WHAT IS A WORKS CONTRACT?
Works Contract is
* a composite contract
* where there is transfer of property in goods along with supply of services
* which are interrelated with each other.
* An agreement of building, construction, manufacture, processing, fabrication, erection, installation, repair or commissioning of any movable or immovable property may be called a works contract.
TAXABILITY OF WORKS CONTRACT UNDER PREVIOUS TAX REGIME
WORKS CONTRACT UNDER GST
( WORKS CONTRACT IS NOT A WORKS CONTRACT IN GST IF IT RESULTING IN MOVABLE PROPERTY)
– GST Law recognizes only two classes of Immovable property.
– Sch III Entry 5-
b)Building (other than under construction sale of flats/unit)
SCHEDULE II OF THE CGST ACT, 2017
Rate of construction services where value of land is included:
|Ch||Sec||Heading||Description of service||Rate|
|99||5||9954||(i) Sale of under construction flats involving transfer of property in land or undivided share in land||18% after deduction of 1/3rd of total amount charged as the value of land or undivided share in land|
Rate of Works Contract Service-
|Ch||Sec||Heading||Description of service||Rate|
|99||5||9954||ii) Composite supply of works contract as defined in clause 119 of section 2 of CGST, 2017.||18%|
|(iii) Specified composite supply of works contract||12%|
|(iv) construction services other than (i) and (ii) Above||18%|
CONTINUOUS SUPPLY OF SERVICE
It means a supply of services which is provided or will be provided continuously or on recurrent basis under a contract for a period exceeding three months with periodic payment obligations
|Where the due date of payment is ascertainable from the contract||Time of supply shall be the due date of payment..|
|Where the due date of payment is not ascertainable from the contract||Time of supply it will be earliest of
1)date of receipt of payment or
2)the date of issue of invoice
|Where payment is linked to the completion of an event||Time of supply it will be earliest of
1)date of receipt of payment Or
2) completion of event where payment is linked to completion of event.
TIME OF SUPPLY OF SERVICE
PLACE OF SUPPLY IN GST
e.g.If site is at New Delhi and office is at Gujrat. Immovable property is build up in New Delhi, hence It will be the place of supply of services.
INPUT TAX CREDIT ON WORKS CONTRACT UNDER GST
Apart from the above two, no Input Tax Credit will be available for works contracts for construction of immovable property. For Eg- Hotel.
Input Tax Credits – Implications
|Procurement||Pre-GST position||Post-GST position|
|Materials||•No Cenvat of excise duty, CVD, etc paid on materials
• No VAT credit on materials
|Full ITC available|
|Input Services||Cenvat credit of service tax was available||Full ITC available|
|Capital Goods||Cenvat credit of excise was available in two trenches||Full ITC available in the year of receipt|
ABATEMENT AND COMPOSITION SCHEME
PRE & POST GST
|Sale of Flats and Units- Under Construction||4.50%||1%||5.50%||18% (1/3 Reduction of Land)|
|Joints Development- Owner Area||4.50% to 6%||NIL||4.50% to 6%||18% (1/3 Reduction of Land)|
|Rehabilitation of Flats||6%||NIL||6%||18%|
Pre GST- Joint Development (Area Sharing)
Land Owner transfers certain percentage of development potential to Developer
In return Developer gives owners flat to Land Owner, also developer sales his developed flats to customers.
1. Service tax:
* Flats allotted to Land owner – service tax payable under works contract category or construction service on the value of development potentials received
* Saleable flats – service tax payable on sale of under construction units
* Not payable on flats allotted to land owner as it amounts to barter
* Payable on saleable flats under construction
Post GST – Joint Development (Area sharing)
Taxability of flats allotted to Land Owner:
* Receipt of development rights amounts to advance receipt of consideration in kind
* Hence, date when irrevocable rights are received will be time of supply
* Receipt voucher has to be issued by developer to owner on receipt of development right
Taxability of saleable flats:
Taxability of development rights in the hands of owner
Refund to customer on cancellation
Debit note and Credit note in Works Contract- DN and CN should be issued by supplier only U/s 34 of GST Act
Sale of Completed flats – Reversal of ITC
Free Supplies by the Builder to the contractor
ITC reversal may not be required
ITC Overflow- Refund
Not allowed in capacity of builder. Builder can use overflow credit,
Subcontract of construction
Subcontractor are not works contractor but composite supplier. Hence ITC overflow is not applicable to subcontractor he will get refund.
Impact on ongoing projects
The provisions relating to treatment of ongoing contracts on appointed day are contained in Section 142 (10) and 142 (11) of the CGST Act 2017
1) If the goods or services are being supplied on or after the appointed date in pursuance of the contract entered prior to the appointed date, then tax would be levied under GST.
2)If the goods or services are supplied before the appointed date and VAT was leviable on such transaction on account of Sale of goods or Service Tax was leviable on account of provision of services, no tax will be required to be paid under GST.
3)If the consideration has been received prior to appointed date in respect of such supply and tax has already been paid under current regime, no tax would be required to discharged /paid under GST.
4) If any VAT and Service Tax has been paid on any supply under the existing laws, but the supply of goods and/or services is to be received under GST scheme, then the tax already paid shall be allowed as credit under GST and the supplies when made shall be taxed under GST as well. This clause covers specifically works contract transactions. For example: If an invoice is raised on 30th June 2017 and the supply is for the month of June 2017 and July 2017 and VAT and Service Tax have been paid, then such VAT and Service Tax paid shall be allowed as credit in GST proportionate to the month of July 2017; and when supplies are made in July 2017, they shall be put to tax under GST.
IMPACT ON CONSTRUCTION AND REAL ESTATE SECTOR-
All labour suppliers get registered due to RCM provisions
Do you think CBDT should extend Tax Audit Report and relevant ITR Due Date? Please Comment, Vote, Retweet and Like.— Tax Guru (@taxguru_in) September 18, 2018