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Contents Works Contract under VAT & GST Govt., Local Authority, Governmental Authority & Govt. Entity. Services provided by Govt. & Local Authority Reverse charges in relation to Govt. Supply. Services provided to Govt. & Local Authority
Concept of works contract in VAT 3
Concept of works contract in VAT The Forty-sixth Amendment inserted a clause, (29-A), into Article 366 which says: (29-A) `tax on the sale or purchase of goods' includes- (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. In WBVAT Act, 2003 this contract was applicable for building, construction, repair, processing etc of any immovable property or any movable property [Sec 2(57) of WBVAT Act, 2003]. In WBVAT Act, 2003 there was no concept of predominant supply. Tax was payable on the taxable value of transfer of goods only. 4
Concept of works contract in GST 5
Works contract in GST 6 Section 2(119): works contract means a contract for - building construction fabrication completion erection of any immovable property installation fitting out improvement repair modification alteration renovation maintenance commissioning wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;
Immovable Property Immovable Property has not been defined in the Finance Act, 1994. However, in terms of section 4 of the General Clauses Act, 1897, the definition of immovable property is as under: Immovable Property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. It may be noted that the definition is inclusive and thus properties such as buildings and fixed structures on land would be covered by the definition of immovable property. The property must be attached to some part of earth even if underwater. 7
Illustration 1: Immovable property 8 Installation of a heavy generation on the ground of any Govt. Office by a contractor. Ans: If a machine (say Gen set) is fastened on a frame and is capable of being shifted from that place, it is capable of being sold. It is goods and not immovable property. Mallur Siddeswara Spinning Mill case (166) ELT 154 (SC).
Supply Composite & Mixed Composite Supply Two or more taxable supplies of goods/ services or both or any combination thereof when naturally bundled and supplied in conjunction with each other in ordinary course of business One of the supplies is the principal supply Mixed Supply Two or more individual supplies of goods/ services or both or any combination thereof made in conjunction with each other for a single price That of the principal supply Rate of tax applicable Rate of the supply which attracts the highest rate of tax 9
Works contract: Whether it is a supply of goods or service or both? As per Schedule II, entry 6 (a), the composite supply of works contract as defined in clause (119) of section 2 will be treated as supply of services. So, primarily it is a composite supply but as per Sch. II it is to be treated as supply of service. Thus, in case of composite supply of works contract the rule of principal supply does not apply. 10
11 Illustration 2: Composite works contract to Govt. PWD awarded a public road repair & maintenance job to a contractor X. Is it a works contract? What should be the rate of tax? If material is supplied by PWD free of cost what will be the rate of tax? Answer: 1. It is a composite works contract supplied by contractor X, hence the SGST rate is 6%. [Item no. iii of Sl. No. 3 of Notification no.1135-ft dt.28.6.17, 12/2017 Central Tax (Rate) read with notification no.1497-ft dt.22.08.2017, 20/2017-Central Tax (Rate)]. 2. Pure service is provided to the Govt. for activity in relation to functions entrusted to Panchayat under article 243G or to a Municipality under article 243W of the Constitution, it is exempted. [Sl. No. 3 of Notification no.1136-ft dt.28.6.17, 12/2017 Central Tax (Rate)].
Illustration 3: Supply of composite works contract A cold storage construction project is carried by a contractor X. 1. What will be the rate of tax on this composite works contract? 2. Whether the works contractor is entitled to claim ITC? 3. Whether the owner of cold storage is entitled to claim ITC on the inward supply of input, input service or capital goods required to build the cold storage? Ans: 1. * SGST=@6% if it is for storage of agricultural produce. *[Entry no. (v) of Sl. No. 3 of Notification no.1135-ft dt.28.6.17, 12/2017 Central Tax (Rate) read with notification no.1497- FT dt.22.08.2017, 20/2017-Central Tax (Rate)]. 12
13 Local Authority: Applicability of GST 1. Whether services provided by Local Authority are taxable? 2. Whether Local Authorities are required to be registered? 1. Community halls / guest houses are given on rent. 2. Ponds given on lease to Fisheries 3. Stadium given on rent for various functions.
