Contract receipt including GST-how to calculate taxable supply

[SUSHIL BANSAL]

Sir,

our client is providing woarks contract services to state govt departments.The work contract terms says that the tender amount will be including GST & the GST will be borne by the contractor i.e. the department is not giving us separate amount for GST.

While filing 3B we are taking taxable supply net off GST ie. amount as reported in GSTR-7 by the deducter divided by 1.18 & then on the net amount the 18% GST is worked out. Due to this amount as per GSTR-7 & amount as per 3B is mismatched & due to that GST department issued notice to explain the difference.Plz guide whether we are filing GSTR 3B in correct way or we should pay GST on the gross amount. any notification/circular in the matter.

[Raam Srinivasan Swaminathan Kalpathi]

Would request the querist to go through Rule 35 of the CGST Rules, 2017 and follow the same. The Rule is reproduced below from TMI website

"35. Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax.-

Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner, namely,-

Tax amount = (Value inclusive of taxes X tax rate in % of IGST or, as the case may be, CGST, SGST or UTGST) ÷ (100+ sum of tax rates, as applicable, in %)

Explanation.- For the purposes of the provisions of this Chapter, the expressions-

(a) “open market value” of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made;

(b) supply of goods or services or both of like kind and quality” means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both."

[Raam Srinivasan Swaminathan Kalpathi]

In short, the methodology adopted by the client of querist is correct. A reconciliation may be provided to the Audit/ Suptt duly validated with the contract signed. This should solve this objection para raised by the department. Thx

[Padmanathan KV]

I beg to differ. In my opinion, the entire factual aspects has to be examined to say whether the querist is following correct computation or not. Pls consider the following aspect also:

1. How is the value arrived in GSTR-7 by the recipient (State Govt Dept)? As per section 51, TDS at 2% is to be deducted on the taxable value and not on value including tax. If TDS has been rightly computed by Dept, then your computation in GSTR-3B would be incorrect.

2. Also check what is the amount credited to your bank from treasury as the contract payment? that amount would be taxable value plus GST less deductions (TDS, labour welfare cess etc). 

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir, 

Sri  - Raam Srinivasan Kalpathi Sir has given the method of arriving at the taxable turnover where the contract receipt included the tax element. 

Learned Sri Padmanathan KV has rightly explained the computing of taxable turnover and tax liability when TRS was made at the time of passing the work bill by the departmental authority. 

Usually, the Government authorities work out TDS on the value of work done on work bills. They did not work out after deducting the tax amount involved. However, the taxpayer has to work out the turnover while declaring in the returns, (not on the net value received)  in the method explained by Sri Raam Srinivasan Kalpathi Ji.

Suppose, the value of work done is Rs. 100000-00 it should be calculated to arrive at the taxable turnover as under.  

The tax rate for government work was 12% or 18% as applicable. 

 100000 x 100 / 112= 89286-00 is the taxable turnover. The taxpayer is required to report the turnover accordingly and pay the taxes either by ITC or by cash. The Departmental Authorities will credit the TDS amount, which goes to the cash ledger of the taxpayer.

In this case, the taxpayer paid the taxes @18% correctly calculated. The taxpayer should explain to the tax authorities that the turnover reported in the TDS form includes tax elements and that the tax is correctly paid. Produce all the work bills along with the work order copy for verification. 

[Shilpi Jain]

The law does not provide that the taxpayer has to pay GST on the basis of TDS done by the recipient.

It is only a mechanism for the department to check if any turnover has missed paying GST.

You can explain your stand and show how the GST that you have paid is in line with the valuation provisions under GST.

[KALLESHAMURTHY MURTHY K.N.]

Most contractors have not declared their contract receipts and do not respond to departmental notices. Under such circumstances, the TDS  details are the source of information for the GST department.  Unless the taxpayer explains along with documentary evidence, the tax liability is demanded on that basis only where it is unknown whether the tax amount was included in the contract receipt or not. 

AI Summary

Contractor Faces GST Filing Issues Due to Tender Terms; Rule 35 of CGST Rules, 2017 Suggested for Resolution A contractor providing works contract services to government departments is facing issues with Goods and Services Tax (GST) calculations. The contract specifies that the tender amount includes GST, which the contractor must bear. While filing GSTR-3B, the contractor calculates taxable supply net of GST, causing discrepancies with GSTR-7, leading to a notice from the GST department. Respondents suggest reviewing Rule 35 of the CGST Rules, 2017, and ensuring proper reconciliation with contract documents. Opinions vary on whether the contractor's method is correct, with some advising verification of TDS calculations and contract payment details to resolve discrepancies.