GST FOR WORKS CONTRACT

CA YASHWANT J. KASAR
FCA (ICAI), BFP ACA (ICAEW-UK), CISA, CGEIT, DISA, PMP, FAIA
C: +91 98224 88777
E: YASHWANT@YKC.CO.IN

31st July, 2021

GST ISSUES UNDER REAL ESTATE SECTOR

Government
Real Estate
related
Works Contracts Projects under
construction
RERA
contracts

Renting and
TDR/FSI/Long Sale of Land and Leasing of
Term lease Developed Plots Immovable
Property
CA YASHWANT J. KASAR 2
‘WORKS CONTRACT’ AS PER GST ACT, 2017

Definition of Works Contract as per Goods and Service Tax Act,2017:

Section 2 (119) of the CGST Act, 2017: "works contract" means a contract for building, construction, fabrication,
completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or
commissioning of any IMMOVABLE PROPERTY wherein transfer of property in goods (whether as goods or in
some other form) is involved in the execution of such contract;"
As per the above definition under GST law this has been made very clear that `works contract` shall be applied only
on the 14 types of contracts related to Immovable Property.
Any other contracts like say fabrication of Iron steel goods or like fabrication, repair work done in
automobile workshop shall not be considered under Works Contract instead that shall be considered as
Composite Supply as defined u/s 2(30) of CGST Act,2017.

CA YASHWANT J. KASAR 3
IMMOVABLE PROPERTY

Word Immovable Property has not been defined under GST Act,
hence the interpretation and definition of the same has to be taken from General Clauses Act 1897, wherein as
per Section 3 (26) :
"immovable property shall include land, benefits to arise out of land and things attached to the earth,
or permanently fastened to anything attached to the earth

CA YASHWANT J. KASAR 4
WORKS CONTRACT:
SUPPLY OF GOODS OR SUPPLY OF SERVICES?

¡ As per Para No.6 of Schedule-II of CGST Act, ``works contract`` shall be considered as Composite
supply of services.
Accordingly, under GST Works Contract shall be categorised as Supply of Services.

CA YASHWANT J. KASAR 5
ABSURD RESULTS IF GST RATE IS DETERMINED TREATING
IT AS SUPPLY OF SERVICE

General rate of GST on composite supply of works contract services is 18%.

If the plant or machinery or equipment or other material used in execution of works contract
carries GST rate of 18%, the question of tax rate does not arise.
However,
If the plant or machinery or equipment or other material used in execution of works contract
(where goods is principal supply) has GST rate of less than 18% (Nil, 5%, 12%) or more than 18%
(28%), issue of rate of tax on works contract for GST becomes critical.

CA YASHWANT J. KASAR 6
Some Strange Results:
For example, erection and commissioning of air conditioner is 'works contract'. Tax rate of an air conditioner is
28%. However, if erection and commissioning is treated as service, the tax rate on entire works contract (including
value of air conditioner) would be 18%.
Solar water heater system is taxed at 5%, but if it is supplied with erection and commissioning, and if the supply
is treated as service, the tax rate on entire works contract (including value of solar water heater system) would be
18%.
Though tax rate on agricultural machinery or dairy machinery is 12%, if erected, tax rate on entire amount
would be 18%, if the works contract is treated as supply of service.
Thus, intention of legislation in giving tax relief to certain specified plant, machinery and equipment and levying higher
rate of luxury goods will be lost.

CA YASHWANT J. KASAR 7
 SOME RULINGS
¡ An air conditioner manufacturer may undertake a 'works contract' for designing, fitting and
commissioning of air conditioning equipment.This is contract for sale of labour and material and
not contract of sale. Property in air conditioning equipment passes as an incidental to the works
contract. Here, there is no sale of 'goods'. It is a 'works contract' and not liable to CST - State of Madras v. Voltas
Ltd. (1963) 14 STC 446 and 861 (Mad HC) - also indirectly approved in Batliboi v. STO (2000) 119 STC 583 (Guj
HC DB).
¡ Contract on turnkey basis for laying of Pipes is a works contract - National Organic Chemicals Industries
Ltd. v. State of Maharashtra (2012) 54 VST 271 (Bom HC DB).
¡ Erection of towers and testing and commissioning of transmission lines and setting up sub-station
is a works contract - EMC Ltd. In re (2018) 67 GST 580 = 93 taxmann.com 200 (AAR - West Bengal).
¡ In Precision Automation and Robotics India Ltd. In re (2018) 69 GST 713 = 97 taxmann.com 319 (AAR-Maharashtra),
it has been held that supply and installation of 'car parking system' qualifies as immovable property and hence
is works contract, as the car parking system, once erected, cannot be removed without dismantling.
CA YASHWANT J. KASAR 8
 ¡ Erection, fitting and commissioning of data center - Erection, fitting and commissioning of data
center is works contract and taxable @ 18% - Hewlett Packard Enterprise India P Ltd (2020) 77 GST
453 = 111 taxmann.com 456 (AAR-Karn).
¡ CCTV based surveillance project - Comprehensive CCTV based City Surveillance Project is a
composite supply of works contract - Allied Digital Services Ltd. In re (2019) 72 GST 755 = 103
taxmann.com 123 (AAR-Maharashtra).
¡ Turnkey project of wind tunnel for Vikram Sarabhai Space Centre - Turnkey project of wind
tunnel for Vikram Sarabhai Space Centre is works contract. It is eligible for concessional rate of 12%
under Sl No. 3(vi) of notification No. 8/2017-CT (Rate) dated 28-6-2017 [as service is provided to
Central Government] - Tata Projects Ltd. In re (2020) 77 GST 504 = 110 taxmann.com 512 (AAR-Ker).
¡ Works contract is not limited to construction – The term 'works contract' is not limited to
construction services. It covers all activities relating to plant, machinery or equipment which are
immovable.

