GST rate on works contract services during Apri 2022 to June 2022

[C Yogesh]

The auditee is a sub-contractor who, during April 2022 to June 2022, provided works contract services to the main contractor in relation to road construction work awarded by the PWD department. What would be the applicable GST rate on the supply made by the sub-contractor to the main contractor?

[Shilpi Jain]

From 18/7/2022 the GST rate for road construction works contract is 18%. