GST update on Exemption to Only Pure Labour Contracts

At present the Construction services of various descriptions are covered under Mega Exemption Notification 25/2012-ST dated 20.6.2012 which exempts the complete construction service including the supply of goods during the course of provision of services.
Under the GST regime, Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly shall be chargeable at the rate of 12% with Full ITC but no refund of overflow of ITC shall be allowed. Along with it, a list of exemptions has also been issued which are there in present service tax law, however, it has been prescribed that “Service Tax Exemptions to be continued in GST as decided by GST Council.” In other words, these exemptions will be continued if GST council decides and issues notification in this regard. The exemption given in respect of the Construction service reads as follows:-

Entry 66 “Services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of 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 (PMAY);”

Entry 67 “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”

Thus, it is clear that the Council intends to provide the exemption only to the labour portion in construction contracts. Thus, it is to be noted that the exemption presently available to construction contracts with material involved in it would not be continued in the GST regime. It is submitted that in the normal parlance, the construction contracts involve material in it and if the exemption is provided only to pure labour contracts, the contracts would be considered as that of ‘works contract services’ attracting GST rate of 18%. This will be a huge setback for the construction industry as usually construction services involve material and the scope of exemption has been restricted in the GST regime.

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GST update on Exemption to Only Pure Labour Contracts

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