Normally, The Principal (Government/Non-government/private/public/individual entity) provides Mobilization advance to Works Contractors for smooth & timely completion of works contract. The mobilization advance/ any other of advance received from the principal in the course of execution of works contract services are leviable to GST. Works contractors are liable to discharge GST on the mobilization advance/ any other advance received from the principal.
This article discusses on liability to pay GST on mobilization advance received against works contract services
For the purpose of understanding the questions involve, following relevant provisions of the GST law are highlighted:
Section 7(1)(d) of CGST Act’2017 provides the activities to be treated as supply of goods or supply of services as referred to in Schedule II. Serial No. 6 of Schedule II which provided as follows
6. Composite supply
The following composite supplies shall be treated as a supply of services, namely:—
(a) Works contract as defined in clause (119) of section 2; and
(b) Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
Further, as per section 2( 119) of CGST Act,2017 “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;
On careful perusal and consideration of the above provisions, it is crystal clear that works contract has been treated as a supply of services.
Section 13 of CGST Act, 2017 provides as follows : The liability to pay tax on services shall arise at the time of supply. The time of supply of services shall be the earliest of the following dates, namely:— (a) the date of issue of invoice by the supplier or the date of receipt of payment, whichever is earlier; or (b) the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or (c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply. Explanation.––For the purposes of clauses (a) and (b)–– (i) the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment; (ii) “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.
The GST law provides for payment of GST at the time of receipt of advance towards supply of goods or services. Initially, notification no. 40/2017-Central Tax dated 13 October, 2017 was issued to remove the requirement of payment of GST on advance receipts towards supply of goods, for persons having turnover of less than INR 15 million in a year. Vide Notification no. 66/2017- Central Tax dated 15 November, 2017, this relaxation has been extended to all persons, except persons opting to pay GST under composition scheme. It should be noted that this relaxation is applicable only on the advances received post 15 November, 2017 for supply of goods. Post this notification, the time of supply for goods would be the date of issue of invoice by the supplier (or the due date, by when the invoice needs to be issued). This would apply even in case of a change in rate of tax.
The relaxation granted from payment of GST on advances received for supply of goods is a great relief to the industry. This requirement was not only resulting in additional compliance and record keeping requirements but was also a cash flow issue since credit of such GST is available to the recipient only on receipt of goods/ services.
However, this relaxation has not been extended to advances for supply of services, which also has similar challenges. However, the requirement to issue an advance receipt voucher at the time of receipt of advance still continuing.
On perusal of the abovementioned provisions, it is evident that the works contractors are still liable to pay GST on mobilization advance /any other advance received towards supply of a works contract services attracting GST.