CA YASHWANT J. KASAR 9
GST RATES

CA YASHWANT J. KASAR 10
 ¡ Sr No. 3(ii) of Notification No. 11/2017-CT (Rate) and No.
GST RATE OF 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-
2017 prescribes rate of 18% (9% CGST and 9% SGST)
WORKS or 18% IGST on composite supply of works contract
as defined in section 2(119) of CGST Act.
CONTRACT ¡ General GST Rate on construction services - The
AS general rate of GST on construction services other than (i),
(ia), (ib), (ic), (id), (ie), (if), (iii), (iv), (v), (va), (vi), (vii), (viii), (ix),
COMPOSITE (x) and (xi) of Sr No. 3 is 18% (9% CGST and 9% SGST) or
18% IGST - Sr No. 3(xii) of Notification No. 11/2017-CT
SUPPLY (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017,
effective from 1-7-2017 amended w.e.f. 1-4-2019.

CA YASHWANT J. KASAR 11
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'

For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia),
(ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed against them in column (4)
subject to conditions specified against them in column (5) and shall not be levied at the rate as
specified under this entry - Explanation to Sr No 3(xii) of Notification No. 11/2017-CT (Rate) and No.
8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019.
Thus, in respect of construction of residential and commercial apartments in REP and
RREP, the specific rates as specified prevail and not the general rate of 18%.

CA YASHWANT J. KASAR 12
WORKS CONTRACT SERVICE OF RENEWABLE ENERGY PLANT AND
EQUIPMENT

Renewable energy devises and parts for their manufacture falling under chapter 84, 85 or 94 are subject to
GST @ 5% [IGST 5% or CGST 2.5% + SGST/UTGST 2.5%] as per Sr. No. 234 of Schedule I of Notification Nos.
1/2017-CT (Rate) and 1/2017-IT (Rate) both dated 28-7-2017.
However, if composite contract of supply of goods plus service of construction, installation,
commissioning is executed, it becomes works contract and GST rate becomes 18% on whole
contract. Thus, basic purpose of promoting renewable energy sources gets defeated.
Hence, it is now provided w.e.f. 1-1-2019 that in case of such composite contract, value of goods will
be taken as 70% (attracting 5% GST) and value of services 30% (attracting 18% GST).

CA YASHWANT J. KASAR 13
 Specific provisions have been made w.e.f. 1-1-2019 for GST on service by way of construction or
engineering or installation or other technical services, provided in relation of setting up of following, —
(a) Bio-gas plant
(b) Solar power-based devices
(c) Solar power generating system
(d) Windmills, Wind Operated Electricity Generator (WOEG)
(e) Waste to energy plants/devices
(f) Ocean waves/tidal waves energy devices/plants.

CA YASHWANT J. KASAR 14
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'

In aforesaid cases, the IGST rate is 18% [or 9% CGST plus 9% SGST/UTGST] - Sr. No. 38 of
Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017 inserted w.e.f. 1-1-
2019.
As per explanation to this entry, this entry shall be read in conjunction with serial number 234 of
Schedule I of the notification No. 1/2017-CT (Rate) as amended w.e.f. 1-1-2019.
As per explanation to Sr. No. 234 of Schedule I of the notification No. 1/2017-CT (Rate) as amended
w.e.f. 1-1-2019, if the aforesaid goods are supplied with other goods and services, the value of goods
will be taken as 70% and value of services will be 30% of gross consideration charged.
Thus, in case of composite works contract of aforesaid goods and services (i.e. supply of goods plus
construction, engineering or installation or other technical services), the value of service will be
taken as 30% of gross consideration charged.

CA YASHWANT J. KASAR 15
WHAT CAN BE DONE IN RESPECT OF SOLAR PLANTS SUPPLIED DURING 1-7-2017 TO
31-12-2018

On the basis of aforesaid case law, show cause notices are being issued to many taxable persons. For the past
period from 1-7-2017 to 31-12-2018, it can be argued that in case of works contract, valuation
should be on basis of principal supply and contest the issue. Of course, final result is uncertain.

CA YASHWANT J. KASAR 16
CONCESSIONAL
GST RATE FOR
CERTAIN
INFRASTRUCTURE
RELATED WORKS
CONTRACT
CA YASHWANT J. KASAR
WORKS CONTRACT SERVICES RELATING TO HISTORICAL MONUMENTS, CANAL, WATER
SUPPLY TO GOVERNMENT OR LOCAL AUTHORITY OR GOVERNMENTAL
AUTHORITY – GST RATE 12%

As per Sr No. 3(iii) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, the
tax rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST] on composite supply of works contract as defined in
section 2(119) of the CGST Act, supplied to the Government, a local authority, a Governmental authority or a
Government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of,—
(a) a historical monument, archaeological site or remains of national importance, archaeological
excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958
[w.e.f. 22-8-2017]
(b) canal, dam or other irrigation works [w.e.f. 22-8-2017]
(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment
or disposal [w.e.f. 22-8-2017]

CA YASHWANT J. KASAR 18
 Where the services are supplied to a Government Entity, they should have been procured by the said
entity in relation to a work entrusted to it by the Central Government, State Government, Union
territory or local authority, as the case may be.
Sub-contractor also eligible for concessional rate of 12% w.e.f. 25-1-2018 - Sub-contractor
providing service to main contractor who is providing any of aforesaid service is also eligible for
concessional rate of 12% [IGST - 12%, CGST and SGST/UTGST - 6% each] w.e.f. 25-1-2018 - Sr No.
3(ix) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 inserted
w.e.f. 25-1-2018.—noted in Tata Projects Ltd. In re (2018) 68 GST 420 = 94 taxmann.com 86 (AAR-
Rajasthan).
However, in case of service supplied by main contractor to a Government entity, the concessional rate
is available only if the service has been procured by Government Entity in relation to work entrusted
to it by the Central Government, State Government, Union Territory or Local Authority as the case
may be.
The concession is only to sub-contractor and not to sub-sub-contractor.

