GST implications on : Works Contract & Construction Sector: Construction is an industry wherein failure to effectively structure the tax clauses of the contracts may easily lead to the contractor paying more taxes than the margin that they make. The good news for the on-going contracts is that under the light of the GST switch-over, the parties to the contract can revisit their tax clauses and make best use of the legal machinery provided under the revised model GST law. Now check more details for Works Contract, Composite Supply, Mixed Supply, Job Work under GST from below....The very definition of “GOODS” continues to remain the same even after GST implementation. For the purpose of taxation on supply of “goods” the explanation given in Article 366(29A) persists and goods exclude sale of immovable properties.
- Works contracts = Supply of GOODS + SERVICES
- Works contract included provision of- Immovable Property related construction or other services AND Movable property and services.
- Gannon Dunkerley Judgment: In simple words, the judgement elucidates that a works contract involves transfer of goods, but there cannot be sales as the essential element in executing a works contract is provision of services. As there are no sales, consequently no VAT (Sales Tax in erstwhile parlance) should be levied.
- However, the law defines works contract as a deemed sale activity hence only the sales portion is liable to VAT
- Works Contracts = Supply of SERVICES only.
- Works Contract includes only: Immovable Property related construction or other services
Works Contract, Composite Supply, Mixed Supply, Job Work
|Transaction Type||Meaning under GST|
|A. Works Contract||A service contract wherein transfer of goods takes place|
|B. Composite Supply||Two or more goods /services that CANNOT be separated|
|C. Mixed Supply||Two or more goods/services that CAN be separated|
|D. Job Work||Services done on goods owned by another.|
|Service Category||GST Rates|
|Construction of Flats etc. WITH LAND||12%*|
|Construction of Flats etc. WITHOUT LAND||18%|
|Any other construction related service not covered above||18%|
A] Works ContractSection 2(119) defines works contract under GST
|What is WORKS CONTRACT in GST?||CONTRACT|
|Wherein transfer of property in goods is involved, in the execution of such contract and includes contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property||Pure Supply of GOODS: A contract that is merely supply of goods. Like supply of material only for construction is pure supply of goods, which attracts provision of supply of goods.|
|It is not necessary that the goods be transferred in the same form. They may be transferred in some other form and still the contract will be works contract for GST.||Pure supply of labour: A contract that is merely for supply of labour is also not works contract under GST.|
B] Composite Supply
Conditions for composite supplyAny supply of goods or services will be treated as composite supply if it fulfils BOTH the following criteria:
- Supply of 2 or more goods or services together, AND
- It is a natural bundle, i.e., goods or services are usually provided together in normal course of business. They cannot be separated.
C] Mixed supplyMixed supply under GST means two or more individual supplies of goods or services, or any combination, made together with each other by a taxable person for a single price. Each of these items can be supplied separately and is not dependent on any other.
D] Job Works
- Meaning: A process undertaken by a person on goods owned by another registered taxable person.
- No GST is levied on Goods supplied by Registered taxable owner (principal) to job worker (Section 43A). Goods may further be sent from one job worker to another. One may note that 43A does not apply to exempted or non –taxable goods or non-registered person.
- ITC of inputs sent to job worker: ITC is available if the Goods (non capital) are received back in 1 year after completion of job work (3 years in case of Capital Goods sent in Job Work) from the date of being sent out. If the inputs are sent out directly, the days are counted from date of receipt of inputs by job worker.