CA Ankita Garg

Works contract is a mixture of goods and services but it is neither a composite supply nor a mixed supply as it has been defined as per Sec. 2(119) of CGST Act. As per the said   section  “ 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. Thus even when there is a transfer of property in goods during execution of any works contract , such supply will be included in Works Contract only.  For example ,construction of a new building, installation and commissioning of Cooling Towers, etc.

Further, GST Schedule II (entry 5(b)) clearly states that the following activity shall be treated as supply of service:-

“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 after occupation, whichever is earlier.” Thus GST with its “One Nation One Tax” has removed the confusion regarding the tax treatment. Further there is one more clause in Schedule II ( Entry 6(a)) which states that the following composite supplies shall be treated as a supply of services namely:-

“ Works contract under S. 2(119)”

This means works contract will be treated as service and tax would be charged accordingly (not as goods or part goods/part services) which was done in the current regime. Consequently GST rates, time of supply rules,  place of supply rules, valuation rules as are applicable on services will apply to works contracts. While deciding whether a supply is intra-state or inter-state, the place of supply of service shall be applicable to the Works contract.

 Currently, supply of goods is taxable in the form of VAT and Service tax is applicable on the service component . Under the current regime, different states have different schemes for VAT. There are different composition schemes with different VAT rates. Service tax too is complex with 60% abatement on new works and 30% abatement on repair contracts. GST will solve such with a much simpler straightforward calculation.

Now, let us understand the different provisions applicable to a Works Contract Service Provider in the GS scenario:-

1. Registration:- Section 22 says that every supplier shall be liable to be registered under this Act in the State or Union territory , other than special Category states, from where he makes a taxable supply of Goods or Services or Both, if his aggregate turnover in a Financial Year exceeds Twenty Lakh rupees. Provided that where such person makes taxable supplies of goods or services or both from any of the special category states , he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

Explanation:- The expression “ Special Category States” shall mean the states as specified in sub-clause (g)  of clause (4) of Article 279A of the Constitution.

Construction sector over the years has got used to payment of taxes under simplified composition schemes on the total project value without any Input Tax Credit. Due to unorganized nature of this sector, there shall always be a class of contractors who may not be able to maintain records as per the prescribed norms. However under GST Regime there is no such scheme of taxation. Section 10(2)(a) of CGST Act further states that a person supplying services other than Restaurant services is not eligible to opt for composition scheme.

Hence, a Works contract Service provider whose turnover exceeds Twenty lakh rupees or Twenty lakh rupees in case of specified states is required to get himself registered as a normal supplier( not eligible for composition). This will be a big blow to the small sub-contractors who cannot opt for composition scheme. They will be forced to register for normal taxation scheme increasing their compliances and costs.

Now the question arises in which state the Works Contract service provider has to take registration?

Let us understand this by way of an example, ABC Ltd. is engaged in construction of Residential Buildings in Delhi, Mumbai, Hyderabad and Punjab.

In this case, the Company should obtain registration in all the states where it has a Project office.

2. Levy and collection

There shall be levied a tax called the CGST / SGST or IGST on all intra-state or inter-state supplies  of goods or services or both . Hence, GST will be levied based on the place of supply on the rates of services.

3. Time of supply

 Time of supply means the point in time when goods/services are deemed to be supplied/ rendered. It enables us to determine the rate of tax, value, and due dates for payment of taxes. The liability to pay CGST / SGST will arise at the time of supply as determined for goods and services.

Time of Supply shall be as under for the purpose of determining a regular works contract would be as under:

Section 12(2) says that 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, if the invoice is issued within the period prescribed under sub-section (2) of section 31 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.

If the supplier receives an amount up to One Thousand Rupees in excess of the invoice amount, the time of supply for the extra amount shall be the date of issue of invoice (at the option of the supplier).

