SUB CONTRACTOR OF GOVERNMENT WORK

[NAMAN DOKANIA]

"A", a Main Contractor receives contract job from Govt for the construction of road for use by general public. He outsources his work to "B", a sub contractor the complete job. "B" inturns, subcontract the said work to another contractor "C", which in turns does the contract job.

If "A", charges GST @12% to the Government, then at what rate "B" will Bill to "A" and "C" will bill to "B"? Please clarify the same.

[KASTURI SETHI]

If you want correct and concrete reply, pl.elaborate your query.

[NAMAN DOKANIA]

As already deliberated,

Its like, XYZ PVT LTD gets the contract for construction of road by the State Government. Since, he doesnot have resources to do the work he subcontracts the complete work to ABC PVT LTD, and same way ABC PVT LTD subcontracts the same to his sister company DEF PVT LTD. DEF PVT LTD does the compleye contract using its resources.

Will DEF PVT LTD raise the bill to ABC PVT LTD @12% being a sub sub contractor as jowhere in the recent notification on Works contract says about this.

And can ABC Pvt Ltd raise the bill to XYZ Pvt Ltd @12% even though he is not using his resources to complete the work and is just outsourcing the same to DEF PVT LTD.

Will the work done by ABC PVT LTD be termed in Worka Contract definition ?

[KASTURI SETHI]

The concessional rate of tax @ 12% is available also to sub-contractor w.e.f. 25.1.18 (Notification No.1/18-CT(R) dated 25.1.18) and NOT to sub-sub-contractor. In this scenario, C (DEF Pvt. Ltd.) is sub-sub-contractor.

[KASTURI SETHI]

Sub-contractor is providing service to Govt. for and on behalf of Main Contractor. Hence sub-contractor's service is to Govt. but sub-sub-contractor is providing service to sub-contractor and NOT to Govt..Hence no benefit of concessional rate of tax is available to sub-sub-contractor.

[Mr Rao]

Dear querist,

I agree with Shri Kasturi sir.

[Shilpi Jain]

The rate entry for construciton, repair, etc of road is not recipient specific. So whether the works relating to road, being a WCS, are provided to Govt. or to private parties, the rate of tax would be 12%

[Shilpi Jain]

In my view the rate of tax for A , B and C would be 12%.

[Amit Agrawal]

I agree with views of my fellow panelist Ms. Shilpi Jain Ji. (Reference: Description of Services / Colum No. 3 of Table at 'iv' against Serial number '3' of Notification No. 11/2017-Central Tax (Rate) as amended)

[KASTURI SETHI]

Dear Sir,

The issue involved is of sub-sub-contractor. The querist wants to know the status of sub-sub-contractor i.e. Treatment of transaction between C & A. The details of notification mentioned by you does not talk of the term, 'sub-sub-contractor'. The first issue involved is of classification and rate of tax will come into picture later on. The issue of 'outsourcing' is also in picture here.The issue is still worth examination.

[KASTURI SETHI]

The querist is requested to also go through the following decision :-

2021 (9) TMI 1038 - AUTHORITY FOR ADVANCE RULING, GUJARAT IN RE: M/S. KABABHAI POPATBHAI SAVALIA (SHREEJI EARTH MOVERS) ,

[Shilpi Jain]

The rate entry only talks of the nature of work that is eligible for 12% rate. It does not specify who should be the recipient.

So mere fact of it being road works is sufficient to be eligible for 12%. This rate will be appilcable for contractor, sub contractor and sub sub contractor and so on.

[Ravinesh Sinha]

Agree with shri Kasturi Sethi ji

[Saurin Shah]

Sr 3(iv) now does not specify the recipient of the service. Hence, contractor, sub contractor or sub sub contractor does not matter. Rate is fixed only on supply of work and therefore, question of sub - contracting stands eliminated.

AI Summary

Concessional GST rate for road construction: applicability across contracting tiers vs recipient specific limitation.
The document addresses whether the concessional 12% GST for road construction applies to contractors at all tiers. One position limits the concession to sub contractors who supply services to the government on behalf of the main contractor and excludes sub sub contractors. The competing position treats the rate entry as recipient neutral: the rate applies based on the nature of the work (road construction as a works contract) regardless of whether the supplier is a contractor, sub contractor, or further subcontracted party, raising practical billing and classification questions.