Kerala GST ADVISORY - 3 - Works Contract – information
[Ref: Circular No. C1-24614/16/CT
Eoffice 11737/17 Dated. 18th July, 2017]
ADVISORY - 3
Sub:- GST- Works
Contract - information
The department has received request from
various quarters with respect to the works contract and related issues. In
order to have uniformity in understanding this advisory is issued for
generating awareness regarding the sector.
1. In VAT scenario, works contract was
taxable at 14.5% on transfer value of materials incorporated in the work except
on declared goods which was taxable at 5% after deducting the labour charges for those contractors who were paying tax on
the basis of their books of accounts.
2. With respect to dealers who have opted for
compounding under Section 8(a) of KVAT Act, the rate structure was as stated
below:
|
Dealers
having CST registration (other than certain works like interior decoration,
electrical, refrigeration etc.) |
7% of
the whole contract amount |
|
Any
works contractor not being a dealers registered under CST Act, and who was
not an importer |
4% of
the whole contract amount |
|
A works
contractor who undertakes works of Govt, of Kerala,
Water Authority or Local Authorities (not having CST registration) |
4% of
the whole contract amount |
|
Works
contractor (having CST registration and / or who imports any goods from other
State) who undertakes works of Govt, of Kerala,
Water Authority or Local Authorities. |
5% of
the whole contract amount |
3. In GST scenario, works contract will be
treated as services. No compounding facility is available for works contract as
in VAT regime. All supply related to works contract are taxable @ 18%.
Eg. Interior
work, supply and installation of air conditioner, construction of bridge, etc.
4. All supply related to construction of a
complex, building, civil structure or a part thereof, intended for sale to a
buyer, wholly or partly (the value of land is deemed to be one-third of the
total amount charged for such supplies) is taxable @18% with no refund of
accumulated ITC.
5. In GST regime there will be no claim of
exemption towards sub-contract or labour charges. The
Principal contractor will be liable to pay tax on entire supply made after
01-07-2017 and the principal contractor can avail input tax credit on the tax
paid.
6. The transitional provision under GST is
mentioned in Section 139 to 142. No ITC is eligible under SGST Act on the
closing stock of materials purchased from outside the State and from dealers
who have compounded under KVAT ACT but Excise duty component are eligible for
credit under CGST ACT.
7. The compounded as well as non-compounded
works contractors under VAT regime are eligible tor
availing ITC on stock of goods held on 30-06-2017. Works contractors who had
opted compounding scheme during pre-GST period will be eligible for ITC on the
stock of materials purchased from 01-07-2016 onwards and declared in the
returns filed and for non compounded dealers from
01-04-2017 as per the conditions prescribed in the law.
I. NON-COMPOUNDED WORKS CONTRACTORS:
(a) Private Contractors
i. The
non-compounded works contractors have already claimed refund of excess ITC as
on 31-03-2017. The input tax credit available in the first quarter return filed
for 2017-18 can be claimed as ITC in SGST as mentioned in Trade Advisory - 1.
ii. For the carry forward of this excess
input tax credit under the GST Law, the dealers have to file Form 'GST TRAN-1'
on or before 30th September, 2017 (within 90 days) from the day of
roll out of GST. However it is advisable to file details well within time.
iii. GST TRAN-1 is a declaration form to be
filed in the GSTN portal.
iv. For the proper carry forward of input tax
credit the dealer have to comply the following:
1. File all the returns under the existing
law in time.
2. Upload closing stock and annual return for
fhe year relating to 2016-17.
3. Ensure that all purchase and sales are
correctly uploaded along with returns for the first quarter of 2017-18.
4. Unavailed
portion of purchase fax paid u/s.6(2) by regular TIN dealers
can be carried forward.
5. Statutory forms for claiming
exemption/concession against F Forms/C Forms shall be filed within the
prescribed time, failing which the amount of carry forward of excess credit
will be reduced to that extent.
6. Unavailed portion
of input tax credit on capital goods for which instalments were granted by the
assessing authorities will also be eligible for carry forward.
7. With regard to un-utilized advance tax
paid, it can be claimed by way of refund.
8. In order to prove the quantum of work
completed as on 30-06-2017 and to claim payment of tax under VAT rate, they
have to file audited statement of accounts by the Chartered Accountants for the
first quarter of 2017-18 showing the details of closing work in progress and also
item wise stock details.
9. Supply to SEZ will be treated as an
interstate supply and IGST has to be paid first and refund has to be claimed.
10. For builders the following project - wise
details have to be furnished as on 30th June, 2017.
a. the
details of total number of flats in a project;
b. the
number of flats on which advance has been received;
c. the
number of flats on which advance has not been received;
d. the
number of flats remaining unsold, completed or not;
e. the
number of flats capitalized.