Government Under WBSGST Act, 2017 Government means the State Government of West Bengal [sec 2(53)] and in CGST Act, 2017 Government means the Central Government [sec 2(53)]. As per clause (23) of section 3 of the General Clauses Act, 1897 Government includes both Central Government and any State Government. 14
Local Authority Local authority: Sec 2(69) :- Panchayat, Municipality, Municipal Committee, Zilla Parishad, District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund; Cantonment Board as defined in section 3 of the Cantonments Act, 2006; a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution; a Development Board constituted under article 371 of the Constitution; or a Regional Council constituted under article 371A of the Constitution; 15
Governmental Authority & Government Entity Not.no.1796-F.T. Dt.13.10.17 [32/2017-State Tax (Rate) Governmental Authority means an authority or a board or any other body, - (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Govt, with 90 per cent. or more participation by way of equity or control, to carry out any function entrusted to a Municipality under art.243w of the Constitution or to a Panchayat under art.243g of the Constitution; Government Entity means an authority or a board or any other body including a society, trust, corporation (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Govt, with 90 per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Govt, State Govt, Union Territory or a local authority. 16
Services provided BY the Govt. & Local Authority 17
18 Illustration 3: Registration & Tax liability of Govt. Whether discharging of sovereign functions by the Govt./Local Authority is a supply of service? 2(84): in the definition of Person, Govt. is included. Whether there is any output tax liability in respect of such activities? Whether Govt. is also required to obtain PAN based GSTIN? Ans: Govt. is also required to obtain PAN based GSTIN in case of any taxable supply subject to the provisions of s.22 & 24
Major activities of Govt. Example 1: Zilla Parishad undertakes construction of Roads, culverts, bridges, ferries, etc. Example 2: Block provides adult and nonformal education. Example 3: Panchayat undertakes development of Rural housing project. Whether all these are taxable supplies? Notification No.1138- FT of WBGST dt. 28.06.17: Services by Govt./Local Authority by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution are neither to be treated as supply of goods or services. 19
Functions entrusted to a Panchayat under Article 243G of the Constitution 1. Agriculture, including agricultural extension. 2. Land improvement, implementation of land reforms, land consolidation and soil conservation. 3. Minor irrigation, water management and watershed development. 4. Animal husbandry, dairying and poultry. 5. Fisheries. 6. Social forestry and farm forestry. 7. Minor forest produce. 20
Functions entrusted to a Panchayat under Article 243G of the Constitution 8. Small scale industries, including food processing industries. 9. Khadi, village and cottage industries. 10. Rural housing. 11. Drinking water. 12. Fuel and fodder. 13. Roads, culverts, bridges, ferries, waterways and other means of communication. 14. Rural electrification, including distribution of electricity. 15. Non-conventional energy sources. 21
Functions entrusted to a Panchayat under Article 243G 16. Poverty alleviation programme. 17. Education, including primary and secondary schools. 18. Technical training and vocational education. 19. Adult and non-formal education. 20. Libraries. 21. Cultural activities. 22. Markets and fairs. 23. Health and sanitation, including hospitals, primary health centres and dispensaries. 22
Functions entrusted to a Panchayat under Article 243G 24. Family welfare. 25. Women and child development. 26.Social welfare, including welfare of the handicapped and mentally retarded. 26.Social welfare, including welfare of the handicapped and mentally retarded. 27. Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes. 28. Public distribution system. 29. Maintenance of community assets. 23
Illustration 4: Tax liability for services by Govt. 24 Whether all services of PWD, Municipality, Block Health Centre make any supply of taxable service? Public health, sanitation conservancy and solid waste management services are undertaken by Municipality. Primary health centre supplies medicines to indoor patients. Contract of construction of roads, bridges, etc. Municipalities /Panchayat collects trade license fee.
Sl. No. 4 of Notification No.1136 FT dated 28.06.2017 by Services Central Government, State Government, Union territory, local authority or governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution are exempted. 25
Sl. No. 5 of Notification No.1136 FT dated 28.06.2017 read with Not. No.1796 FT dt.12.10.2017 (32/2017 CT Rate) by Services Central Government, State Government, Union territory, local authority or governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution are exempted. 26
Functions entrusted to a Municipality under Article 243W of the Constitution 1. Urban planning including town planning. 2. Regulation of land-use and construction of buildings. 3. Planning for economic and social development. 4. Roads and bridges. 5. Water supply for domestic, industrial and commercial purposes. 6. Public health, sanitation conservancy and solid waste management. 7. Fire services. 27
Functions entrusted to a Municipality under Article 243W of the Constitution 8. Urban forestry, protection of the environment and promotion of ecological aspects. 9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded. 10. Slum improvement and up-gradation. 11. Urban poverty alleviation. 12. Provision of urban amenities and facilities such as parks, gardens, playgrounds. 28
Functions entrusted under Article 243W of the Constitution 13. Promotion of cultural, educational and aesthetic aspects. 14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums. 15. Cattle pounds; prevention of cruelty to animals. 16. Vital statistics including registration of births and deaths. 17. Public amenities including street lighting, parking lots, bus stops and public conveniences. 18. Regulation of slaughter houses and tanneries 29
Illustration 5: Govt. Tenders 30 Application Fees received by PWD from a contractor for participating in a Govt. tender for construction of a public road. Whether it is a taxable service? Ans: Such supply of service by the Govt. is a activity in relation to function entrusted under art. 243G or art. 243W of the constitution. Therefore, it is exempted. [Sl. No. 4, 5 of Notification no.1136-ft dt.28.6.17, 12/2017 Central Tax (Rate)].
