Everyone was too much occupied and concerned for sudden rise in GST Rates for textile industry, certainly another rise was also made in GST Rates for the contractors dealing in Government Contracts. Such rise has been made by CBIC through notification number 15/2021 (CTR) dated 18th November 2021 by amending principal notification number 11/2017 (CTR). This amendment had been made applicable from 01st January,2022.

Till 31st December 2021 almost all the government contracts were covered under the ambit of 12% GST rate. However, 01st January,2022 onwards situations may not be same for all the government contractors because GST rates shall increase to 18% for many contractors resulting into hefty financial crunches in business.

GST Rates for government contractors have been defined in accordance to category of work awarders distinguishing between, Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity. Till 31/12/2021 all the contracts/works awarded by categories ibid were taxable @ GST 12%.

Rise in GST Rates for Government Contractors

With effect from 01/01/2022, categories of Governmental Authority and Government Entity has been picked out of 12% category consequently landing them into 18% category, resulting into unwanted and unplanned revenue outflow of 6% of balance work in hand by the contractors. There are many instances, where work orders are issued by government authorities ,ibid, inclusive of all taxes, in such cases contractors will face extra fund outflow of as much as 6% until unless those departments are agreed to accommodate with the contractors for revised GST Rates and may come out in consensus to revise the BOQ rates in work order.

Already, contractors had faced hot blow post-GST, wherein all contractors were landed into GST rates of 12% or 18%, whereas under pre-GST regime they were liable to pay VAT at lower rates as applicable in respective states but probably lower than the GST rates. This will not only create extra outflow of working capital but may also result into losses of as much as 6%.

Further to explain, GST Rates on works awarded by Governmental Authority and Government Entity shall be henceforth taxable @ 18% and this shall also apply to all the works remaining in hand. Categories of Governmental Authority and Government Entity are well explained under GST laws and can be summarise as:

Governmental Authority is an authority or a board or any other body set up by an act of parliament or a state legislature or established by any Government, having 90% or more participation by way of equity or control, to carry out any function entrusted to a Municipality or to a Panchayat.

And

Government Entity is an authority or a board or any other body including a society, trust, corporation set up by an act of parliament or state legislature or established by any government, with 90% 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.

Contractors dealing with the above departments should take a call to accommodate with new GST rates and have modus operandi to sustain with their profits.

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Disclaimer: The entire above stated article is squarely based on our opinion, derived from the interpretation of the respective notifications, sections, as amended The observations are the personal view and cannot be quoted before any authority. The readers shall consult to a proper person before concluding to any decisions.

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4 Comments

  1. YOGESH SHAH says:

    Government of India, Ministry of Finance had further published notification no.22/2021 dated 31st December, 2021 in supersession of notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 15/2021 –Central Tax(Rate), dated the 18th November, 2021. You are requested to please guide still works contract undertaken from the Government authority has to be charged 18% GST on bill.

    1. Hemant Gupta says:

      All the contracts awarded by Central government, State government or Local Authority shall be taxable @ 12%. REST other government contracts shall be taxable @ 18%.

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