Example:

(a) Date of invoice 25th May 2018
(b) Date of receipt of payment 12th July 2018
(c) Date when supplier recorded receipt in books 12th July 2018
Time of supply will be 25th May 2018

Time of Supply in case of continuous service

Time of supply in this case will be

1. Where the due date of payment is ascertainable from the contract, the date on which the payment is liable to be made by the recipient of service, whether or not any invoice is issued or any payment has been received by the supplier of service

2. Where the due date of payment is not ascertainable from the contract, each such time when the supplier of service receives the payment, or issues an invoice, whichever is earlier

3. Where payment is linked to the completion of an event, the time of completion of that event

Time of supply under Reverse charge

Reverse charge means the liability to pay tax is on the recipient of goods/services instead of the supplier. In case of reverse charge, time of supply shall be earliest of the following dates-

The date of payment

OR

The date immediately after SIXTY (60) days from the date of issue of invoice by the supplier

Example for reverse charge:

1. Date of payment 15th July 2018
2. Date of invoice 1st July 2018
3. Date of entry in books of receiver 18th July 2018
Time of supply of service 15th July 2018

If it is not possible to determine the time of supply under (a) or (b) , the time of supply shall be the date of entry in the books of account of the receiver of service.

For clause (a)- the date of payment shall be earlier of-

1. The date on which the recipient entered the payment in his books

OR

2. The date on which the payment is debited from his bank account

4. Place of Supply:

Place of supply in case of WCT shall be governed by place of supply of service rules which are as follows:-

Location of the immovable property is used to determine the taxability of a transaction involving supply of service. i.e.in case , in case, the immovable property  is situated in the same state as that of the place of registration , CGST and SGST shall be levied and in case, the immovable property is situated outside the state in which the registration is obtained , IGST will be levied.

5. Input Tax Credit

Section 17 (5)( c) : Input Tax Credit shall not be available in respect of the following, namely:

“ works contract services when supplied for construction of an immovable property ( other than Plant and Machinery) except where it is an input service for further supply of Works contract service”The restriction does not apply to plant and machinery and also in case the input services are further used for supply of Works Contract service( Contractor can avail the ITC in respect of services availed from the sub-contractor).

6. Abatement

No abatement has been prescribed for works contract service so far as was there in the earlier regimes( Pre- GST).

The article has been written by CA. Ankita Garg who can be reached at cacsankitagarg@gmail.com

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67 responses to “GST on Works contract services”

  1. sunil says:

    Sir,
    Before GST i have work order for hiring of vehicle on par day basis with inclusive of all taxes.My rate was rs 850 per day. And value of work order is limited to rs 2 55000/- NOW after gst the agency has revised my per day rate to 720 exclusive of gst @18% .Isthis procedure ok or otherwise

  2. sunil kumar agarwal says:

    we are electrical work contracts we doing the work for govt work we are doing work supply and fixing of street light works erection insatition etc completed

  3. Rahul says:

    Please Suggest.
    as one of our contractor is providing Painting Service on board.
    With Supply of paint and labour.
    Weather same is consider as Work Contract Service or as define in Work Contract for Immovable property.
    Please confirm the GST rate and SAC Code.
    As he providing the above service in movable one.

  4. RAJIB says:

    I AM A GOVT CONTRACTOR I AM AWARDED A TENDER AND ALSO COMPLETE OF EXCAVATION WORK BY MANUAL MEANS AND THEN HOW MUCH GST I HAVE TO PAY

  5. Sushil kumar says:

    I undertake repair work of industrial sewing machine .During this process we also replaces the defective parts and charge for it and also take labour charges .Does this activity come under work contract ?

  6. Parvesh Sahni says:

    Dear Sir

    We are a society name CREST, Chandigarh working under Chandigarh Administration and we are doing the work of Installation of Solar Power Plant in Chandigarh under Work Contract on a lump sum basis rate for example we allot the work of Design, Manufacture, Supply, Erection, Testing and Commissioning along-with Operation & Maintenance for 10 years for total aggregate capacity of 175kWp (95kWp + 80kWp) Grid Interactive Rooftop SPV Power Plants at 2 No. different sites in Chandigarh with M/s. Hero Solar Energy Private Limited, New Delhi for a cost of Rs.1.16 CRORES

    At the time of making the payment before 30.06.2017 we deduct @6% WCT from the bill of the contractor as now GST is applicable w.e.f. 01.07.2017 it may please be advised in the cases where the invoice is raised to our office before 30.06.2017 or on 30.06.2017 and work has also been completed before 30.60.2017 but we have to release the payment now in the month of August, 2017, what will be the deduction on account of GST.

    Please clarify.