CA YASHWANT J. KASAR 19
WORKS CONTRACT RELATING TO ROADS, BRIDGES, CERTAIN HOUSING PROJECTS, POLLUTION
CONTROL PLANT, STRUCTURE FOR FUNERAL OR BURIAL – GST RATE 12%

As per Sr No. 3(iv) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, the
tax rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST] on composite supply of works contract as defined in
section 2(119) of CGST Act,
The GST rate is respect of works contract services supplied by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-
(a) a road, bridge, tunnel, or terminal for road transportation for use by general public [w.e.f. 22-8-
2017]
(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National
Urban Renewal Mission or Rajiv Awas Yojana [w.e.f. 22-8-2017]

CA YASHWANT J. KASAR 20
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'
(c) a civil structure or any other original works pertaining to the "In-situ" redevelopment of
existing slums using land as a resource, under the Housing for All (Urban) Mission/Pradhan
Mantri AwasYojana (Urban) [w.e.f. 25-1-2018]
[The wording during 22-8-2017 to 25-1-2018 was as follows - a civil structure or any other original
works pertaining to the In-situ rehabilitation of existing slum dwellers using land as a resource through
private participation under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for
existing slum dwellers].
(d) a civil structure or any other original works pertaining to the "Beneficiary led individual
house construction/enhancement" under the Housing for All (Urban) Mission/Pradhan Mantri Awas
Yojana [w.e.f. 22-8-2017]
(da) a civil structure or any other original works pertaining to the "Economically Weaker Section
(EWS) houses" constructed under the Affordable Housing in partnership by State or Union territory
or local authority or urban development authority under the Housing for All (Urban) Mission/Pradhan
Mantri Awas Yojana (Urban) [this clause inserted w.e.f. 25-1-2018]

CA YASHWANT J. KASAR 21
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'

(db) a civil structure or any other original works pertaining to the "houses constructed or
acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section
(EWS)/Lower Income Group (LIG)/Middle Income Group-1 (MIG-1)/Middle Income
Group-2 (MIG-2)" under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban)
[this clause inserted w.e.f. 25-1-2018]
(e) a pollution control or effluent treatment plant, except located as a part of a factory
[w.e.f. 22-8-2017]
(f) a structure meant for funeral, burial or cremation of deceased [w.e.f. 22-8-2017]
(g) a building owned by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of
1961), which is used for carrying out the activities of providing, centralised cooking or distribution, for
mid-day meals under the mid-day meal scheme sponsored by the Central Government, State
Government, Union territory or local authorities [this clause inserted w.e.f. 25-1-2018].

CA YASHWANT J. KASAR 22
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'

(Effective rate on lost cost housing schemes is 8% - Since the amount charged to customer includes
value of land, the effective tax rate is 8%, though specified rate is 12%.
The concessional rate applies to sub-contractor or sub-sub-contractor also - The concessional
rate of 12% is applicable to sub-contractor or even sub-sub-contractor if he is providing works contract
service of construction, as the service is exempt, irrespective of person to whom it is provided.
However, in case of construction of low cost housing, since his charges do not include value of land, he
has to charge tax @ 12% on his total invoice.- view confirmed in Shimsha Infrastructures In re (2019) 76
GST 742 = 110 taxmann.com 347 (AAR - Karnataka).
Contract of DBOT (design, build, operate and transfer) of road is taxable - Contract of DBOT
(design, build, operate and transfer) of road is taxable under 9954. The supplier of service is entitled to
avail entire input tax credit of goods and services received by him - Nagaur Mukangarh Highways P Ltd. In
re (2018) 70 GST 721 = 98 taxmann.com 338 (AAR - Rajasthan).

CA YASHWANT J. KASAR 23
WORKS CONTRACT RELATING TO RAILWAYS, LOW COST HOUSING, SINGLE
RESIDENTIAL UNITS, POST HARVEST STORAGE INFRASTRUCTURE - GST RATE 12%

As per Sr No. 3(v) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, the tax
rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST] on composite supply of works contract as defined in
section 2(119) of CGST Act.
The GST rate is respect of works contract services supplied by way of construction, erection, commissioning, or
installation of original works pertaining to,-
(a) railways, including monorail and metro [w.e.f. 25-1-2018. During the period 22-8-2017 to 25-1-2018,
the word was 'excluding'. Thus, w.e.f. 25-1-2018, works contract of monorail and metro will also be eligible for
concessional rate of 12% GST]

CA YASHWANT J. KASAR 24
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'
(b) a single residential unit otherwise than as a part of a residential complex. "Single
residential unit" means a self-contained residential unit which is designed for use, wholly or principally,
for residential purposes for one family [para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-
IT (Rate) both dated 28-6-2017, effective from 1-7-2017].
(c) low-cost houses up to a carpet area of 60 square metres per house in a housing
project approved by competent authority empowered under the 'Scheme of Affordable
Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation,
Government of India [w.e.f. 22-8-2017].
(d) low cost houses up to a carpet area of 60 square metres per house in a housing
project approved by the competent authority under- (1) the "Affordable Housing in
Partnership" component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (2) any
housing scheme of a State Government [w.e.f. 22-8-2017].
(da) low-cost houses up to a carpet area of 60 square metres per house in an affordable
housing project which has been given infrastructure status vide notification of Government of
India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th
March, 2017 [This clause inserted w.e.f. 25-1-2018].