Criteria
for eligibility of ITC on stock:
|
Category |
Eligibility
/ Condition |
|
The
number of flats for which advance has been received |
Entire
ITC on the local purchases made through invoice from 01-04-2017 to
30-06-2017. |
|
The
number of flats completed but no prospective buyer |
No ITC |
|
The
number of flats capitalized. |
No ITC |
|
Eligibility
of ITC in the case of semi finished Apartments. (In
an Apartment consisting of 100 flats, only 60 flats are completed) |
Eligible
to avail 60% of ITC. |
Illustration:-
AB Construction Co. is constructing an
apartment with 100 tlats for an estimated cost of
Rs.100 crore. The project commenced 2 years back. The contractor had effected
materials purchased against tax invoice for Rs.25 crore, from compounded
dealers for Rs.5 crore and Rs.2 crore from unregistered dealers from 01-07-2016
to 30-06-2017. Portion of materials procured during the period was consumed and
closing work in progress as on 30-06-2017 is Rs.60 crore. The materials
remaining in stock is only Rs.5 crore including purchases from compounding
Dealer of Rs 1 crore. Out of the stock of Rs 4 crore purchase of Rs 1 cr relates to prior to 31-3-2017. It is assumed that
advance has been received for all 100 flats.
The contractor is a non
compounding dealer in VAT regime -
a. The contractor is eligible to carry
forward the balance ITC of the tax paid on Rs 3 crore
for the closing stock of the materials.
Provided the Seller would have uploaded the
supply in Returns and paid tax and the Purchaser would have tax invoice for the
stock worth Rs 3 crore.
b. The closing work in progress of Rs 60 crore, no ITC is allowable since VAT is fo be paid.
Applicability of Tax Rate on Payments:
In works contract, the taxable event is the
actual incorporation of the material in the work, so the VAT rate is applicable
to the extent of work finished upto 30-06-2017.
Regarding advances received, if the amount received is in excess of the actual
work completed, then VAT rate has to be limited to the proportion of completed
work and for the balance works GST rate is applicable.
|
Work
completion |
Tax
liability |
|
Works
completed during pre-GST period and payment fully received before 30.06.2017 |
VAT rate |
|
Works
completed during pre-GST period but payment received Partially before
30.06.2017 |
VAT rate |
|
Work
completed during pre-GST period and part payment received after 01.07.2017 |
VAT rate |
|
Work
completed during pre-GST period and full payment received after 1.07.2017 |
VAT rate |
|
Works
completed post GST period and entire payment received after 01-07-2017 |
GST rate |
|
Part
work completed during pre-GST period and part work completed post GST period. |
VAT rate
for completed works during pre-GST period irrespective of the Payment
Remaining works at GST rate. |
|
Works
executed in GST period and advance received during pre-GST period. |
GST rate |
|
Agreement
executed during pre-GST period and works commenced in GST period. Payment not
received. |
GST rate |
|
Works
not yet started, but advance received before 01.07.17 |
GST rate |
(b) Govt. Contractors:
1. Govt,
contractors also have to follow the same procedure as stated above for claiming
input tax credit on the excess credit available as on 30 -06- 2017.
2. As per Sec. 142(11) for the works
completed upto 30-06-2017, they can pay tax under the
existing rate.
3. To prove the quantum of work complefed upto 30-06-2017, they
have to file audited statement of accounts by Chartered Accountants for the
first quarter detailing the closing work in progress details along with
item-wise stock details.
4. For the period upto
31-03-2017 since excess input tax credit is not allowed to be carry forward to
the subsequent year excess input tax claims if any has to be claimed by way of
refund.
Illustrations:
1. Entire work completed on or before
30-6-2017 -full payment is pending as on 1.07.2017
In this scenario, entire work completed and
full payment is pending -the tax should be remitted under VAT Law [ Sec.142(11) (a) of CGST Act / Kerala GST Ordinance,2017.
Which stipulates that notwithstanding anything contained in section 12, no tax
shall be payable on goods under this Act/Ordinance to the extent the tax was
leviable on the said goods under the VAT Act of the State].
2. Entire works completed on or before
30-6-2017 - part payment is pending as on 1-07-2017
Here also for the pending payment tax should
be collected under VAT law [Sec.142(11)(a)].
3. Entire works completed on or before
30-6-2017 - part payment received as on 1-07-2017
In this scenario, for part payment received
before 1-07-2017, tax should be collected under VAT at appropriate rates, and
for part payment received after 30.6.17 also, VAT should be collected.
4. Works awarded on or before 30.06.2017 and
Advance received
For advance amount received before
01-07-2017, VAT shall be applicable for works completed upto
30.06.17 and for the rest, GST is applicable. VAT liability is restricted to
the extent of work completed as on 30-06-2017. If the advance received is in
excess of the closing work in progress as on 30-06-2017, then the excess amount
received shall be taxable in GST.
5. Works not yet started as on 01 -07-2017
GST rate will be applicable.
6. Works not yet started as on 1-07-2017, but
advance received before 01-07-2017
GST rate will be applicable.
