Work Contract Service to Governments

[DEVENDRA KUMAR]

Dear Experts,

I supply service to the state government in respect of advertisement like ... (whitewashing and printing of buildings, slogan of social activities). In the course of this supply, we use all materials in connection with the Services, except Content (which is provided by governments).

And we have also paid GST on the purchase material in respect of this.

My average monthly turnover is Rs.- 22 Lakh

Hence, kindly advise us whether we can take ITC on purchases.?

And what will be the HSN/SAC code.?

And what will be the applicable rate of outward supply.

[Shilpi Jain]

This activity cannot be an advertisement services as what is done is only painting, though not the regular ones done generally.

This can be considered as Maintenance of Immovable property

HSN 995419 - 18%.

ITC can be taken as it is not a blocked credit under GST.

[DEVENDRA KUMAR]

Thanks for replying,

But we provide display advertisement service pertain to "Social Awareness Campaign(Swachh Bharat Abhiyan) " on 'Housing wall, Government School and Hospitals place " as per the content or slogan provided by the government.

And we issue invoice with SAC code 995473 and 18% Rate.

In the course of supply this service whether we will be liable to take ITC on the purchase.

[Ganeshan Kalyani]

Sir, you are eligible to take Input tax credit on materials used in connection with the services of advertisement you provide. Hope you are not under composition scheme.

[KASTURI SETHI]

Dear Querist,

Pl. go through this. In my view your activity is covered under Chapter/Heading No.9983 and attract rate of tax @ 18% vide Notification No.11/17-CT(Rate) dated 28.6.17 as amended serial no.21 (ii).

99836 Advertising services and provision of advertising space or time

998361 Advertising services

This service code includes planning, concept development and execution of the full range of services for an advertising campaign, including creating the basic idea for an advertisement, writing the words and scenarios for advertisements, selection of media to be used, design of ads, illustrations, posters, etc., writing of scenarios for advertising movies, placement of advertisements in media; development and organization of direct marketing advertising campaigns, i.e. sending advertising and promotional messages directly to consumers through methods such as direct mail and telemarketing, rather than via mass media; aerial advertising services; delivery services of free samples and other advertising material; demonstration and presentation of advertising services at point of sale; sales promotion (if no orders are received)

This service code does not include :

- public relations services, cf. 998312

- separate placement of advertisements in media, cf. 998362

- separate market research services, cf. 99837

- separate photography services related to advertising, cf. 998382

- separate graphic design services for advertising, cf. 998391

- separate production of films for advertising, cf. 999612

- modeling agency services, cf. 998599

- advertising mailing services, cf. 998595

(a) “advertisement” means any form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person;

Extract of Notification No.12/17-CT(R) dated 28.6.17 as amended.

2. Definitions. - For the purposes of this notification, unless the context otherwise requires, -

(a) “advertisement” means any form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person;

[Amit Agrawal]

With due respect for my fellow professionals, I hold followings views:

1. Activity of 'Painting' of various buildings so to showcase "Social Awareness Campaign (Swachh Bharat Abhiyan)" does not fall within the definition of 'Works Contract Services' which is defined u/s 2 (119) of the CGST Act, 2017 as under:

“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".

1.1 Reason behind my views is that intention behind this painting activity is NOT for "building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property" but to display advertisement on an immovable property (i.e. on 'Housing wall, Government School and Hospital place' etc).

2. If said activity indeed falls under 'Works Contract Services' (though I feel otherwise), one needs to check possibility of claiming lower gst rate of 12% (i.e. 6+6) as per 3 (vi) of Notification No. 11/2017-Central Tax (Rate) as amended from time to time.

2.1 Considering my views explained in Para 1 above, I am not making deep drive into possibilities of lower tax-rate explained above. Only reason for putting this to let the querist know various facets to the issue raised.

3. Exact HSN code for this activity may not matter much, unless and until querist intents to claim gst-rate lower than 18%.

4. This is a Composite supply of goods and services. If the value of supply of goods constitutes not more than 25 per cent. of the value of the said composite supply provided to the Government, I would suggest through review about potential availability of exemption under Serial No. 3A of Notification No. 12/2017- Central Tax (Rate) as amended from time to time.

4.1 Without going through entire contract, concerned state's laws regarding devolution of power and responsibilities to Municipalities & Panchayat as per Article 243W (a) & 243G of our Constitution etc., it would not be possible to give any definitive views about availability of above-said exemption. Moreover, one needs to understand risks and rewards before claiming exemption and same also depends of individual's risk appetite etc.

4.2 This issue of availability of exemption (or for that matter, claiming lower tax-rate if possible) becomes much more important if concerned contract with government for subject supply is inclusive of applicable taxes (if any) and querist will get same amount in totality for its supply irrespective of either lower tax-rate or availability of exemption.

5. Lastly, if above-said exemption is indeed available, then & technically speaking, querist is not entitled for any ITC but needs to pay taxes so collected to Government. Reference/s: Explanation given to Section 11 of CGST Act, 2017 and definition of 'exempted supply' given u/s 2 (47) (Hereto, there is view available that there are no restrictions to avail ITC against goods / services used "exclusively" for exempt supply. But, same is too bold a view and same is definitely against intention of Govt. Hence, same is ignored here. I will discuss it in a better situation)

Disclaimer: Please note that all these are strictly personal view of mine and same must not be construed as any professional advice or suggestion etc.

[Amit Agrawal]

I wish to add 'Section 76' too, in references quoted in Para 5 above.

[Shilpi Jain]

Yes.. pls have a look whether any exemption or lower rate would be available if it is in respect of an activity falling under article 243G/W.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

I am amazed at your hard work.Really appreciable. You have unfolded so many aspects involved herein in the interest of the querist and also other visitors of this forum. Each view has appreciable significance. More the views, more benefits to the querist. With your comprehensive reply, now it is up to the querist how to go ahead and extract most benefits from all the replies/views of all experts. Yours is the best possible reply in the absence of copy of agreement/contract.

[Amit Agrawal]

Thank you very much, Sh. Kasturi Sethi Ji!