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Agenda Item No, Sub: Implementation of GST in NHAI- Approval for consequential Change in Law, NHAl as @ Business Entity, Methodology to be adopted for various payments and amendments Fequited in future contract/bidding documents, Proposal: The proposal is to seek approval of the Board of Authority on Implementation of GST in NHAI- Approval for consequential Change in Law, NHAI as a Business Entity, Methodology to be adopted for various payments and amendments required in future contract/bidding documents. 2. Background: Goods and Service Tax Act, 2017 has been implemented in india with effect from 01.07.2017. The Act has subsumed various Indirect Taxes of both the Central & State Governments, such as Central Excise Duty, Service Tax, Central Sales Tax (CST) / State Value Added Tax (VAT), Additional Custom Duty (CVD) and Special Additional Duty (SAD) apart from Entry Tax and Octroi Charges etc. b. NHAI have been receiving queries from its Stakeholders I.e. Contractors / Vendors / Consultants with regard to applicability of GST on payments to be made by the ROs/ PlUs / HQ and includes Contract payments. NHAI Kave been interacting with the 'MORTH as well as the GST Authorities, and various representations are also made to them with regards to the applicability of GST on various transactions in NHAI. ¢-_ Inorder to address the immediate issues on GST, Standard operating Procedure (SoP) was presented to Executive Committee on 08.08.2017. d, Itwas further deliberated in a subsequent meeting held on 10.08.2017 in presence of Chairman, Members and CGMs in NHAI HQ. It was decided to seek the approval of the Authority of the Board, on the subject. 3. Legal opinion on Change in Law/ NHAI as Business Entity under GST Act : Legal Opinion has been received from Advocates (M/s Lakshmi Kumaran & Sridharan ) Confirming that NHAI is a “BUSINESS ENTITY” under GST Act, 2017 and “CHANGE IN LAW'"'is applicable for all forms of Contracts i.e. under PPP (Toll), PPP (Annuity), Hybrid Annuity Model and EPC. Accordingly, NHAl has obtained GST Registration number for its Headquarters and registrations are under process for all the States. NHAl now need to comply with the relevant provisions of GST Act and Rules, hey 4 Payments NHAL is dealing with various contracts under i) Hybrid Annuity Mode (HAM), fi) Engineering, Procurement & Construction (EPC), iii) Built Operate & Transfer: BOT (Toll), iv) Built Operate & Transfer-BOT (Annuity) & ¥) Operation & Maintenance Contract (O&M) NHA\ needs to pay alll the Contractors on regular basis. In most of our EPC contracts, the rates quoted are lump-sum and inclusive of all taxes, which has now been subsumed to GST. In order to streamline the payments and avoid litigation in such contracts, the following methodology proposed to be adopted by the ROs / PIUs for contract payments. 1a) The project components under different major head (like Aggregates, Steel, Cement, Bitumen etc...) are to be intimated by the contractors and assessed by the concerned RO / PD in consultation with the respective IE/AE and the concerned Contractors for each of the Project. b) The total work is to be divided into (i) Works completed up to 30.06.2017 & ({i) work yet to be completed w.e.f 01.07.2017. ) In order to compile the above information, an Excel format has been designed and attached at Annexure-I, It indicates various project components which attracts various kinds of taxes including Excise Duty, CST, VAT and other taxes, which is already included in the awarded value as per the original contract. The same format. can be completed for each of the projects. d) After completion of the said exercise, the cost against the subsumed taxes (Excise duty, CST, VAT etc.) in the particular contract are to be finalized and are to be mutually agreed by NHAI and the Contractor. The contract cost factored in the contract value are required to be reduced from the original contract amount to arrive at the actual cost of the project in each of the IPCs (Interim Payment Certificates). e) On the reduced value of Contract, NHAI shall pay the GST to the Contractor for work done/services rendered at the applicable rate. (hw f) This will be an interin’ arrangement till the completion of the project. Any subsequent development/ctarification shall be addressed periodically and shall be finalized at the time of Final bill b. Annuity Payments Presently, the Annuities payments are not exempted from GST. The matter has been referred to the GST authorities for clarification, but no communication or clarification has been issued till date. Hence, NHAI may pay the applicable GST to the contractors ¢. Mobilization advance Applicability of GST on mobilization advance will be as follows ~ If the mobilization advance is refundable as per the Contract Agreement, no GST shall be payable on mobilization advance. ~ If the mobilization advance is recoverable as per the Contract Agreement in future bills, then GST shall be applicable. It shall be paid by NHAI at the applicable rates and shall be suitably adjusted at the time of recovery of the Mobilization Advance, Reverse Charge Mechanism In case of Reverse Charge mechanism, taxes on account of GST under any of the services defined in GST Law, shall be discharged by NHAI. The Notification no. 13/2017-Centrat Tax (Rate) dated 28.06.2017 in this regard is attached as Annexure -I. e. Deductibility of TDS under income Tax Ac! TDS are to be deducted under the Income Tax Act, apart from the TDS applicable under WCT/GST. Accordingly, wherever in terms of agreement or contract between the NHAI and service providers, the component of “GST on services” comprised in the amount payable is indicated separately, Tax Deducted at source under the Income Tax Act shall be deducted on the amount paid or payable without including such “GST on Services” component. GST for this purpose shall include IGST, CGST, SGST and / UTGST. A copy of Circular issued by CBDT in this regard is attached herewith as Annexure-II. 5. Preparation of DPR/ Estimation of Project Cost: With the implementation of GST various Indirect Taxes of both the Central & State Governments have subsumed into GST. As such, at the time of preparation of DPR, Estimation of Project Cost and while adopting the Schedule of Rates (SOR), pre-GST taxes must be excluded from the cost. The applicable GST rate should be shown separately. (wy Changes required in Contracts For new Contracts, the cost of Projects should be excluding of Pre-GST taxes. GST shall be payable as applicable. Necessary amendment has to be carried out for all new Bid/Contract documents, Approval sought: Board is requested to approve the implementation of GST and the consequential actions including the: ~ Applicability of Change in Law in all form of Contracts - NHAI as a Business entity as per GST Act, 2017. - Methodology proposed to be adopted for Payments. = To incorporate required changes while Preparing DPR/ Estimation of Project Cost and in the Contract/bidding documents with approval of MoRTH. ~ Authorize CGM(FA) to provide clarifications/issue circulars etc. on GST matters with the approval of Member(Finance) ial (Rohit Kumar Singh} Member (F)

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