    Regards and Thanks

    PARVESH SAHNI,
    A.O., CREST, CHANDIGARH

  7. KRUNAL K PATEL says:

    I AM A GOVT CONTRACTOR I AM AWARDED A TENDER OF EXCAVATION OF POND AND IN THIS I HAVE TO USE ONLY MACHINERY THEN HOW MUCH GST I HAVE TO PAY

  8. Praveen says:

    I am painting contractor for reputed builder they want me to register for gst how will it help them & how it is use for me, can I claim any input and I need a clarification I.e if I have purchased a material from paint shop he will give invoice in the project name, can I take the material on my name and reissue an invoice to the builder with my gst number is that possible

  9. J.Daniel Mani says:

    Sir
    I need clarification for the following work ,we are a subcontractor
    1.Culvert,stone pitching work PVC pipe and Hume pipe laying all these work coming under in one contract shall i mentioned the following SAC “995428”
    It is suitable, Please confirm

  10. Khan says:

    Our firm undertakes supply installation testing and commissioning of air-conditioning plants for various govt departments, before the implementation og GST the tax was deducted at source on complete contract @ 12.6%now I would like to know whether we will have to bill supplies and services separately, although our contract is composite and there is no bifurcation of cost of material and installation

    • ANKITA says:

      It depends on the terms of the contract entered by you with your customers. If the resultant product is immovable then it can be covered in the definition of Works contract and GST will be levied on the total invoice amount at single rate.

  11. ABHAY KUMAR BHURA says:

    We are doing “outsourcing of labour works” as well as maintenance works with supply of materials with Central Govt. Deptt. and as per tendering process the measurements and bill is finalized by the Deprtmental Engineers. The rates quoted are inclusive of all taxes.
    We want to know :-
    1. what shall be the status under GST where tender agreement valid for say 12 months or 18 months, was finalized long back say prior to 6 months or 2 years.
    2. Physically the work had been completed long before say 6 months before but it could not be ‘accounted for’ since preparation & finalization of bill is solely in the Dept. Engineer’s scope. We can account for the same only after receipt of payment in our account, which may be after 1st july 2017 (after imposition of GST Act).
    3. What should be the status and GST rate applicable for “Pure labour outsourcing works” continued under Central Govt. tender agreements, starting well before the imposition of GST Act and still continued as per terms of the contract agreement.
    Please help & guide for which we shall remain ever greatful.
    Thanks.

  12. indranil says:

    whether FOC material attract GST in GOVT project
    in Case yes how we get input and treated as urd purchase under reverse mechanisim

  13. ashutosh says:

    hello,
    I am a interior contractor. i buy various materials like ply, cement, tile, steel, light electrical, pvc flloring & complete works with labours with varied tax.
    supplier giving me GST bills of different taxes. is it correct.?
    what should be my tax rate & billing?

  14. rajendra shukla says:

    i am painting contractor and i do painting with labour and material.
    whats will be applicable gst with material painting and only labour work painting

  15. mohan says:

    i m a plumber, i taken new building plumbing work with material and labur , how ken i make my invoice
    in gst. exm. i taken works rs. 20000/- per unit with material and labour, how i take input credit. in gst. please gide me.
    thanking you.
    mohan

    • ANKITA says:

      ITC can be taken based on the inputs invoices and final tax liability can be arrived at after deducting ITC from GST payable ( payable based on the invoices raised by you.)

  16. priyal says:

    can works contract service provider take ITC of all input goods and services ? restriction placed is on ITC of works contract services by recipient of service and not for provider ? kindly clarify

  17. manoj joshi says:

    our orgnisation is U.P.Govt. undertaking (Corpn). 100% equity of Govt. Plz Help me as below-
    1-we recd. fund from govt to build colony and office of u.p.police deptt. What,s our laibilty under GST as a service provider.
    2. We handover the work to Govt. after complition, hence no outward supply arise, how can we take ITC.

  18. Rajat rakhit Mishra says:

    Sir, Kindly help me in this regards. As per the tender process of the works, the contractor has purchase tender paper from this office, before GSt, they will give 5% vat on the papaer cost. NOw as per the GST rule what is the rate of the GSt on the cost of the tender paper.

  19. Kamal says:

    what about reverse charge in work contract

    • ANKITA says:

      If you are a works contractor and take the services from notified categories of service providers( RCM) or procure goods/services from URD, then you will have pay tax on RCM basis.

  20. PMA Construction Co. says:

    We are a civil contractor engaged in road construction works awarded by PWD and Municipal Corpns. Our rates are inclusive of all taxes. How to calculate GST on works contract and what is the percentage of GST applicable on Works Contract. Can we take Input Tax Credit on purchases of raw materials and capital goods ? Pl. guide.

