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Adv. Govind Patwardhan


1. The standard rate of tax for composite supply of works contracts and also construction services is 9% CGST + 9% SGST and 18% IGST

2. As per the amendment the rate of tax is now reduced to 6% CGST + 6% SGST and 12% IGST in respect of services 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 canal, dam or other irrigation works; pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. Similar provision is also made in respect of contracts for a road, bridge, tunnel, or terminal for road transportation for use by general public.

3. It was further reduced to 2.5% CGST + 2.5% SGST and 5% IGST in case of works contracts involving predominantly earth work that is, constituting more than 75 per cent of the value of the works.

4. In most such contracts the work is executed through sub contractors. Since sub contractor is giving service to the main contractor and not to the Government in my opinion services provided by sub contractor to main contractor will attract tax at the rate of 9% CGST + 9% SGST.

5. Under the circumstances it is likely that the input tax credit will be more than the output tax credits. Thus the main contractor will have accumulated credits because of inverted tax structure i.e. inward supplies are taxable at higher rate than outward supplies.

6. Question is whether refund can be claimed ?

As per the provisions of Sec 54 refund can be claimed only for two reasons

1. Zero rated supplies made without payment of tax.

2. Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies.

The word input is defined to mean goods other than capital goods. The section is silent about input services. Sub contractors are service providers therefore in my opinion though tax rate of input services is higher than the tax rate of output supplies the main contractor will not be entitled to claim refunds but can carry it forward.

What is a remedy ?

A) Reduce the rate of tax for sub contractors : Under the earlier tax laws the exemption or reduced rate of tax applicable to main contractor was made applicable to the subcontracts also. If the Government makes similar provision in GST then the problem can be solved. The tax on inputs will be less than tax on outward supplies.

B) Amend sec 54 : The omission of word input services appears to be inadvertent mistake while drafting the GST Act. Goods and services are now at par. I do not find any reason for not including the words input services along with inputs. If the provision is suitably amended then main contractor will be able to claim refund of excess credit on account of higher rate on input services.

The amendment to sec. 54 is necessary not only for construction contracts but all service contracts where rate of tax on input services is higher than outward supplies. Another point is that in the definition clause the word used is outward supplies but sec 54 uses the word output supplies. For the purposes of uniformity instead of words “output supplies” used in sec 54 the words “outward supplies” may be replaced.

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  1. meera says:

    If the subcontractor working with labour at karnataka state but he having GST registration at jharkhand state. Can he take the local gst registration?

  2. Amit joshi says:

    If a government registered contractor get a contract from government and he gave the work to the sub contract ,in this main contractor get payment of the work and he played to same to sub contractor, in this condition who will pay the GST aub contractor or main contractor…..

  3. Ramakrishna says:

    As far as specific inclusion of input services in the eligible list may be not required since the exceptional clause speaks about supply of both goods and services. I suppose unless otherwise the `input services’ were inclusive of `inputs’ the exclusion of the same if any, may not be possible!! Pl. comment…

  4. JVS Negi says:

    Can a work already done by a subcontractor, who charged & paid GST, thus under ownership of the land owner as immovable property, be subjected to GST further between main contractor and the landowner, or the government.

  5. rajiv mangrulkar says:

    the rate for work contract services be made 5% for all public utility works of roads, canals, irrigation,mining, power sectors which are key economic indicators of growth and rural development. this is must due to:-

    01. the billing pattern is on milestone basis and does not follw monthly pattern.
    02. gestation period and hurdles related to land acquisition, utility shifting, environment and pcb and other r&b, muncipal etc related clearances.
    03. the value and volume of billing and works contracts will be huge requiring high working capital for equipments, madhcinery, vehciles upkeep.
    04. unless the subcontractors and subcontractors are paid from the receipt of bill from respective govt authority, the inputs unless paid by the party and uploaded in rural set up back ground will result in more mismatches in gstin portal which is cumbersome for gst dept for review of returns and clear the assessments over a period of time. control of tax revenue on outward and inward supplies is web based and time bound for payments hence areas of disputes, discord, unrest,resistance high.
    05. the changes in gst rates of work contracts are

    06. the rate applicable 12/5% to the main contractor will automatically considered same for subcontractor, hence disparity of direct services to govt or indirect thru main contractor is contentious.

    07. SAC/HSN CODE for work contract services is one or same although three different rates are announced in gst and notifications of 18/12/5%. whether the gstin web portal is corrected not clear, Is the gstin portal allowing/accepting the returns of gstr3b,2,1,3 for above anomaly is matter of law.

    08. apparently more number litigation will arise due to confusion of gst implementation once all the returns required gets submitted for clarity.

    09. the construction industry cannot afford to pay huge gst dues and claiming refunds since financing of work contracts progress requires huge outlays and huge number of documents,. the present web based controlling of gst be restricted to msme, small scale industries.

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June 2024