Illustration 6: Govt. Tenders 31 1. Ernest money received by PWD from a contractor for allotting road construction works contract. Whether it is a taxable service? Ans 1: There is no supply of goods or service or both. Therefore it is not taxable. 2. Mobilization advance is received by the contractor. Whether any tax involvement is there in this advance? 3. Contractor raised first RA bill. What will the impact of tax on that RA bill? Ans against 2 & 3: As per column (iv) of sl. No.3 in Not. No.1135 FT. dt.28.6.2017 read with Not. No.1497 FT dt.22.08.2017, the supply of composite works contract to the Govt. is taxable @6% for SGST & @6% for CGST.
Sl. No. 6 of Notification No.1136 FT dated 28.06.2017 Services by the Central Government, State Government, Union territory or local authority are exempted excluding (a)services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other thanthe CentralGovernment, StateGovernment, Union territory; (b) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (c) transport of goods or passengers; or (d) any service, other than services covered under entries (a) to (c)above, provided to business entities 32
Illustration 7: Supply by the Govt./Local Authority 33 Now if the Fees are collected by PWD from a contractor for participating in a Govt. tender for construction of new building of Commercial Tax Department, whether it is taxable or not? Many are of the view that it is taxable as the service is provided by a Government to a Business Entity whose turnover is above Rs.20 Lakh (assumed) in the preceding financial year and the consideration involved is > Rs.5000/-. GST will be payable under reverse charge. [Sl. No. 6, 7 & 9 of Notification no.1136-ft dt.28.6.17, 12/2017 CT(Rate). Sl. No.5 of Notification no.1137 dt. 28.6.17, 13/2017-CT(Rate)]
Sl. No. 7 of Notification No.1136 FT dated 28.06.2017 Services provided by the Central Government, State Government, Union territory or local authority to a business entity with an aggregate turnover of up to twenty lakh rupees in the preceding financial year are exempted, other than:- (a) services,- (i) by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than the Central Government, State Government, Union territory; (ii) in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) of transport of goods or passengers; and (b) services by way of renting of immovable property. 34
Sl. No. 9 of Notification No.1136 FT dated 28.06.2017 Services provided by the Central Government, State Government, Union territory or local authority where the consideration for such services does not exceed five thousand rupees is exempted: except - (a) services,- (i) by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than the Central Government, State Government, Union territory; (ii) in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) of transport of goods or passengers; Provided further that in case of continuous supply of service. 35
Reverse Charge: Sl. No. 5 of Notification No.1137 FT dated 28.06.2017 Reverse Charge applicable: Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1)renting of immovable property, and (2) services specified below- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. 36
Sl. No. 8 of Notification No.1136 FT dated 28.06.2017 Services provided by the Central Government, State Government, Union territory or local authority to another Central Government, State Government, Union territory or local authority are exempted, except services- (i) by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other thanthe CentralGovernment, StateGovernment, Union territory; (ii) in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) of transport of goods or passengers; and 37
Illustration 8: Government Quarters Govt./Local Authority provides residential quarters to it s employees against charges, licence fees or deduction of HRA. Whether this supply of service by Govt. is taxable under GST? As per Sl. No. 12 of Notification no.1136-ft dt.28.6.17, 12/2017 Central Tax (Rate) such renting services of residential dwelling for use as residence is exempted. 38
Illustration 9: Inland Water Transport Services Govt./Local Authority provides ferry services to passengers. Whether this supply of service by Govt. is taxable under GST? If this service is provided by business entity, whether it is exempted? It is an exempted service. [Sl. No.17 of Notification no.1136-ft dt.28.6.17, 12/2017 Central Tax (Rate)] 39
Illustration 10: Inland Water Transport Services Sundarban river cruise services for tourism purpose. Whether this supply of service is taxable under GST? If the supplier of service purchase River Cruise for this purpose whether ITC is available? Ans: It is a taxable service. If it is a tour operators service then SGST rate is @2.5% without any ITC (Sl. No.23 of Not. No.1135 FT dt.28.6.2017) 40
Illustration 11: Inland Water Transport of Goods Inland waterways goods transport. Whether this supply of service is taxable under GST? Ans: As per Sl. No.18 of Not. No.1136 FT dt.28.6.2017, Services of transportation of goods in inland waterways is exempted. But, services of goods transport in other waterways are taxable. Goods carried by vessels in other waterways is taxable @ 2.5% + 2.5% [Sl.no.9 of Not. N.1135 FT] 41
42 Illustration 12: Non-performance of a contract PWD awarded a road project to a contractor X. PWD forfeited Rs.10 Lakh from retention money of X for delay in completion of works. Whether this forfeiture is consideration against any supply of service? If yes, who is the supplier here and who is the recipient? In an opposite scenario: Damage is caused by the Govt. due to which charges are paid by the Govt. What will happen then?
