Exemption for construction industry

In today’s GST update, we will discuss the changes made in the exemption list proposed in GST keeping the focus on construction industry. These exemptions are listed at serial number 66 and 67 in the list of Service tax exemptions to be continued in GST as decided by GST council. The above serial numbers are re-produced for sake of convenience of our readers:-
1. 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);
2. 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;

It must be noted that current service tax regime, the exemptions are given for the above-mentioned services in respect of construction, erection, commissioning, or installation of original works. The new term added in these entries is the pure labour contract. That means such services will be exempted only if they are provided as pure labour contract. No material should have been added in the value of such contracts.

This has created a lot of problems. Supposing a work contract service to a single residential unit was exempt from the levy of service tax by serial number of 14(b) of Mega exemption notification number 25/2012 and will be taxable now. If we intend to avail the exemption then contractor have to revise our agreement and make it a pure labour contractor. This type of condition has raised question that how this is possible in the real world where no such separate contracts for material and labour exists. The prevailing practice is that the contractor provides the material and labour together for the supply of such services. It is practically impossible to imagine a situation where a contractor has to only provide labour and a separate person will have to provide the requisite material to avail exemption on this ground.

This reasoning and logic behind this amendment is also beyond understanding and this will need a due consideration on the part of government to realize its far going effects.
The author has tried to logic behind such shift by the Government and can only understand that since the credit of inputs is also allowed under works contract service. And most of the material used by works contract service provider like Cement, paints, builder’s ware etc. are covered under 28% category, hence the service provider should take the credit and pay tax to make a chain.

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Exemption for construction industry

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