News Update

FM says Chief Economic Adviser Arvind Subramanian’s tenure to be extended till Oct, 2018Income Tax conducts search at premises of S M Krishna's son-in-law who heads CCD GroupPak troops shoot at BSF posts in J&K; 5 injuredGST on 'out and out' transactions (See 'TOG Insight' in Taxongo.com)Whether due date for submission of GST TRANS-1 is really extended?Illegal income tax raids - Govt advises taxpayers to inspect warrants of searchesCII calls for 1% interest rate cut for job creationAffordable housing - Industry takes up GST issue with GovtIncome Tax - Provisions of Sec 115O do trench on powers of State Legislature to tax agri income but such incidential trenching does not warrant annulment of legislation: Supreme CourtGST - Govt notifies new rates for Duty Credit Scrips, saree falls, roasted grams and many other items + restriction on refund for corduroy fabrics + exemption to khadi fabric, musical instruments and many other items + clarity on issue of cereals etc sold in unit container with brand nameJuly GSTR-3B can now be edited and submitted: GSTNBlockage of Exporters' working capital - Govt exploring link between GSTR-1 & GSTR-3B Govt grants conditional IGST exemption to skimmed milk powder or concentrated milkCBI arrests Mumbai DCIT in alleged Rs 3 Crore corruption caseSC favours creation of portal to attend to home buyers’ grievancesNPPA notifies ceiling price exclusive of GST for 7 drugs including Rifabutin & Hepatitis B ImmunoglobulinCentral Govt notifies Porbandar Wildlife Sanctuary as Eco-sensitive zone; Industries not allowed in its surroundingsYogi Adityanath’s resignation from Lok Sabha notified to be valid from Sept 21, 2017New Drawback Rules, 2017 and AIR of Drawback explainedWealth Tax - Amendment made to Sec 40(3) vide FAs 1983 & 1988 is substantive in nature and that is why it cannot be retrospective: HCI-T- Simply because Writ Court has struck down previous transfer order u/s 127(2)(a), Department is not precluded from initiating fresh procedure: HCGST - Rs 65k Cr TRANS-1 Credit is much less than Rs 1.3 lakh crore as closing balance: GovtDoT finalises guidelines for settlement of claimsNITI, IRF Geneva sign pact in field of Intelligent Transport SystemsCBI nabs former HC Judge in medical admission scamGSTN informs that portal for uploading application seeking advance ruling to be ready only in Jan 2018 - HC questions authority for postponementCBEC makes many amendments in Drawback Rules; excludes many items from list of eligible goods + lists out goods where no drawback is to be determined; New rates to come in force from Oct 1, 2017I-T - Settlement Commission has no authority to review / reopen matters already concluded before it: HC
 
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
   

TIOL Tube Latest

GST: एक देश एक कर | गोष्ठी - संस्करण ३