Sl. No. 62 of Notification No.1136 FT dated 28.06.2017 Services provided by the State Government, Central Government, or Union territory or local authority by way of tolerating non performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Central Government, State Government, Union territory or local authority under such contract are exempted. 43
44 Illustration 13: Permanent disposal of asset by Govt. Directorate of Commercial Taxes, Govt. of WB. made auction sale of his old and condemned vehicle.???? Q.1: Whether this will be treated as taxable supply under GST? Ans: Yes, it s a taxable supply. But, GST will be payable under reverse charge by the registered recipient of such used vehicles, seized and confiscated goods, old and used goods, waste and scrap as per notification no.1800-ft dt.13.10.2017, 36/2017 CT (Rate). Q.2: If this vehicle is disposed off without any consideration, whether that will be treated as supply? Ans: If ITC has been availed on such vehicle then only it will be treated as taxable supply as per Sch. I (Sec.7).
Illustration 14: Services to Govt. under any training program. Training program organized by HRD Department of Commercial Taxes, Govt. of West Bengal. Whether this will be treated as taxable supply of service? Ans: As per Sl. No. 72 of Notification no.1136-ft dt.28.6.17, 12/2017 Central Tax (Rate), Services provided to any Govt. or UT where total expenditure is borne by the Govt./UT is exempted. But, when such a service is provided to person other than Govt. / Local Authority then the same is taxable. 45
Supplies to the Govt. & Local Authority 46
Illustration 15: Supplies to Govt. Example 1: Contractor X is supplying pure labour to PWD in a public road project of PWD. Example 2: Supplier Y is supplying different materials to PWD for a public road project of PWD. Example 3: Contractor Z is performing works contract job in a rural housing project of Panchayat. Whether all these supplies to Govt./Local Authority are taxable supply under GST? 47
Sl. No. 3 of Notification No.1136 FT dated 28.06.2017 Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central/State/UT Government or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution are exempted. 48
Illustration 15: Supplies to Govt. against commission State Govt. is paying margin/ commission to fair market shop for the supply of Whether this supply of service to Govt. is taxable under GST? kerosene oil through PDS. 49
Service provided by Fair Price Shops Exempted: Service provided by Fair Price Shops to Central Government, State Government or Union territory by way of sale of food grains, kerosene, sugar, edible oil, etc. under Public Distribution System against consideration in the form of commission or margin. [Sl. No. 11A of Notification No.1136 FT dated 28.06.2017 read with Amendment: [1498 FT, 21/2017 dt. 22.8.17 & 2025 FT, 47/2017 dt.14.11.2017 of State Tax (Rate)] 50
Illustration 16: Miscellaneous supply Nature of Supply Taxable (YES/No) If cooked food is supplied to the Hospital, whether it will be a supply? Food and drinks are supplied to indoor patients by the hospitals. Medicine is supplied by hospital to his indoor patients under treatment. Repairing of machineries by different person with materials. Registration fees collection by hospital/health centre for registering a outdoor/indoor patients. Yes, it s taxable. No, it s exempted No, it s exempted Yes, it s taxable. No, it s exempted 51
Illustration 17: Miscellaneous supply Nature of Supply Taxable (YES/No) Catering services sponsored by Govt. provided to a School against charges. Bus /car services provided to a College/University against charges. Bus /car services provided to a School against charges. KMC / Municipality / Panchayat Hall on rent to individual (other than business entity). No, it s exempted Yes, it s taxable No, it s exempted No, it s exempted House drainage connection Charges & drainage chocking removal charges collected by KMC/ Municipality. No, it s exempted 52
Disclaimer: This presentation is clarificatory in nature. It is not to be construed as a legal explanation or interpretation of the Acts and the Rules. 53