News Update

Budget 2018 unlikely to be populist; PM drops hintsPetro Minister says he is trying hard to bring Petroleum under GSTPresident appoints Om Prakash Rawat as Chief Election Commissioner w.e.f Jan 23, 2018 + also appoints Ashok Lavasa as Election CommissionerGST - Supply of services upto Rs 5 lakh allowed under Composition SchemePresident of India exercises powers u/s 15(4) of NCTD Act, 1991 to notify disqualification of 20 AAP MLAs from Delhi AssemblyGST - CBEC Chairperson calls for expediting exports refundGovt launches Liveability Index Program in 116 citiesONGC to shell out Rs 37915 Cr for HPCLBudget 2018 - Printing of documents commences after Halwa CeremonyFM’s Davos trip cancelled as Budget preparations pick up last leg momentumONGC to pick up Govt’s 51% equity in HPCL for Rs 36900 CroreThe last date for filing GSTR-3B for Dec, 2017 extended by two days to Jan 22, 2018Major fire in firecracker & plastic factories in Delhi kill 17 workersVAT - ITC is a substantive right and it cannot be denied merely on basis of some machinery provisions or flimsy technical error or even on ground of limitation: HCTDS default - A few nights in Tihar?Aadhaar & GST glitches should trigger IT Infrastructure Protection ReviewData Protection Framework - Panel to hold public consultation on TuesdayCrypto row gains new ‘currency’; CBDT finds it cryptic; Notices issued to investorsExport of onions allowed on LC with M. E. P of USD 700 FOB per MT with immediate effect till 20.02.2018Silvassa tops List of winner Smart CitiesIndia welcomes IMF-WB Report on improving banking supervision by RBIGovt appoints Amardeep Singh Bhatia as Director of Serious Fraud Office till March, 2020Intl Customs Day: 20 persons, including 17 officers, to get WCO Certificate of MeritGST - Coffee beans processing units in trouble; seek exemptionGST Council also approves several amendments in CGST RulesGST Council grants mega relief to healthcare services & clarifies rates for many Services17 lakh Composition taxpayers paid only about Rs 307 Crore; Council expresses disappointment
 
Works Contract: The confusion continues

MARCH 20, 2017

By Pankaj Goel, CA

HISTORICALLY whenever the words 'Works Contract' appears before an indirect professional, he or she is always reminded of the intense litigations at the highest courts, the amendments in Constitution of India and resulting amendments in States and Central sales tax laws. The concept of works contract was settled only after the interpretations were given by the Apex Court and incorporated in the underlying provisions.

One of the basic deterrents for levying sales tax on works contracts before the amendment in Constitution was whether works contracts are goods or services. Thus, when under the impending GST, both services are goods are taxed, presumably there should not be such problem.

This article attempts to highlight one such issue that may again become the bone of contention for another round of litigation unless taken care of by the Government.

Revised GST Law (RGL) defines the term works contract as follows:

(110) "works contract" means a contract wherein transfer of property in goods is involved in the execution of such contract and includes contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property

A bare perusal of the definition provides that works contract is divided into two parts:

1. It should be a contract wherein there should be transfer of property in goods;

2. It includes the list of contracts as mentioned in the definition.

It is also important to note Schedule II of the 'RGL' listing the transactions to be treated as goods or services. Entry 5 of the Schedule II defines certain transactions which will be treated as supply of services. Entry (f) is of interest to us, which reads as follows:

(f) works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

The said entry provides that all works contract will be treated as supply of services irrespective of fact whether there is transfer of property in goods involved or not in execution of such a works contract.

The necessary conclusion, which this article is trying to highlight, comes out of a conjoint reading of definition of works contract and Entry 5(f) of the Schedule II. As per the definition of works contract, any contract involving transfer of property in goods will be works contract. The term 'contract' needs to be interpreted in accordance with Indian Contract Act, 1872 which inturn provides that any legally enforceable agreement is a contract. Thus, an imperative inference, in the light of existing definition of works contract, is that all supplies involving transfer of property in goods will be treated as works contract. Thus, even the sales simplicitor can be treated as works contract. Furthermore, by virtue of Schedule II, such sales simplicitor transactions are nothing but the provision of services.

In other words for the sales simplicitor, the provisions relating to supply of services will be applicable and not that relating to supply of goods. Accordingly, it is imperative for the Government to take note of this anomaly and amend the definition of works contract probably in line with that existing under service tax as follows:

54) "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

(The author is Partner, Apex Consultants and the views expressed are strictly personal)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

POST YOUR COMMENTS