News Update

GST - Govt notifies fresh tax rates for GTA + renting of motor cab + jobwork of printing of newspapers & journals + composite supply of works contract to Govt agencies + exempts services provided by and to FIFA + services by Fair Price Shop + Crop Insurance Schemes + LLP to be construed as Partnership firm + services of plumbing & house-keeping through e-commerce platforms liable to registrationNITI Aayog To Launch 'Mentor India' CampaignFM reviews macro economic stability of economyMoS, PMO calls for 'Make in India' health moduleI-T - Whether Explanation to Sec 37(1) gets attracted even if there is no specific material to suggest participation of assessee in alleged kickbacks - NO: HCTreading the GST Path XXX What is "cab"?Apex Court rules Triple Talaq is unconstitutionalTrump warns Pakistan against providing shelter to terror groupsITC claim on Railway Receipt in lieu of Tax InvoiceComposite and mixed supply under GST - Golmaal ReturnsHM launches Digital Police Portal; FIRs can now be filed online in 34 States & UTsI-T - Contributions to provident fund not recognized as valid deduction u/s 80C(2)(vi), is deemed as short-deductions u/s 192 and hence taxable as 'Income from other sources' : ITATIndia's exclusive rights to explore polymetallic nodules from seabed extendedCX - Being busy with procedural requirement under GST is no ground to grant adjournment: CESTATChennai Airport Customs seizes gold worth Rs 4.6 Crore; One person arrestedGovt appoints CISF ADG Dharmendra Kumar as DG of Railway Protection ForceGlobal Forum releases compliance ratings for 10 tax jurisdictions (See 'Brief' in 'TII')PM for soil testing by hand-held devices; calls for involving startupsST - Warehouses are specifically covered under term Railways and they need not necessarily belong to railways - no tax liability on construction of warehouse for CWC in railway premises: CESTATTourism earns about Rs 15000 Cr in July monthPM congratulates OPS being sworn as TN Dy CM; to be Finance Minister alsoI-T - Whether even if assessee returns no exempt income in a particular AY, disallowance of certain expenditure incurred to earn such exempt income is warranted u/s 14 rw Rule 8D - NO: HCImport policy of Urad / Moong dal is revised from 'free' to ‘restricted’CX - When Tribunal decides that goods are exempted under notf. 50/2003, it would have direct impact on rate of duty, therefore, appeal would lie before SC: HCI-T - Remuneration paid to Artist for loss of business occasioned by virtue of non-compete agreement, is revenue receipt, if she is allowed to work elsewhere subject to payment of 5% of her earnings: HCPower Minister calls for 3Ds approach - De-carbonisation, decentralisation & digitalisationMAT Report - CBDT notifies New Form 29B with exhaustive AnnexureWhether the Government has allowed Tax payable under reverse charge to be paid through ITC? (See 'TOG Insight' in Taxongo.com)Domestic Airlines carried 657 lakhs pax between Jan to July, 2017 - A growth of 17% in trafficInter-state supply-who is liable to pay IGST?Rosneft, Russian energy giant, wraps up deal to buy 49% stake in Essar OilStreet Lighting Scheme illuminates 50,000 km of roadsI-T - Whether if a conditional grant comes from abroad, a foreign country is to be construed as a person or authority as per Explanation 10 to Section 43(1) - NO: ITAT
 
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.

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