Work Contract under GST In Simple Way

Section 2(119) of CGST Act, 2017

‘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 (अचल संपत्ति)

Wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.”

Thus, from the above it can be seen that the term works contract has been restricted to contract for building construction, fabrication etc of any immovable property only. Any such composite supply undertaken on goods say for example a fabrication or paint job done in automotive body shop will not fall within the definition of term works contract per se under GST. Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST.

Immovable Property Meaning:

The term “immovable property” is not defined under GST.

As per Section 3 of the Transfer of Property ACT 1882 “Immovable property does not includes standing timber, growing crops or grass.

According to section 3(26) of the General Clauses Act 1897, “immovable property shall include land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth

As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as a supply of services. Thus, there is a clear demarcation of a works contract as a supply of service under GST. As per section 17(5) (c) of the CGST Act, 2017, input tax credit shall not be available in respect of the 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.

Thus, ITC for works contract can be availed only by one who is in the same line of business and is using such services received for further supply of works contract service.

Position Maintenance of records:

As per Rule 56 (14) of the CGST Rules, 2017, every registered person executing works contract shall keep separate accounts for works contract showing – (a) the names and addresses of the persons on whose behalf the works contract is executed; (b) description, value and quantity (wherever applicable) of goods or services received for the execution of works contract; (c) description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract; (d) the details of payment received in respect of each works contract; and (e) the names and addresses of suppliers from whom he received goods or services.

Place of Supply:

In respect of Works Contract Works Contract under GST would necessarily involve immovable property. In view of the same the place of supply would be governed by Section 12(3) of the IGST Act, 2017, where both the supplier and recipient are located in India. The place of supply would be where the immovable property is located. In case the immovable property is located outside India, and the supplier as well as recipient both are located in India, the place of supply would be the location of recipient as per proviso to Section 12(3) of the IGST Act, 2017. As per Section 13(4) of the IGST Act, 2017, in cases where either the Supplier or the Recipient are located outside India, the place of supply shall be the place where the immovable property is located or intended to be located.

Valuation

Valuation of a works contract service is dependent upon whether the contract includes transfer of property in land as a part of the works contract. In case of supply of service, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply. Explanation. – For the above purpose, “total amount” means the sum total of,- (a) consideration charged for aforesaid service; and (b) amount charged for transfer of land or undivided share of land, as the case may be.

GST RATE

Type	Particulars	Rate
Non Govt	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% CGST + 9% SGST
Non Govt	composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017	9% CGST + 9% SGST
Govt	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% CGST + 6% SGST
Govt	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 Awas 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% CGST + 6% SGST
Govt	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 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% CGST + 6% SGST
Govt	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% CGST + 6% SGST
Non Govt	Construction services other than (i), (ii), (iii), (iv), (v) & (vi) above	9% CGST + 9% SGST

GST RATE FOR CONSTRUCTION AND BUILDING MATERIALS

Construction And Building Materials	GST Rate
Sand(Natural Sand Of All Kinds Other Than Metal-Bearing Sand) Bituminous Or Oil Shale And Tar Sands, Bitumen And Asphalt, Natural Asphaltites And Asphaltic Rocks	5% 18%
Cement	28%
Bricks	5%
Gravel And Crushed Stone(Pebbles, Gravel And Crushed Stone Used In Concrete)	5%
Marble And Granite(On Marble And Granite Blocks) Marble, Granite And Travertine Not In Blocks	5% 28%
Building Stone( Porphyry, Basalt,  Sandstone And Other Monumental Or Building Stone, Both, In Blocks And Slabs)	5%
Iron Steel(On Iron Blocks, Wire, Rolls And Rods)	18%
Tiles(Earthen Or Roofing Tiles.) Bamboo Flooring Tiles	5% 18%
Coal	5%
Mica(Worked Mica And Articles Of Mica)	28%
Electrical Machinery	28%
Paint And Varnish	28%
Bathroom Fittings Tube Or Pipe Fittings Like Couplings, Elbows And Sleeves Made Of Copper, Aluminium, Plastic, Nickel, Iron And Steel. Ceramic Sinks, Wash Basins, Wash Basin Pedestals, Baths, Bidets, Water Closet Pans, Flushing Cisterns, Urinals And Similar Sanitary Fixtures, Sanitary Ware And Their Parts Made Of Iron And Steel, Ceramic Pipes, Conduits, Guttering And Pipe Fittings	18% 28%
Wallpapers	28%

FAQ and AAR

> If someone supplies air conditioner to government with installation, whether it is treated as work contract?

No, because supply of AC with installation will not cover under the definition of work contract us 2(119).

M/s T & D Electricals – Advance Ruling No: KAR ADRG 18/2020 dated 31.03.2020 Facts

The applicant is a registered person under Goods & Service Tax Act, 2017 as work contractor and wholesale supplier in Jaipur, Rajasthan. They have been awarded a work contract by M/s Shree Cement Limited, Rajasthan which include complete electrical & instrumentation jobs, installation, testing and commissioning, and IT Jobs at township Karnataka cement project.

The invoices have to be addressed to Karnataka Cement project of M/s Shree Cement Limited.

The applicant does not have any premise in Karnataka as M/s Shree Cement Limited shall provide a temporary small space for office and store in their premise without any written documents as per the contract.

Issue 1:	Whether separate registration is required in Karnataka state. Decision :- the location of supplier is nothing but the principal place of business which is in Rajasthan. Thus there is no requirement to obtain registration in Karnataka
Issue 2:	Question on levy of Intra state tax or Interstate tax if goods is purchased form Rajasthan and supplied to Karnataka. In this situation, the Supplier i.e. dealer is situated in Rajasthan and recipient of goods i.e. the applicant, both are situated in Rajasthan itself, hence this supply becomes intra state supply by virtue of section 8 of IGST Act. The dealer in Rajasthan has to charge CGST/SGST when the goods purchased by applicant, are shipped to project site in Karnataka under Bill to Ship to transaction in terms of Section 10(1)(b) of IGST Act.However the applicant has to charge IGST in the invoice addressed to M/s Shree Cement Limited, Karnataka division.
Issue 3:	Question on levy of Intra state tax or Interstate tax if goods is purchased form Karnataka and supplied to Rajasthan. In this situation, the Supplier i.e. dealer is situated in Karnataka recipient of goods i.e. the applicant, is situated in Rajasthan and hence this supply becomes interstate supply by virtue of section 7(1) of IGST Act. The dealer in Karnataka has to charge IGST when the goods purchase by applicant, are shipped to project site in Karnataka under Bill to Ship to transaction in terms of Section 10(1)(b) of IGST Act. However the applicant has to charge IGST in the invoice addressed to M/s Shree Cement Limited, Karnataka division.