Big relief to Govt. Contractors from GST rate cut on works contracts and Construction related service provided to Central Government, State Government, Union Territory, a local authority or a governmental authority.

The Goods and Services Tax (GST) Council’s decision to roll back the increased tax rate for government works contracts comes as a relief for the Govt. Contractors on increased tax liability on various ongoing projects.

The GST Council’s decision to cut back GST rate on construction contract works to 12% has come as a big relief to Govt. Contractors.

The tax on construction activity, including composite work contracts, was 18% under GST. However, Finance Minister Arun Jaitley announced after the GST Council meeting on 05th August, 2017 and 09th September, 2017 that government works contract, for both Centre and states, will attract 12% GST with input tax credit. Notification No. 20/2017-Central Tax (Rate) New Delhi, the 22nd August, 2017and Notification No. 24/2017-Central Tax (Rate) New Delhi, the 21st September, 2017 has been issued to give effect for the same decision. 

> Notification No. 20/2017-Central Tax (Rate) GST @ 12%, Generally applicable on those work contracts which were 100% exempt under Service Tax Act. Following Composite supply of works contract supplied to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, –

a. a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

b. canal, dam or other irrigation works;

c. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

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(a) a road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;

(c) a civil structure or any other original works pertaining to the “In-situ rehabilitation of existing slum dwellers using land as a resource through private participation” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers;

(d) 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;

(e) a pollution control or effluent treatment plant, except located as a part of a factory; or

(f) a structure meant for funeral, burial or cremation of deceased

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(a) railways, excluding monorail and metro;

(b) a single residential unit otherwise than as a part of a residential complex;

(c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under-

competent authority under- (1) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (2) any housing scheme of a State Government;

(e) post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or

(f) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.

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→Notification No. 24/2017-Central Tax (Rate) GST @ 12% generally applicable on those work contracts which were taxable under Service Tax after 01.04.2015 and these contracts were exempt under service tax before 01.04.2015. Following Services provided to the Central Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.

Conclusion  

• As per my view there will be no loss to the contractors on all the ongoing Govt. Projects, even if GST is not paid by the Govt. departments in addition to the quoted financial bid price because of input tax credit available on purchase and other expenditure.
• Due to above notification there will be benefit of approx @6 % to the Contractors who has awarded project before considering above notification effect and in which they have quoted rate inclusive of GST in their financial bid. Because now the GST rate is 12% but during analysis they may have considered GST@18% while quoting financial bid.