GSTIN portal.

14. What is the impact of GST when we sell our capital assets (which are under the name of entity) to an outsider?

Solution: Here it is pertinent to mention the following four cases for the purpose of sale of Capital goods:

1. Capital goods sold for a consideration on which ITC is availed.

2. Capital goods sold for a consideration on which ITC is NOT

3. Capital goods sold for a NIL consideration on which ITC is availed.

4. Capital goods sold for a NIL consideration on which NOT ITC is availed.

15. Capital goods sold for a consideration on which ITC is availed :

As per Section 18 (6) of CGST Act: “ In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount

a. equal to the input tax credit availed on the said capital goods less  5% per quarter or part quarter from the date of invoice.

b. the tax on the transaction valueof such capital goods or plant and machinery determined under section 15, whichever is higher.

Conclusion: GST is payable – ITC – 5% per quarter from the date of invoice (or) actual tax applicable on transaction value – Whichever is higher.

2. Capital goods sold for a consideration on which ITC is NOT availed :

Here there is confusion that GST needs to be paid on sale of capital goods only when ITC is availed but as per section 7 scope of supply will include a) all forms of supply of goods and services.

Conclusion: GST is payable –actual tax applicable on transaction value.

3. Capital goods sold for a NIL consideration on which ITC is availed :

This is one scenario where in all the businesses have a doubt whether GST needs to be paid or not. As a layman we all may think that since we are not charging any value for sale, we don’t need to pay any GST. This is not true as section 7© specifically includes this in entry 1 of schedule 1 which states the Permanent transfer or disposal of business assets where ITC has been availed on such assets needs to be treated as supply even when such transaction is for NIL consideration.

Conclusion: GST is payable – ITC – 5% per quarter from the date of invoice.

4. Capital goods sold for a NIL consideration on which NOT ITC is availed:

This is relevantly a better situation and no complications are involved. Here, it is clear that no GST needs to be paid.

Conclusion: NO GST is payable.

15. GST impact on purchase of Assets? (claim of input, purchased from unregistered dealer etc)

Solution: All the ITC is majorly dealt under Section 17 where in it specifically deals in the ways and time limit for availing credit. Since the same is mammoth topic we can take up the issue on case to case basis.

16. What is GSTR 2A and why does that impact our input credit claimed under GSTR 3B?

Solution: GSTR 2A is a purchase-related tax return that is automatically generated for each business by the GST portal .When a seller files his GSTR-1, the information is captured in GSTR 2A . It takes information of goods and/or services which have been purchased in a given month from the seller’s GSTR 1. You are required to verify (and amend) this return before filing in on GST Portal.

It is important to reconcile Form GSTR – 3B and Form GSTR – 2A on account of the following reasons:

• GST authorities have issued notices to a large number of taxpayers asking them to reconcile the ITC claimed in a self-declared summary return Form GSTR – 3B and auto-generated Form GSTR – 2A. Such notices are issued in Form GST ASMT – 10. The taxpayer would be required to reply to such notices or pay the differential amount.
• Action has also been taken against evaders claiming ITC on basis of fake invoices.
• Reconciliation ensures that credit is being claimed only in respect of the tax which has been actually paid to the supplier.
• Ensures that no invoices have been missed/ recorded more than once etc.
• In case the supplier has not recorded the outward supplies in Form GSTR – 1, communication can be sent out to the supplier to ensure that the discrepancies are corrected.
• Errors committed while reporting details in GSTR-1 by suppliers or GSTR-3B by recipients can be rectified.

Reasons for non-reconciliation of GSTR – 2A and GSTR – 3B:

The details disclosed in Form GSTR – 2A and Form GSTR – 3B may not reconcile on account of the following reasons:

• Credit of IGST claimed on the import of goods
• Credit of IGST on the import of services
• Credit of GST paid on reverse charge mechanism etc.
• Transitional credit claimed in TRAN – I and TRAN – II.
• ITC for goods and services received in previous year but availed in current year.

In the cases mentioned above, the figures will not reconcile as no corresponding Form GSTR – 1 is being filed by the supplier or the ITC is being claimed at a later date. All the above said conditions are common across all the type of industries and applicable to electrical contracts too.

17. Some professionals say that the organizations will get benefitted more from GST can you please explain in brief how does that benefit accrue to the organizations?

Solution: Registration under Goods and Service Tax (GST) regime will confer following advantages to the business:

– Legally recognized as supplier of goods or services.

– Proper accounting of taxes paid on the input goods or services which can be utilized for payment of GST due on supply of goods or services or both by the business.

– Legally authorized to collect tax from his purchasers and pass on the credit of the taxes paid on the goods or services supplied to purchasers or recipients .

These are very brief advantages summed up but GST has got lot of interesting provisions inserted which makes it much more beneficial as well as complicated for the businesses to comply. We strongly suggest not to compromise in choosing the right consultant for GST related activities. Always remember GST is not just filing of returns, it is much more than that. Think right and get the most out of GST before you start losing out.

Authored by- CA CS Koka Lokesh Raja