    • D.K.CONSTRUCTION says:

      Taxation on govt works contract under GST. Input credit on matariais like cement,steel, stone chips is aiiowed or not.

    • subhash jindal says:

      We are a civil contractor engaged in road construction works awarded by PWD and Municipal Corpns. Our rates are inclusive of all taxes. How to calculate GST on works contract and what is the percentage of GST applicable on Works Contract. Can we take Input Tax Credit on purchases of raw materials and capital goods ? Pl. guide.

  21. Anand says:

    GST ACT SEC 17(5)(C) says…. input tax credit shall not be available in respect of works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.

    We are govt registered contractor, usually undertake construction work of roads,bridges, buildings, etc in process of construction we purchase material like Cement,Asphalt,Sreel etc..

    Are we allowed credit of GST on purchased material?

    • rrkothapally says:

      Input tax credit on steel, cement etc used in works contract is eligible for credit. Section 17(5) restriction will apply only to works contract service recipients and not to work contract service providers. It is pertinent to know that works contract involving supply of goods and services is deemed to be service in view of Schedule-II to CGST Act,2017.

  22. Ashok Manwadkar says:

    Sir,
    I have one business of FRP products manufacturing.and another is Hotel stainless steel and M.S kitchen equipment as well as MS and SS Tables and chairs for hotel industries.Kindly inform GST rates on the same.
    Thanking You
    Ashok Manwadkar
    Mob-9370608922

    • ANKITA says:

      Sir

      the same will need more discussion and analysis and cannot be answered like this as the classification can vary depending on many factors like the product itself, material used for making the product, end result ,etc.
      You can send me a detailed mail on my mail id
      cacsankitagarg@gmail.com

  23. Shridhar says:

    Kindly clarify whether ITC can be availed where the works contract includes supply of material (Special Coatings) and labour charges for application thereof, at the clients manufacturing facility located in a different State. Also , whether seperate Registration is necessary in the State where the contract is executed.

  24. BHUMIKA says:

    sir plz clarify, i do fabrication work which include sale of gate,cendeliiars,railing and also do job work like cnc cutting work, what will be the tax impact on my business and whether i can opt for composition scheme or not

  25. Kamesh Joshi says:

    If Principal supply chasis for fabrication of bus body and contractor return back bus after fabrication. Will this contract will fall under works contract or composite supply ?

  26. Dilip Agrawal says:

    I am a government approved civil contractor executing works contract for original (capital) as well as maintenance works. What will be rate of GST is different for capital & maintenance work Also whether some part will be on part of receiver like in service tax?

    • CA Huzaifa Lakkadshah says:

      Sinlge rate has been prescribed for WCT as of now i.e. 18% CGST SGCT including…

      Further there is no difference in original works & maintenance work now. Same rate 18%.

    • sabu s says:

      Is there any separate tax for material portion and separate tax for labour portion in work contract under GST

      • ANKITA says:

        Separate rate will not be charged for material and labour portion in the Works Contract invoices

      • rrkothapally says:

        Works contract involving supply of goods and services, is treated as service as per Schedule-II to the CGST Act. Hence 18% tax is applicable with full Input Tax credit eligibility on the inputs used.

  27. senthilkumar says:

    we are a painting contractor, doing painting works with supply of paints, in that case what % of GST applicable

  28. ASHUTOSH says:

    I want to know rate of deduction of Work contract tax under GST on payment like we deduct 6% WCT in Punjab under existing law.

  29. Deepak Bhatnagar says:

    Very Helpful.

  30. K Madhusudhana Rao says:

    Please clarify on GST on Supply,Erection and Civil Works carried on Different States for Power Projects like KPTCL,APGENCO etc,Supply is Separate Contract,Erection is Separate Contract and Civil Works are Separate Contract.Is registration required for each state where we awarded Contracts.Can We Bill from Registered Place of Business for Small amount of erection involved where Supply is more and Erection is small amount and erection is only Labour Works only.

  31. s guruprasad says:

    in case of works cotratract building construction say of about 50lakhs under vat i was paying 4%of gross receipt as tax under composition .now it not available under gst what is the tax payable amt.amt of tax already paid on purchases ITC can be claimed.what about labour charges paid(35%).pls clarify

    • ashok says:

      What is the difference between ‘works contract service recipient’ and ‘works contract service provider’.