II COMPOUNDED WORKS CONTRACTORS
Compounded works contractors are paying tax
on the basis of contract receipts at the stipulated rates whether private or
Government. On introduction of GST, works contract will be treated as service
and there will not be any exemption on labour portion
and also there is no compounding facility.
|
Category |
Eligibility
/ Condition |
|
The
number of flats for which advance has been received |
Entire
ITC on the local purchases made through invoice from 01-07-2016 fo 30-06-2017. |
|
The
number of flats completed but no prospective buyer |
No ITC |
|
The
number of flats capitalized. |
No ITC |
|
Eligibility
of ITC in the case of semi finished Apartments. (In
an Apartment consisting of 100 flats, only 60 flats are completed) |
Eligible
to avail 60% of ITC. |
a. Private works contractors
1. Contractors paying tax under compounding
scheme are also eligible for input tax credit on the closing stock, if it is
supported by bills.
2. They have to file all returns including
annual return upto 31-03-2017 and the first quarter
return for the period from April to June 2017.
3. Separate project-wise accounts have to be
filed.
4. Audited statement of accounts by Chartered
Accountants with respect to closing work in progress along with closing stock
details has to be furnished for the first quarter.
5. The number of flats in each project has to
be furnished and also the details of flats on which advance has not been
received.
6. The details of unsold flafs
or on which no advance has been received has also to be furnished.
7. For carrying forward the excess input tax
credit to the electronic credit ledger on introduction of GST as in the case of
normal dealers, they will also have to file Form TRAN-1, mentioning the amount
of tax or duty, eligible to claim as credit.
8. Taking into consideration, the number of
unsold flats, the proportionate input tax credit has to be deducted while
filing Form TRAN-1.
9. There is no exemption on sub-contracts on
introduction of GST and the supply by sub-contractor to the principal
contractor will be treated as supply with eligibility of input tax credit.
Illustration:
AB Construction Co. is constructing an
apartment with 100 flats for an esfimated cost of
Rs.100 crore. The project commenced 2 years back. The contractor had effected
materials purchases against tax invoice for Rs. 25
crore, from compounded dealers Rs.5 crore and Rs.2 crore from unregistered
dealers from 01-07-2016 to 30-06-2017. Portion of materials procured during the
period was consumed and closing work in progress as on 30-06-2017 is Rs.60
crore. The material remaining in stock is only Rs. 5
crore including purchases from compounding Dealer of Rs.
1 crore. Ouf of the stock of Rs
4 crore purchase of Rs 1 cr
relates to prior to 31-3-2017. It is assumed that advance has been received for
all 100 flats.
The contractor is a compounding dealer in VAT
regime -
a. The contractor is eligible to carry
forward the balance ITC of the tax paid on Rs 4 crore
for the closing stock of the materials.
Provided the Seller would have uploaded the
sales in Returns and paid tax and the Purchaser would have tax invoice for the
stock worth Rs 4 crore.
b. For the closing work in progress of Rs 60 crore no ITC is allowable since VAT is to be paid.
b. For
Govt. contractors
1. They have to file all the returns upto 31-03-2017, for the first quarter of 2017-18 also
returns has to be filed along with audited statement of accounts so as to prove
the genuineness of closing work in progress and closing stock.
2. For the closing work in progress, upto 30-06-2017, they can pay tax at the VAT rates.
3. If the details are not furnished along
with audited statement of accounts, they will have to pay tax at 18% on the
closing work on progress.
4. In order to carry forward fhe excess input tax credit available as on 30-06-2017
supporting documents has to be filed.
5. For carry forward of ITC, they will also
have to file form TRAN-1, mentioning the amount of fax or duty, eligible to
claim as credit.
TDS liability on payments:
|
Work
completion |
Tax
liability |
|
Works
completed during pre-GST period and payment fully received before 30-06-2017 |
VAT rate |
|
Works
completed during pre-GST period but payment received Partially before 30-06-2017 |
VAT rate |
|
Work
completed during pre-GST period and part payment received after 01 -07-2017 |
VAT rate |
|
Work
completed during pre-GST period and full payment received after 1-07-2017 |
VAT rate |
|
Works
completed post GST period and entire payment received after 01-07-2017 |
GST rate |
|
Part
work completed during pre-GST period and part work completed post GST period. |
VAT rate
for completed works during pre-GST period irrespective of the Payment.
Remaining works at GST rate. |
|
Works
executed in GST period and advance received during pre-GST period. |
GST rate |
|
Agreement
executed during pre-GST period and works commenced in GST period. Payment not
received. |
GST rate |
|
Works
not yet started, but advance received before 01-07-17 |
GST rate |
It is our endeavor to build capacity of all
stakeholders and facilitate GST roll out in the state. As per the quarries from
the trade and other bodies, Department shall take efforts to publish series of
issue specific advisories.
All Dealers/ Contractors/ Professionals are
advised to go through the laws for their statutory compliances. This advisory
is only for awareness and not for any legal interpretation of laws.
Commissioner