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The Goods and Service Tax was introduced w.e.f. 1st July 2017 and Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 prescribed rate of tax in respect of various services including Works Contracts under CGST Act, 2017.  Brief Journey of taxation with respect to Works Contractor in simple words is under :-

1. With the introduction of GST, rate of tax in respect of composite supply of works contract was prescribed at 18%

2. On 22nd August 2017 rates reduced to 12 % by Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 in respect of following: –

a. Supplies made 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

i. historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity

ii. canal, dam or other irrigation works

iii. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal

iv. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal

b. Works Contracts involving

i. a road, bridge, tunnel, or terminal for road transportation for use by general public

ii. a civil structure or any other original works pertaining to a scheme under JNNURM or Rajiv Awaas Yojana

iii. works pertaining to the rehabilitation of existing slum dwellers

iv. works pertaining to Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana.

v. a pollution control or effluent treatment plant

vi. a structure meant for funeral, burial or cremation of deceased

c. Works Contracts involving

i. railways, excluding monorail and metro;

ii. a single residential unit otherwise than as a part of a residential complex;

iii. low-cost houses with specification and conditions

iv. cold storage etc

v. machinery or equipment’s for processing agricultural produce

3. The government extended the scope of reduced rate of 12% of GST to Civil Structure or original works by Notification No. 24/2017-Central Tax (Rate) dated 21.09.2017.  Now 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 for non-commercial purpose

b. structure mainly used as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

c. a residential complex mainly for self-use or for his employees etc

4. The Government again restricted the scope of reduced rate of 12% and made the supplies to Governmental Authority or a Government Entity taxable at its original rate of 18% w.e.f. 01.01.2022 by Notification No. 25/2021-Central Tax (Rate) dated 18.11.2021.

Thus w.e.f.  01.01.2022 Civil Structures or other works mentioned at Sr. No. 3 were made taxable @ 18% in case of supplies made to Governmental Authority or Government Entity. However, services made to Central Government, State Government, Union Territory, a Local Authority continued to be taxed @12%

For ready reference Governmental Authority means an authority or a board and Government Entity means an authority or a board or any other body including a society, trust, corporation or any other body both being set up by Parliament or a State Legislature or established by any Government, with 90 per cent equity, control or participation. 

Relevant Extracts and Important Terms governing Works Contracts services from various notification are reproduced hereunder for ready reference.

RATE OF GST ON WORKS CONTRACT SERVICES

A. Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 provided the rate of Tax on taxable services including composite supply of works contract.

The relevant part is extracted as under for ready reference: –

Sl. N.

Chapter 99 Section or Heading Description of Services Rate (per cent) Condition
1 2 3 4 5
3 Heading 9954 (Construction services) (i) 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
(ii) composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017 9
(iii) construction services other than (i) and (ii) above 9

B. Central Government again vide Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 amended Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 whereby provided the changes as under :-,

(i) against serial number 3, for item (iii) in column (3) and the entries relating thereto in columns (3), (4) and (5), the following shall be substituted, namely: –

Description of Services

Rate

(per cent)

Condition
3 4 5
(ii) composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017 9
“(iii) 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
(iv) 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 Awaas 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
(v) 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 6 – 3 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
(vi) Construction services other than (i), (ii), (iii), (iv) and (v) above 9

C. Central Government once again vide Notification No. 24/2017-Central Tax (Rate) dated 21.09.2017 amended Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 whereby following amendments were carried out :-

In Table, against serial number 3, for item (vi) in column (3) and the entries relating thereto, in columns (3), (4) and (5), the following shall be substituted, namely:-

Description of Services

Rate (per cent) Condition
3 4 5
(vi) 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
(vii) Construction services other than (i), (ii), (iii), (iv), (v) and (vi) above.” 9

D. Central Government vide Notification No. 25/2021-Central Tax (Rate) dated 18.11.2021, amended Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 whereby

(i) against serial number 3,-

(1) in column (3), in the heading “Description of Service”, in items (iii),(vi),(ix) and (x), for the words “Union territory, a local authority, a Governmental Authority or a Government Entity” the words “Union territory or a local authority” shall be substituted;

(2) in column (3), in the heading “Description of Service”, in item (vii), for the words “Union territory, local authority, a Governmental Authority or a Government Entity” the words “Union territory or a local authority” shall be substituted;

(3) in column (5), in the heading “Condition”, the entries against items (iii),(vi),(vii),(ix) and (x), shall be omitted;

Rate of GST on Works Contract Services

The amendment was to be effective from 1st day of January, 2022.

Important Terms

Central Government -State Government-Union Territory

As per section 2(53) of the GST Act, ‘Government’ means the Central Government.

As per clause (23) of section 3 of the General Clauses Act, 1897 the ‘Government’ includes both the Central Government and any State Government. As per clause (8) of section 3 of the said Act, the ‘Central Government’, in relation to anything done or to be done after the commencement of the Constitution, means the President. As per Article 53 of the Constitution, the executive power of the Union shall be vested in the President and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, in terms of Article 77 of the Constitution, all executive actions of the Government of India shall be expressed to be taken in the name of the President. Therefore, the Central Government means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President.

As per clause (60) of section 3 of the General Clauses Act,1897, the  ‘State Government’, as respects anything done after the commencement of the Constitution, shall be in a State the Governor, and in an Union Territory the Central Government. As per Article 154 of the Constitution, the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, as per article 166 of the Constitution, all executive actions of the Government of State shall be expressed to be taken in the name of Governor. Therefore, State Government means the Governor or the officers subordinate to him who exercise the executive powers of the State vested in the Governor and in the name of the Governor.

Governmental Authority

(as defined Notification No. 32/2017- Central Tax (Rate)  dated 13.10.2022)

Governmental Authority” means an authority or a board or any other body, –

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government, with 90 per cent or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243 W of the Constitution or to a Panchayat under article 243 G of the Constitution.

Government Entity

( as defined Notification No. 32/2017- Central Tax (Rate)  dated 13.10.2022 )

“Government Entity” means an authority or a board or any other body including a society, trust, corporation,

(i) set up by an Act of Parliament or State Legislature; or

(ii) established by any Government, with 90 per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority

Local Authority

Local authority is defined in clause (69) of section 2 of the CGST Act and means the following:-

  • a “Panchayat” as defined in clause (d) of article 243 of the Constitution;
  • a “Municipality” as defined in clause (e) of article 243P of the Constitution;
  • a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;
  • a Cantonment Board as defined in section 3 of the Cantonments Act, 2006;
  • a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;
  • a Development Board constituted under article 371 of the Constitution; or
  • a Regional Council constituted under article 371A of the Constitution;

Note :

The above information has been compiled to clear the confusion created by the various websites. Even TaxGuru, one of the best tax update site has posted an article tabulating  rate of tax in case  a civil structure or any other original works @ 12%  as new rate of tax w.e.f. 01.01.2022 for [Employer Project Authority] Government Entity Government Authority & Others which is not correct. [Screen Shots attached]

Disclaimers

The opinions expressed in this article is compilation of Government Notifications or obtained from CBIC site,  do not reflect the opinions of  author. Author do not guarantees the accuracy or completeness of any information nor for any errors, omissions, or claims for damages, including exemplary damages, arising out of use, inability to use, or with regard to the accuracy or sufficiency of the information contained.  The said works do not constitute legal, medical, or other professional advice.

Author Bio

Practicing Lawyer, HP High Court of Himachal Pradesh for Last 20 years . Dealing in Taxation, Arbitration & Corporate matters at various Forums including Appellate Tribunals and High Court. Guest Faculty for various Corporates , Academies & PSU's. View Full Profile

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