News Update

Govt Clarifies Amendment In Provisions Is Not To Regulate Trade In Cattle But To Prevent CruetyHP Assembly passes GST Bill, 2017Favourable tax structure and largest EEZs make Mauritius a major investment destination: JugnauthDIPP vested with powers to grant defence industrial licencesMissing FCRA return - Final call to NGOsCBEC issues first Mega AGT order of 749 ACs at All-India levelCBEC moves Himani Bhayana from GST Council Secretariat to GST Policy Wing in BoardGadkari launches India’s first fleet of 200 electric vehicles in NagpurMCA Secretary Tapan Ray gets addl charge of Secretary, Economic AffairsIGI Airport Customs seizes gold biscuits worth Rs 80 lakhsMerger of Tribunals & amendments in conditions of Chairpersons and Members - Govt notifies May 26 as the appointed dayTelecom to avail credit of IGST and imported goods: GovtVeteran cop K P S Gill is no more; PM sends condolenceEPFO to consider lowering of contribution to 10%PM inaugurates India’s longest river bridge over Lohit river in AssamI-T - Search - Whether additions can be made in relation to a particular AY without having any incriminating materials qua that AY - NO: HCCBDT promotes five officers as Principal CCITs + issues posting orderTale of Missing Gold from Customs Vault - CBI arrests CustodianI-T - Submission of financial transactions - Deadline is May 31CBDT Panel to peep into nature and type of tax arrearsNITI's 3yr Action Agenda merits timely action to reboot growthI-T - Exemption u/s 54 cannot be denied on ground that residential property was purchased outside India when requirement of making investment in property only in India was subsequently added - ITATCus – CHA license - Licensing authority is not envisaged as an appellant under CHALR, 1984 - Option to appeal is specifically permitted in Regulations only to an aggrieved licensee: CESTATST - Amalgamation proceedings cannot make credit availed of ST paid on royalty charges as improper: CESTATMumbai Air Cargo Customs busts Rs 26 Cr mobile phone smuggling racketNaidu to review progress of Urban Missions in ChhatisgarhDIPP notifies fresh definition of startup in biotechnology sectorProposed GST rates are lower for milk powder, tea, sugar & coffee (See 'GST News' in GST Homepage)Telecom Ministry closely monitoring fall-out of GST: Minister
 
Impact on Works Contract Services under GST regime

APRIL 19, 2017

By Mradul Gupta, CA

THE passage of all four GST bills i.e. Central GST, Integrated GST, Union Territory GST and the GST (Compensation to the States) Bill, 2017 in both the houses of Parliament along with Presidential assent has set the tone for a July 2017 GST rollout. The GST law is officially an Act now. Earlier, speculation was rife whether government would be able to meet its timeline. With this, stage is now set for the respective state assemblies to enact the State laws over the period of next three months. Further, with the GST Rules now out in the public domain for inputs and suggestions from public/industry, the GST Council is also expected to decide on the GST Rates in their next meeting to be held between 18th -19th May,2017 besides giving final approval to these Rules. A July 1 rollout looks almost certain at this juncture. Given this, let us understand the probable impact that the Final GST law could have on a very familiar concept called 'Works Contract'.

1) Definition of Works Contract – The definition of the term 'works contract' has been curtailed to include only such contracts which are pertaining to any immovable property. Earlier, in the erstwhile Model GST law (MGL), the definition was an inclusive one to include such other contracts (other then immovable property) which involves transfer of property in goods whilst execution. Though it is now clear that a contract pertaining to immovable property only could be categorised as a works contract transaction, a fresh round of ambiguity could see a spurt on the meaning of the term 'Immovable Property'.

2) Works Contract as a 'Composite Supply' - Schedule II of the CGST Act 2017 (CGST Act) has categorised works contract as such composite supplies which would be treated as a supply of services. The erstwhile MGL did not categorise works contract as composite supplies instead it plainly stated it to be as supply of services. Further, composite supply has been defined to mean supply of two or more taxable supplies of goods or services or both out of which one would be a principal supply. Furthermore, principal supply has been defined to mean supply of such goods/services which form the predominant element under a composite supply whereas the other supplies being the ancillary one.

In aforesaid context, section 8 of the CGST Act provides for determination of tax liability in case of composite supplies. As per this provision, such liability would be determined as if the supply is of a principal supply. This could, therefore, mean that in case of works contract transaction, the tax liability would be determined basis the principal supply (i.e. the service component) unless any other specific mechanism is provided.

3) Composition Scheme –Ambiguity prevailing under the erstwhile MGL in respect of works contract supplier not being eligible to opt under Composition scheme is clarified under CGST Act. The CGST Act expressly provides that works contract supplies would not be subject to composition levy. Under the erstwhile MGL, supply of services was kept out of composition levy. Further, since works contract was categorised as supply of services under Schedule II, there was sufficient ambiguity whether works contract could be categorised as supply of services for the purpose of availing the benefit of composition scheme as the same was not expressly mentioned in the Model CGST Act. Also,since the provisions of a Schedule cannot override the Act, absence of express disallowance under the Act could have resulted in works contract getting covered under the composite levy.

4) Input tax credit – The CGST Act provides for restriction of input tax credit (ITC) on works contract services in relation to construction of an immovable property other than plant and machinery. Further, plant and machinery has been defined to include apparatus/equipment/machinery fixed to earth by foundation or structural support which are used for making outward supplies of goods/services. It further includes foundation and structural support of such machinery. However, since the definition of plant and machinery excludes telecommunication towers and pipelines laid outside the factory premises, it can be construed that works contract services when supplied in relation to such telecommunication towers and pipelines the ITC on the same would not be available which is in contrast to the erstwhile MGL. This is also evident from the fact that pro- rata method of availment of ITC in case of telecommunication towers and pipelines which was provided in the erstwhile MGL has been removed from the CGST Act.

The CGST Act has provided a lot more clarity on specific provisions pertaining to works contract as compared to the erstwhile MGL. Every step taken in making this law free of ambiguity could go a long way in a successful implementation of GST.

GST Rollout | simply inTAXicating

GST RO(W)AD AHEAD | Episode 8 | Panel Discussion | simply inTAXicating

GST RO(W)AD AHEAD | Episode 7 | Panel Discussion | simply inTAXicating

Also See : TIOL TUBE Videos on GST

 

(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