WORKS CONTRACT

[RV PERUMAL]

REGISTERED WITH RERA- VILLA HOUSE TYPE APARTMENT CONSTRUCTIONS - IF THE PROMOTER/BUILDER APPOINTED A UN REGISTERED SUB CONTRACTOR FOR PURE LABOUR FOR CONSTRUCTING THE HOUSES- WHETHER GST PAYABLE UNDER RCM OR NOT? THE BUILDER IS PAYING TAXES UNDER Notification No. 3/2019, 1 OR 5% - PLEASE CLARIFY

[Shilpi Jain]

Exemption is available for the below entry

Services by way of pure labour contracts of construction,erection,commissioning, or installation of original works pertaining to a single residential unit otherwise than asa part of a residential complex.

Presently the construction is done for a residential complex. So no exmeption and no reduced rate of tax. Liability @ 18%.

[Padmanathan KV]

Dear Perumal,

Assuming that your project falls Residential Real Estate Project (RREP)/ Real Estate Project (REP) since you are paying tax under Notification No 3/2019 @ 1%/ 5%, it may be noted that one of the conditions specified in the Notification is as below:

Provided also that eighty percent of value of input and input services, [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], used in supplying the service shall be received from registered supplier only;

Provided also that inputs and input services on which tax is paid on reverse charge basis shall be deemed to have been purchased from registered person;

Provided also that where value of input and input services received from registered suppliers during the financial year (or part of the financial year till the date of issuance of completion certificate or first occupation of the project, whichever is earlier) falls short of the said threshold of 80 per cent., central tax shall be paid by the promoter on value of input and input services comprising such shortfall at the rate of nine percent on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 (12 of 2017) shall apply to him as if he is the person liable for paying the tax in relation to the supply of such goods or services or both;

Further reference can be made to Notification No. 7/2019 CT-R which notifies goods and services under section 9(4) of the Act.

Therefore, where promoter has appointed an unregistered sub-contractor it is input service for the promoter. Thus the promoter shall be liable to RCM @ 18% if the inputs and input services from unregistered sub-contractor is more than threshold limit of 20% of value of inputs and input services. The RCM shall be to the extent such inputs and input services are more than 20%.

As Ld. Shilpi ma'am rightly pointed out, the service provided by contractor is not exempt as it is not single residential complex.

[Padmanathan KV]

Correction - Please read second last para in the above post as under:

"Thus the promoter shall be liable to RCM @ 18% if the inputs and input services *from unregistered persons including the input service* from unregistered sub-contractor is more than threshold limit of 20% of value of inputs and input services. The RCM shall be to the extent such inputs and input services *from unregistered persons* exceeds 20% threshold.

AI Summary

Reverse charge mechanism applies where unregistered subcontractors cause shortfall in registered inputs, making promoter liable for tax. Construction services for a residential complex performed by an unregistered subcontractor are not covered by the single-unit pure labour exemption. Where a promoter uses inputs or input services from unregistered persons such that procurement from registered suppliers falls below the prescribed threshold, the promoter must pay tax on the shortfall under the reverse charge mechanism at the applicable rate; the reverse charge applies only to the extent the unregistered sourcing exceeds the allowable shortfall and services for the complex remain taxable.