CA YASHWANT J. KASAR 25
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'
It has been clarified that as per the definition, at least 50% of FAR (Floor Area Ration)/FSI (Floor Space
Index) should be used for dwelling units with carpet area not exceeding 60 Sq M. The concessional rate
is available if specified conditions are satisfied. No certificate from any authority is not required -
TRU(MF DR) letter F No. 354/52/2018-TRU dated 7-5-2018 - noted and followed in Prajapati Developers
In re (2018) 69 GST 851 = 97 taxmann.com 21 (AAR - Maharashtra). It was observed that this
concession applies only to dwelling units with carpet area not exceeding 60 Sq M and not to all units in
the project.
This was also followed in Ideal Construction In re (2018) 70 GST 233 = 97 taxmann.com 316 (AAR -
Maharashtra).
(e) post-harvest storage infrastructure for agricultural produce including a cold storage
for such purposes; or mechanised food grain handling system, machinery or equipment for units
processing agricultural produce as food stuff excluding alcoholic beverages [w.e.f. 22-8-2017].

CA YASHWANT J. KASAR 26
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'

Effective rate on lost cost housing schemes is 8% - Since the amount charged to customer includes
value of land, the effective tax rate is 8%, though specified rate is 12%.
The concessional rate applies to sub-contractor or sub-sub-contractor also - The concessional
rate of 12% is applicable to sub-contractor or even sub-contractor if he is providing works contract
service of construction, as the service is exempt, irrespective of person to whom it is provided - view
confirmed in Shree Construction, In re (2018) 69 GST 866 = 97 taxmann.com 317 (AAR-Maharashtra) in
respect of railway work - view confirmed in Shree Construction, In re (2019) 73 GST 456 = 103
taxmann.com 448 (AAAR).
The principle applies to all services covered in this clause.
However, in case of construction of low cost housing, since his charges do not include value of land, he
has to charge tax @ 12% on his total invoice.

CA YASHWANT J. KASAR 27
22.2-3 DISTINCTION BETWEEN CONTRACT OF SUPPLY OF GOODS AND A 'WORKS
CONTRACT'

Railways include private railway siding also and concessional rate applies - Term 'Railways'
include private railway siding also. Construction of a private railway siding for carriage of coal and oil fuel
to a thermal power station is a composite supply of works contract taxable @ 12% under Serial No
3(v)(a) of Notification no 11/2017-CT(Rate) dated 28.06.2017 - Rites Ltd.,In re [2018] 100 taxmann.com
452 (AAR - West Bengal).
Contract for of Integral Coach Factory turnkey basis - Contract for of Integral Coach Factory
turnkey basis is works contract and taxable @ 12% [6% + 6%] - HYT Sam India In re (2019) 103
taxmann.com 262 (AAR-Tamil Nadu).

CA YASHWANT J. KASAR 28
WORKS CONTRACT INVOLVING PREDOMINANTLY EARTH WORK PROVIDED TO THE
GOVERNMENT & MAIN CONTRACTOR – GST RATE 5%

¡ (vii) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and
Services Tax Act, 2017, involving predominantly earth work (that is, constituting more than 75 per
cent of the value of the works contract) provided to the Central Government, State Government, Union
territory, local authority, a Governmental Authority or a Government Entity. – Rate 5%
¡ (x) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and
Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services
specified in item (vii) above to the Central Government, State Government, Union territory, a local authority,
a Governmental Authority or a Government Entity. – Rate 5%

CA YASHWANT J. KASAR 29
WORKS CONTRACT SERVICES RELATING TO OIL AND GAS EXPLORATION AND
PRODUCTION – GST RATE 12%

In case of composite supply of works contract as defined in section 2(119) of CGST Act and associated services,
in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the
offshore area beyond 12 nautical miles of appropriate base line, the tax rate is - IGST-12% or CGST 6%
plus SGST/UTGST 6% w.e.f. 13-10-2017. - Sr No. 3(vii) Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017 as amended on 13-10-2017. This is effective from 13-10-2017.

CA YASHWANT J. KASAR 30
SERVICES SUPPLIED FOR CONSTRUCTION, ERECTION OR INSTALLATION OF INFRASTRUCTURE
FOR EXTENDING ELECTRICITY TO TUBE WELL OF FARMER ARE EXEMPT

Services supplied by electricity distribution utilities by way of construction, erection, commissioning, or

installation of infrastructure for extending electricity distribution network upto the tube well of the
farmer or agriculturalist for agricultural use are exempt from GST - Notification No. 12/2017-CT (Rate) and No.
9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.

CA YASHWANT J. KASAR 31
PURE LABOUR SERVICES FOR CONSTRUCTION OF SINGLE DWELLING
UNIT EXEMPT

Services by way of pure labour contracts of construction, erection, commissioning, or installation of original
works pertaining to a single residential unit otherwise than as a part of a residential complex are exempt from
GST - Sr. No. 11 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective
from 1-7-2017.

