Works Contract under GST

Goods and Service tax(GST) in India was implemented with effect from 1st July 2017 to bring a revolution in the Indian taxation provisions.  One such activity that experienced the major reforms under the GST regime is work contract.  There are various aspects of GST like time, place, valuation of supply and input tax credit are applicable on works contract under GST. Today with this blog we will be taking a look at all the aspects of GST applicable on work contract.

Works Contract Under GST

Lawdef- Works Contract Under GST

What is work Contract?

Work contract is a contract of providing certain services that can include the supply of goods also. We can also say that contract is basically the combination of supply of goods and services with the supply of services playing the dominant role.

According to section 2(119) of CGST Act “works contract” can be defined as the contract undertaken for the below mention acts of the immovable property wherein the transfer of goods is involved in executing such contract.

  • building, construction,
  • fabrication,
  • completion, erection, installation, 9811066133
  • fitting out,
  • improvement, modification,
  • repair, maintenance, renovation,
  • alteration or commissioning

What was the situation of Work Contract under the previous laws?

Work Contract under GST in itself a complicated activity as it involves the supply of both the services and the goods. Thus there were multiple taxes applicable on it. For the Goods the Value Added Tax was applicable, for Services the service tax was applicable and if a new product is formed after the work contract is complete central excise duty will also be applicable. Due to the applicability of multiple taxes there was lot of confusion and legal disputes for the applicability of the taxes.

With GST all the taxes are subsumed into one tax that has helped in getting away with all the confusions existing in the previous laws.

Is input tax scheme applicable on work contract?

Input tax credit is not available under the GST regime for the work contract services when the contract is supplied for the construction of immovable property other than the cases wherein these services are provided for the further supply of work contract service. Also input tax credit is not provided for the goods and services received by the person for the construction of property on his own account other the use of plant and machinery for expanding the business.

Does work contract service provider comes under the composition scheme?

Under the GST system the composition scheme is only applicable to the providers of goods and not the services and work contract is considered as the supply of services thus the work contract provider cannot avail the option of composition scheme. The unavailability of composition scheme has lead to the loss of the small and medium scale contractors.

Is there a provision of abatement option present  under GST regime like the earlier provisions?

Under the prior VAT and service tax regimes there were the abatements for the work contracts.  However, under the new GST regime there is no provision of tax abatement.

How is the date and place of supply determined under the GST regime for work contracts?

Place of Supply

In order to determine whether the supply of service is within state or outside the state it is of utmost importance to determine the place of supply. Place of supply will be considered the place where the immovable property is presently located or will be located.  But there is another provision here that is in case the immovable property is located outside the country but the supplier as well as recipient is located in India the place of supply shall be India only.

Time of Supply

  1. The earlier of the two dates i.e. the date of supply of the service if the invoice is not issued or the date of issuing of the invoice is invoice is issued within 30 of supply of services shall be taken.
  2. Date of the receipt of the payment shall be taken.

Conclusion

These are some of the aspects of work contract under the GST that should be properly assessed.