DEFINITION OF WORKS CONTRACT IN GST DRAFT: AN ANALYSIS

GST update 18.01.2016

GST DAILY DOSE OF UPDATION:-

DEFINITION OF WORKS CONTRACT IN GST DRAFT: AN ANALYSIS

At present the service tax law prescribes the definition of works contract under section 65B(54) of the Finance Act, 1994 which reads as follows:-

“Works Contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.”

Thus, at present, definition of works contract covers a couple of activities like construction, erection, commissioning, etc. carried out in respect of both movable and immovable properties.

The proposed definition of works contract in GST draft law is given as follows:-

“Works contract means an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any immovable property;”

A comparision of existing definition alongwith proposed definition is given as follows:-

·        Even the agreement to undertake the specified activities will come in purview of works contract. Existing definition under service tax law covers “contract” only. There is a lot of difference between the words “agreement” and “contract”.

·        Existing definition covers the processes of completion, maintenance and alteration but these words are not there in proposed definition. Thus, the maintenance of any immovable property will not come in purview of works contract as per proposed definition. Also, alteration and completion work will not be leviable to GST unless the same is otherwise covered in some other activity specified in the definition.

·        The proposed definition covers the new activities namely fabrication, improvement and modification which will specifically be chargeable to GST from the date of passing of bill.

·        The grand difference between the two definitions is the “movable property”. The existing service tax law covers the movable properties and service tax is leviable on the carrying out of specified activities on the same. However, the proposed definition of works contract does not cover movable property.

To conclude, though it is said that the GST will enhance the scope of indirect taxation, yet by analyzing the definition of works contract under existing scenario with proposed one, it seems that the scope of taxes to be levied will reduce drastically, particularly by excluding the movable properties from the scope of works contract.

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GST update 18.01.2016

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