CA YASHWANT J. KASAR 32
VALUATION

CA YASHWANT J. KASAR 33
VALUATION
(SECTION-15 R/W CHAPTER-VI OF CGST RULES)
There is no specific section or rules drafted for the valuation of works contract supplies, however section 15 shall
apply for the purpose of valuation.
In the case of works contract if transfer of property in land or undivided share of land is included then:
Value of supply of service and goods portion in such supply = Total amount charged for such supply (-) Value of share of land or
undivided share of land
Here total amount means sum total of consideration charged for the aforesaid service and amount charged for transfer of land
or undivided share of land, as the case may be. (Value of land shall deem to be 33% of total value of supply) (Note-2 of
Notification 11/2017)

CA YASHWANT J. KASAR 34
In case of works contract if transfer of property in land or undivided share of land is NOT included then the
transaction value shall be the value of supply.

If Supplier & Recipient are Not Related Person If Supplier & Recipient are Related Person
Value = Transaction Value Open Market value of such supply.
i.e the Price Charged from the Customer for
selling/providing goods/services
If Market Value is not available, then Price Usually
charged to an unrelated person supply goods/services
of such quality & value.

CA YASHWANT J. KASAR 35
TRANSACTION VALUE
Primary basis of valuation is Transaction value which has not been defined in the Act but includes having price, between
person not related and the price being sole consideration.
Transaction value mentioned above shall include the following:
¡ Any amount incurred by the recipient of supply with respect to such supply and which was paid and payable by
the supplier which has not been included in transaction value (So Freight, Loading, Unloading, Packing
charges etc shall be part of Taxable Value and chargeable to GST even if claimed as additional
reimbursement on Invoice)
¡ Any taxes, duties, fees and charges levied under any statute other than tax under this Act.
¡ Incidental expenses such as commission or packing charged by supplier to recipient of goods or services or both
including any amount charged by supplier for the supply of goods or services at the time or before delivery of goods or
supply of services.
¡ Subsidy directly linked to the price excluding subsidy provided by the Central or State Government
¡ Interest or late fees or penalty for delayed payment of consideration for any supply.

CA YASHWANT J. KASAR 36
Following shall not be included;
¡ Transaction value shall not include any discount allowed before or at the time of supply provided such
discount is recorded in the invoice. Hence where the discount is not recorded and reflected on invoice, no
deduction can be claimed on taxable value except in one instance which is as under.
¡ Discounts Allowable after Supply if;
¡ discounts is given as per the agreement entered into at or before the supply and linked to relevant invoices.
¡ Input tax credit is reversed by the recipient of supply on such discount.

CA YASHWANT J. KASAR 37
AMOUNT PAID BY RECIPIENT ON BEHALF OF SUPPLIER

¡ Any amount that the supplier is liable to pay in relation to such supply, but which has been incurred by the
recipient of the supply and not included in the price actually paid or payable for the goods or services or both is
includible in value - section 15(2)(b) of CGST Act.
¡ This cannot cover free inputs or services supplied by recipient, as only 'amount' paid by recipient
on behalf of supplier is includible.This would be so only where there was contractual liability on
supplier to make those supplies.
¡ However, if amount was contractual liability of supplier but paid by recipient on his behalf, that amount will be
includible in 'value' for purpose of payment of GST.
¡ Even if this amount is addible in value, obviously payment will not be received in respect of this amount from
recipient. Normally, if payment is not received from recipient, proportionate input tax credit has to be reversed as
per section 16(2) of CGST Act. However, in such cases, it will be deemed that the payment has been received.
Thus, reversal of proportionate input tax credit will not be required – second proviso to rule 37(1) of CGST
Rules, inserted w.e.f. 13-6-2018.

CA YASHWANT J. KASAR 38
VALUE OF FREE MATERIAL SUPPLIED BY CUSTOMER IS
NOT TO BE ADDED

The provision of adding value of free supplied material to contractor (service provider) has been held invalid in
Bhayana Builders v. CST (2013) 42 GST 76 = 38 taxmann.com 221 (CESTAT LB). This decision has been upheld in
CST v. Bhayana Builders P. Ltd. (2018) 3 SCC 782 = 66 GST 320 = 91 taxmann.com 109 (SC).
Thus, it is now settled that value of free material supplied by customer is not required to be added
for purpose of payment of tax by contractor who is supplier of services unless there is contractual
liability.

CA YASHWANT J. KASAR 39
EXAMPLE

ABC enters into a contract with XYZ of Rs 50 Crores (plus GST) for construction of a warehouse on turnkey basis
i.e. including all the procurements and erection.
However, XYZ states that Cement and Steel shall be provided by XYZ, which approximately values of Rs 15 Crores.
In this case although the ABC shall be billing for Rs 35 Crores, but the taxable value for GST shall be Rs. 50 Crores
and accordingly GST has to be charges at value of Rs 50 Crores. (Section 15(2)(b)).

