GST on Works Contract- A Comprehensive Guide: As per 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.”
From this definition of the act, it is clear that a “works contract” is a contract of any work undertaken for an Immovable Property, unlike the old VAT and Service Tax regulations, where contract for works for movable properties were also considered as works contract. Any composite supply undertaken on goods, say for example, fabrication or painting of a workshop will not be treated as a works contract under GST. Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST.
As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts are treated as supply of services, even if the contract involves both supply of goods and service.
ITC under Works Contract
As per section 17(5) (c) of the CGST Act, 2017, input tax credit (ITC) shall not be available in respect of the 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. Thus, ITC for works contract can be availed only by one who is in the same line of business and uses such input services for further supply of works contract service.
For example, a building developer may engage services of a subcontractor for certain portion of the whole work. The subcontractor will charge GST in the tax invoice raised on the main contractor. The main contractor will be entitled to take ITC on the tax invoice raised by his sub-contractor as his output is works contract service. However, if the main contractor provides works contract service (other than for plant and machinery) to a company, say in the IT business, the ITC of GST paid on the invoice raised by the works contractor will not be available to the IT Company. Plant and Machinery in certain cases when affixed permanently to the earth would constitute immovable property.
When a works contract is for the construction of plant and machinery, the ITC of the tax paid to the works contractor would be available to the recipient, whatever may be the business of the service recipient. This is because works contract in respect of plant and machinery comes within the exclusion clause of the negative list and ITC would be available when used in the course or furtherance of business.
Summary on ITC availability on works contract:
| Nature of service | Classification | Supplier | Recipient | Whether ITC available |
| Construction of corporate office | Supply of service | Sub-contractor | Contractor | Yes |
| Construction of corporate office | Supply of service | Contractor | Company | No |
| Construction of foundation for plant & machinery | Supply of service | Contractor | Company | Yes |
Construction on Own Account
Provisions of GST applicable to works contracts does not apply to any construction of immovable property on own account (i.e., not under contract) for sale purpose. Any construction of complex, building, civil structure or part thereof, including a complex or building intended for sale to a buyer before issuance of completion certificate, is considered as a supply of service. But the same is treated as a supply of goods, if the entire sales consideration is received after issuance of completion certificate or after its first occupation, whichever is earlier.
Maintenance of Records
As per Rule 56 (14) of the CGST Rules, 2017, every registered person executing works contract have to keep separate books of accounts for works contract, by showing the following particulars.
(a) the names and addresses of the persons on whose behalf the works contract is executed;
(b) description, value and quantity of goods or services received for the execution of works contract;
(c) description, value and quantity of goods or services utilized in the execution of works contract;
(d) the details of payment received in respect of each works contract; and
(e) the names and addresses of suppliers from whom he received the goods or services.
Value of supply
As per Section 15 of CGST Act, the value of supply of goods or services shall be the transaction value, which is the price actually paid or payable for such supply where the supplier and the recipient are not related and the price is the sole consideration for the supply.
However, value of supply in case of a works contract service is dependent upon whether the contract includes transfer of property in land as a part of the works contract. As per Notification 11/2017, In case of supply of service, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service (including goods portion in such supply) shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be. The value of land or undivided share of land, as the case may be, in the above case shall be deemed to be 1/3rd of the total amount charged for such supply.
Place of Supply
As per Section 12(3) of the IGST Act, 2017, Place of supply of works contract service is determined as per the provisions given below.
(a) Where the immovable property is located in India, and both the supplier & recipient are located in India, the place of supply would be the place where the immovable property is located.
(b) Where the immovable property is located outside India, and both the supplier & recipient both are located in India, the place of supply would be the location of recipient.
(c) Where either the supplier or the recipient is located outside India, the place of supply shall be the place where the immovable property is located.
For official notification about GST rates & exemptions, please visit – https://cbic-gst.gov.in/pdf/cir-177-08-2022-cgst.pdf
You may also like- https://anptaxcorp.com/cash-transaction-limits-as-per-income-tax-act/
Section 269SS of Income Tax Act-Penalty provision & Scope of Appeal