GST UPDATE ON WORKS CONTRACT SERVICES FOR ECONOMICALLY WEAKER SECTIONS

GST UPDATE ON WORKS CONTRACT SERVICES FOR ECONOMICALLY WEAKER SECTIONS

DEFINITION OF WORKS CONTRACT:

As per section 2(119) of CGST Act “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. Thus, it involves supply of goods as well as supply of services. However, as per schedule II of CGST Act, works contract as defined above shall be treated as supply of services.

The government on 25.01.2018 has extended the benefit of concessional rate of GST at 12% vide notification no. 01/2018 on the following composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, 2017:

(i) a civil structure or any other original works pertaining to the “ln-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban);

(ii) a civil structure or any other original works pertaining to the “Economically Weaker Section (EWS) houses” constructed under the Affordable Housing in partnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)

(iii) a civil structure or any other original works pertaining to the “houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/ Lower Income Group (LIG)/ Middle Income Group-1 (MlG-1)/ Middle Income Group-2 (MlG-2)” under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban);

(iv) low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March,2017.

In such notification government has also substituted paragraph 2 as provided in Notification No. 11/2017-CT (Rate) dated 28.06.2017 prescribing the deemed value of land as 1/3^rd of the total consideration which is to be deducted from the total consideration to arrive at the value of Works Contract service for charging GST at 12% available to all the supply of works contract services notified vide notification no. 01/2018 dated 25.01.2018.

Thus, following shall be the values:

Work contract services = Total value of Contract – Land value

Land Value = 1/3^rd of Total Contract value

Accordingly, on complete reading of the entry, in composite supply of works contract services land value is included in the total works contract value, however, value of works contract by no means include land value, it is a service provided in respect of an immovable property which only includes value of goods and services. Thus, making 1/3^rd deduction applicable to composite supply of works contract services incites ambiguity between construction services and works contract services. The views for the discussion in this respect are welcome.

The content of this GST update is for educational purpose only and not intended for solicitation.

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GST UPDATE ON WORKS CONTRACT SERVICES FOR ECONOMICALLY WEAKER SECTIONS

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