CA YASHWANT J. KASAR 40
INPUT TAX CREDIT

CA YASHWANT J. KASAR 41
INPUT TAX CREDIT

Section 17 (5) (c) of CGST Act,2017 read with its explanation is the relevant section regarding ITC of Works
contract services, which restricts the service recipient to claim ITC of works contract services.
Section 17 (5) (c) read as under:-
(c) works contract services when supplied for construction of an immovable property (other than plant and
machinery) except where it is an input service for further supply of works contract service;
Explanation––For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation,
additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

CA YASHWANT J. KASAR 42
So accordingly: -
¡ ITC related to works contract services cannot be claimed by service recipient.
But:
¡ If works contract services are related to plant and machinery, ITC can be claimed
¡ If works contract services are received by recipient for further supply of works contract services, ITC can be
claimed
¡ If expenses of works contract services are not capitalised and instead debited to Profit & Loss account, ITC can
be claimed
Explanation––For the purposes of this Chapter and Chapter VI, the expression "plant and machinery" means apparatus,
equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of
goods or services or both and includes such foundation and structural supports but excludes—
(i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises

CA YASHWANT J. KASAR 43
ILLUSTRATIONS:
Case Study-1
ABC Limited awarded a contract for complete construction of its showroom to XYZ Limited, that includes civil
structure, interior decoration, electrical fittings etc. Value of the work was calculated at Rs.10 Crores.
In this case XYZ limited will charge 18% GST on Rs. 10 crores to ABC Limited and ABC Limited will not be eligible
to claim ITC

Case Study -2
In the above case XYZ limited who is a contractor, sub-let the work of electrical fittings valuing Rs.2 crores to PQR
Limited.
In this case PQR Limited will charge 18% GST on Rs.2 crores to XYZ Limited and XYX Limited will be eligible to
claim ITC.

CA YASHWANT J. KASAR 44
Case Study -3
ABC limited awards a contract of renovation of its showroom, to XYZ Limited valuing Rs. 50 Lacs.
In this case XYZ Limited will charge 18% GST on Rs.50 Lacs to ABC Limited and if ABC books the expenses in Profit
& Loss account, ITC can be claimed. However, if this amount is capitalised by ABC then ITC cannot be claimed.

Case Study -4
ABC limited have bought new machineries in its factories, and a strong foundation is needed so that to install the
machineries firmly. Work of foundation is awarded to XYZ Limited for Rs 10 Lacs
In this case XYZ Limited will charge 18% GST on Rs.10 Lacs to ABC Limited and ABC shall be eligible to claim ITC
particularly in lieu of the foundation, because foundation is included in the definition of plant and machinery.
CA YASHWANT J. KASAR 45
Case Study -5
A company took a land on lease for development of resort for 30 years from a Government entity. The completion
of project took 2 years, hence the lease premium and lease rent paid during the pre-operative period i.e. 2 years was
capitalised by the company. Whether the GST paid on lease rent shall ab admissible ITC or not ?
Here reference is taken from the judgement of GGL Hotel and Resort Company Ltd. [2019] 105 taxmann.com
248 (GST AAAR West Bengal), wherein the appellate authority has observed in para no.14 of the order that lease
rent paid during pre-operative period has direct nexus with the construction of the resort, hence the ITC on such
lease rent is inadmissible.

CA YASHWANT J. KASAR 46
Case Study -6
A company got certain repairing jobs of various nature such as:
¡ Building Repairing Works
¡ Electric Installation repairing work
¡ Sanitary fitting repairing works
¡ Furniture & Fixtures repairing work
Here, in our opinion basic rule/test that should be applied is: -
¡ If the expenses are capitalised to immovable property: ITC shall NOT be allowed to the extent of capitalisation
¡ If repairing is related to movable properties: ITC shall be allowed
Here reference is taken from Advance Ruling of Rambagh palace Hotels Pvt. Ltd. (GST AAR Rajasthan) Advance
Ruling No. RAJ/AAR/2019-20/05 dated 30/04/2019

CA YASHWANT J. KASAR 47
Case Study -7
A company is involved in construction of large shopping malls for the purpose of letting out its property. The
company is also paying GST on its rent income. Company has accumulated amount of ITC in respect of purchases of
inputs in the form of goods and services.
Hon`ble Orrisa High Court in the judgment of Safari Retreats (P.) Ltd. v. Chief CCG & ST [2019] 105
taxmann.com 324/74 GST 500has held that if the assessee is required to pay GST on the rental income arising
out of the investment on which he has paid GST, it is required to have the input credit on the GST.
(Litigation is involved - as this Qs is pending before Apex Court)

CA YASHWANT J. KASAR 48
REFUNDS

CA YASHWANT J. KASAR 49
REFUNDS (SECTION 54 AND RULE 89)

¡ In case of contractors, broadly the GST rates on outward supplies are 12% or 18%, whereas GST Rates
on inputs and input services varies from 12% to 28%, this results in accumulation of Input Tax Credits.
¡ Also, in the course of work execution contractors receives Input Services from their sub-contractors,
wherein input tax credit is claimed by contractor on such invoices. Contractor claims total input tax credits
on inputs and input services.
¡ Although Section 54(3) states about claim of refunds in the case of accumulated input tax credit, however there is
a restriction of refund only related to ITC of Inputs and not for Input Services.
¡ Therefore, in my opinion and practically, refund of accumulated ITC may not be claimed by
contractors, where contractors are claiming ITC related to input services.
¡ Apart from it in case of contractors dealing in Government awarded contracts TDS @ 2% is deducted, which
may get accumulated in the cash ledger, if not used against the liabilities, can be claimed for refund.
(Section 49 (6) r/w Provision to Section 54(1))

CA YASHWANT J. KASAR 50
TDS

CA YASHWANT J. KASAR 51
TDS (TAX DEDUCTED AT SOURCE)
(SECTION-51 & RULE 66)

¡ Section 51 of CGST Act, states that if any supply (in this case supply of works contract services) is made
under a contract and value of that supply exceeds Rs.2.50 lacs, then TDS @ 2% shall be deducted by
the awarder while making payments to the contractors.
¡ This provision is applicable on the contracts awarded by:
a. Central Government or State Government departments
b. Local Authority
c. Government agencies
d. Or any other persons as may be notified by the Government
The said TDS can be claimed through GST Portal and after being claimed the amount is reflected in the cash
ledger of respective heads.