  32. Samir says:

    How to make invoice in work contracts and what tax applicable in work contract. Also pl advice me there will be two tax or single tax.

    • Jeneesh U.A says:

      OUR WORK IS LPG reticulated Systems in flats. how much is our GST Rate. Before work we are agreement with work order to Builders.

  33. Vijesh Jaiswal says:

    Please clarify, what would be impact of GST on running work contracts awarded by Railways in June to be completed in next six months, out of purview of ServiceTax, leviable to VAT under abatement scheme.
    Thanks & best Regards.

    • ANKITA says:

      In my opinion GST would be levied from 01.07.2017 on all bills issued thereafter. Regarding whether it should be inclusive or exclusive it shall depend on the tax clause in agreement. If may provides that any variation in tax would be born by Contractee or contractor respectively.

  34. Garima A says:

    will Commissioning and erection of Lifts and escalators will be covered under ‘Works Contract’, if answer is affirmative kindly let me know under which provision and how??

    Thank You in advance

    • ANKITA says:

      Yes, the same will be covered under Works Contract as per the definition of Works Contract services given in Sec.2(119) .Commissioning and erection of lifts and escalators will amount to an immovable property and hence is within the ambit of Works contract services.

  35. k l kejriwal says:

    Input credit for work contracts – GST levied on purchased raw material like cement, steel, sand etc. for any civil work contract will be taken in input or not. Pl. clarify.

    • ANKITA says:

      ITC allowed because the same has not been disallowed in any section.You can refer Section 16 and 17 of GST Act for the same.

      • CA Vikas Dhand says:

        No ITC allowed U/s 17(5)(c)

        • rrkothapally says:

          Section 17(5)(c) restriction would apply only to works contract service recipient and not to works contract service provider. Hence, credit on inputs used in works contract eligible for Input tax credit.

  36. Ashok Sahu says:

    kindly guide:
    1. If we transfer capital goods like machineries to one branch to another branch its require to issue invoice & e-way-bills ? and

    2. can we claim ITC on Professional fee, rental charges etc. which is available on service tax ?

    thank you

    • ANKITA says:

      Answer to Query one shall be..Invoice shall not be required to be issued in case of transfer of machinery from one branch to other and the same can be trfd easily , E-way bill shall be required in case of any transfer above 50K.

      ITC on professional services, Rental ,etc. shall be allowed because in GST , ITC is allowed on all inputs, input services and Capital goods.

  37. T Sudhakar says:

    Ours is a MSME unit engaged in installation & repairs of communication equipment. Our office is in Hyderabad and we have registered under GSTN. We do not have any branches but our engineers go to different states to execute installation/repair works at the premises of our customers. Please clarify, if it is necessary to register with each of those states where we execute projects, even though we donot have any branch office in sthose states. Thank you.

    • Ankita says:

      Pl clarify whether you do only installation work or the equipments also belong to you.Whaat tyoe of contracts do you enter into with youur customers, whether its only for supply of equipment, whether installation is a part of the contract or it is separately invoiced.
      Where do you store the equipments-whether in your hyderabad office only or is it state-wise godowns.

  38. G.Sudhir says:

    Pls clarify- in the case of construction of machinery, where the said machinery is fabricated and supplied in parts to the customers end for final erection and commissioning at customers place, such supply will fall under sale of Goods or services under GST.?
    Also clarify, whether registration ought to be taken by the supplier in its own state or it should be taken at the customers state too?

    • ankita says:

      The same will amount to supply in GST and regsitration need not be obtained in that state as registration requires to b e obtained in the state from where the supply ought to be made.In this case, the suppply will be from your place and hence, no regsitration at customer’s state.
      The customer’s state shall be the place of supply which is different from the locationof supplier.

  39. MOHAN R says:

    KINDLY CLARIFY –>WHETHER WORKS CONTRACT IS APPLICABLE FOR CIVIL CONSTRUCTION SECTOR ONLY OR FOR OTHER SERVICES TOO. PLEASE DETAILS THE SAME

    • Ankita says:

      Works contract involves all sorts of contracts.

      • BIJAYKUMAR SAHU says:

        I am a bore well Contractor I’m providing drilling, cleaning and lowering of casing pipes as services and also supplying PVC pipes and MS pipes submersible pumps along with its accessories hand pumps etc to private sector as well as government departments in odisha plz what should be the invoice format and rate of GST please specify

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