GST on Centage Income earned by Govt Company

[Amit Kumar]

ABC Limited is a government company with 100 percent shares owned by State Government. They provide supervison services for Construction of Roads, Bridges. For this they receive a certain percentage of the Civil Works as CENTAGE.

So basically what happens, A Contractor XYZ Ltd for the construction services raises a Tax Invoice in the name of ABC Ltd. Suppose for Rs 100 they raised a Tax Invoice and charged 18 percent GST on it and the total Invoice Values becomes 118. Now considering Rs 100 as the civil works value ABC Ltd books a centage Income of 8 Rupees in their books. This will be paid by the concerned road construction department. Now does ABC Ltd requires to pay GST on this 8 rupees i.e. Centage Income. If no, why? If yes, then can ITC of Rs 18 be claimed?

[Sadanand Bulbule]

Centage refers to the percentage-based fees charged by a Government body/company/entity/PSU for services such as supervision, project management or consultancy especially in public works or infrastructure projects.  Such services quality as supply under Section 7 of the Act [SAC 9983]. So refer CBIC Circular No.126/45/2019-GST dated 22/11/ 2019.

[Amit Kumar]

Sir, thanks for the response.

the mentioned Circular is related to job works. Also if Centage is taxable then can we claim the ITC for GST paid to contractors for the civil work.?

[Shilpi Jain]

Supervision activity is done for the centage income earned. This is a service provided to Govt. Would be liable as I do not see any specific exemption for this.

Why is the contractor billing the Govt. Co. for the road contruction? Does this Govt. co. invoice the Govt. road const + Centage?

More Facts required to comment on ITC.

[Amit Kumar]

So basically, the State Government approves a Project and its total cost including centage. State government then provides allotment to the Govt Company as and when required. Now from that allotment, the Govt Company pays the contractor for the bill raised to the govt company. 
 

AI Summary

Taxability of centage income: supervision fees treated as taxable supply under GST; ITC eligibility depends on invoicing and facts. Centage income for supervision or project management in public works is prima facie a taxable supply of services under GST and therefore subject to GST; entitlement to input tax credit for GST paid on contractor invoices depends on specific transactional facts such as invoicing structure, recipient of supply, and satisfaction of standard ITC conditions.