CA YASHWANT J. KASAR 52
RECORDS

CA YASHWANT J. KASAR 53
RECORDS TO BE MAINTAINED BY A SUPPLIER OF WORKS
CONTRACT SERVICES

Rule 56 (14) of CGST Rules, prescribes the records and accounts to be maintained:
(14) Every registered person executing works contract shall keep separate accounts for works
contract showing –
a) the names and addresses of the persons on whose behalf the works contract is executed
b) description, value and quantity (wherever applicable) of goods or services:
i. received for the execution of works contract
ii. utilized in the execution of works contract
c) the details of payment received in respect of each works contract; and
d) the names and addresses of suppliers from whom he received goods or services.

CA YASHWANT J. KASAR 54
PLACE OF SUPPLY

CA YASHWANT J. KASAR 55
PLACE OF SUPPLY

¡ Essentially in GST Works Contract shall be in relation to Immovable Property, and so, Section 12(3) of the IGST Act,
2017 is applicable in such case, if Supplier and receiver both located in India.
Nature Place of Supply
Immovable property related to services Location at which the immovable property is located or
intended to be located.
If Immovable Property is located outside India: location of
the recipient
¡ Place of Supply Provisions for Cross-Border Supplies[ [Section 13 of the CGST Act, 2017]
i.e. where either the Location of the Supplier of Service or Recipient of Service is outside India

Nature Place of Supply

Immovable property-related services Location at which the immovable property is located

CA YASHWANT J. KASAR 56
EXAMPLES:
¡ ABC, Jaipur awards XYZ, Jaipur a contract for construction of warehouse at Jaipur, place of supply shall be
Jaipur.
CGST & SGST shall be charged by XYZ, Jaipur (Section 12(3)(a) of IGST Act)

¡ ABC, Jaipur awards XYZ, Delhi a contract for construction of warehouse at Jaipur, place of supply shall be
Jaipur.
IGST shall be charged by XYZ, Delhi (Section 12(3)(a) of IGST Act)

¡ ABC, Jaipur awards XYZ, Jaipur a contract for construction of warehouse at Delhi, place of supply shall be
Delhi.
IGST shall be charged by XYZ, Jaipur (Section 12(3)(a) of IGST Act)
CA YASHWANT J. KASAR 57
¡ ABC, Jaipur awards XYZ, Delhi a contract for construction of warehouse at Dubai, place of supply shall be Jaipur.
IGST shall be charged by XYZ, Delhi (Provision to Section 12(3) of IGST Act)

¡ ABC, Jaipur awards XYZ, Dubai a contract for construction of warehouse at Jaipur, place of supply shall be
Jaipur.
IGST shall be charged by XYZ, Delhi (Section 13(4) of IGST Act)

¡ PHED, Jaipur awards XYZ, Jaipur a contract for installation of water pipeline of 100 KMs which run from Neemrana
(Rajasthan) to Gurgaon (Haryana), wherein 60Kms is in Rajasthan and balance 40Kms is in Gurgaon.
Hence accordingly, services shall be deemed to be supplied in 60:40 ratio in Rajasthan and Haryana (Rule 4
of IGST Rules)

CA YASHWANT J. KASAR 58
FEW ILLUSTRATIONS:

Location of Service Recipient of Service Immovable Property Place of Provision of

Provider Location Services
(Tax Applicable)

Maharashtra Gujrat Gujrat Gujrat (IGST)

Maharashtra Gujrat Madhya Pradesh Madhya Pradesh (IGST)

Maharashtra Singapore Maharashtra Maharashtra (CGST+SGST)

Maharashtra Dubai Dubai Dubai (Will be treated as

export of service)

CA YASHWANT J. KASAR 59
E-WAY BILL

CA YASHWANT J. KASAR 60
E-WAY BILL

¡ In the case of works contract, generally whenever material is procured, it is directly delivered at work site by the
seller and accordingly E-way bill is generated by that seller under Bill To- Ship To model. Hence, in such cases
there is no requirement of generation of E-way bill by the contractor.
¡ Furthermore, there may be cases wherein the goods are procured by the contractor and stored in its godown at
principal address or may be goods are stored at a store nearest to the work site.
¡ In both the cases, whenever material is dispatched from the store/godown to the work site, it can
be moved through a Delivery Challan as prescribed in Rule 55 of CGST Rules and along with it, E-way bill
shall be issued with the details as mentioned in the delivery challan.
¡ Further, when the invoice related to Works Contract services are issued, there is no requirement
to generate E-way Bill.

CA YASHWANT J. KASAR 61
REGISTRATION

CA YASHWANT J. KASAR 62
REGISTRATION UNDER GST

The business structure and nature of any works contractor generally makes it mandatory for the industry to have a
separate place of business/site and a reporting headquarter/office.
Normally the site will provide the works contract services and the office will support such services by
providing business support services.
Here the question arises as to whether it is mandatory for works contractors to obtain registration for the site as
well as the reporting office?

CA YASHWANT J. KASAR 63
SCENARIOS:

¡ A works contractor engaged in civil construction of roads is having its reporting office in Maharashtra and
its site where it provides road construction services is also situated in Maharashtra. The office
procures material required for construction from its vendors and arranges it to be transported to the site. In this
case where the site is also in Maharashtra there is no requirement of a separate registration. The site
can be added as an additional place of business in the registration form. All invoices need to be raised to and from
the reporting office.
¡ Similarly, a works contractor engaged in civil construction of roads is having its reporting office in
Maharashtra, but his site is located in Karnataka. The office procures material for the services and arranges
for it to be transported to the site located in Karnataka. The site office subsequently uses this material for
providing works contract services.

CA YASHWANT J. KASAR 64
¡ The above scenario has multiple implications. According to Schedule I of the CGST act states that the following
supply made with or without consideration shall be taxable:
"Supply of goods or services or both between related persons or between distinct persons as specified in section 25,
when made in the course or furtherance of business:"
¡ As per section 22 every person making a taxable supply and having an aggregate turnover of 20 Lakhs or more
(pan – India) shall be liable to get registered in the State from where he makes a taxable supply.
¡ Further Section 25 each GST Registration shall be regarded as a distinct person.
The above sections clearly indicate that the site office will also have to get registered as they are making
supplies from their offices and are distinct from their reporting office.
As explained in the above scenarios it would be prudent for every works contractor to take multiple
registrations for its site office and its reporting office if they are located in different states..

CA YASHWANT J. KASAR 65
ADVANCE RULING OF COLUMBIA ASIA HOSPITALS

The advance ruling of Columbia Asia Hospitals Private limited states that services provided by employees in
head offices with regard to accounting, administrative or other business support services for units
located in other States will be regarded as supply.
The explanation given here by the advance ruling authority is that although an employer and employee
relationship falls under Schedule III which treats the supply as non-taxable, there is no such
relationship between the distinct entities, i.e, the reporting office and the units.
The above explanation has been widely criticized but still until there is no reasonable notification or clarification in
this aspect the above would remain a point of dispute. In case of works contractors, any service provided by an
employee to its reporting office with regards to its site office will be treated as supply as per the above disputed
ruling.

CA YASHWANT J. KASAR 66
TIME OF SUPPLY

CA YASHWANT J. KASAR 67
TIME OF SUPPLY

Time of Supply in the case of services is determined as per Section 13 of CGST Act read with Section 31 of CGST
Act.
As per Section 13 (2),Time of Supply of service shall be determined as earliest of the following: -
¡ the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section
31 or the date of receipt of payment, whichever is earlier; or
¡ the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or
the date of receipt of payment, whichever is earlier; or
¡ the date on which the recipient shows the receipt of services in his books of account, in a case where
the provisions of clause (a) or clause (b) do not apply.

CA YASHWANT J. KASAR 68
CASE: WHEN INVOICE IS ISSUED BY THE SUPPLIER, WITHIN 30 DAYS
FROM DATE OF SUPPLY OF SERVICE

Date of event Particulars Whether Time of Supply applied?

14/04/2020 Contract awarded of Rs. 10 lacs NA
15/04/2020 Advance Received of Rs 1 Lac Yes, Value shall be Rs 1 Lac
30/04/2020 Advance Received of Rs 1 Lac Yes, Value shall be Rs 1 Lac
31/05/2020 Advance Received of Rs 3 Lac Yes, Value shall be Rs 3 Lacs
15/06/2020 Work execution completed
20/06/2020 Final Invoice issued by supplier Yes, Value shall be balance Rs 5 Lac
30/06/2020 Balance Payment Received NA
30/09/2020 Final Payment Received NA

CA YASHWANT J. KASAR 69
CASE: WHEN INVOICE IS NOT ISSUED BY THE SUPPLIER, WITHIN 30
DAYS FROM DATE OF SUPPLY OF SERVICE

Date of event Particulars Whether Time of Supply applied?

14/04/2020 Contract awarded of Rs. 10 lacs NA
15/04/2020 Advance Received of Rs 1 Lac Yes, Value shall be Rs 1 Lac
30/04/2020 Advance Received of Rs 1 Lac Yes, Value shall be Rs 1 Lac
31/05/2020 Advance Received of Rs 3 Lac Yes, Value shall be Rs 3 Lacs
15/06/2020 Work execution completed Yes, Value shall be balance Rs 5 Lacs (because invoice
not issued within 30 days)

CA YASHWANT J. KASAR 70
CONTINUOUS SUPPLY OF SERVICES

Furthermore, in case of Works contract services there are contracts wherein period of contract extends to
more than 3 months, which is defined as ``continuous supply of services`` under Section 2(33) of CGST Act
and accordingly Section 31(5) of CGST Act has to be applied for the time to issue tax invoice: -
¡ where the due date of payment is ascertainable from the contract, the invoice shall be issued on or
before the due date of payment;
¡ where the due date of payment is not ascertainable from the contract, the invoice shall be issued before
or at the time when the supplier of service receives the payment;
¡ where the payment is linked to the completion of an event, the invoice shall be issued on or before the
date of completion of that event.

CA YASHWANT J. KASAR 71
 There are interesting times ahead in respect of works contract rates and input tax credit
for CAs and Tax Practitioners and nightmare for taxable persons….

CA YASHWANT J. KASAR 72
THANK YOU !

CA Yashwant J. Kasar
FCA (ICAI), BFP ACA (ICAEW-UK), CISA, CGEIT, DISA, PMP, FAIA
C: +91 98224 88777
E: YASHWANT@YKC.CO.IN

CA YASHWANT J. KASAR 73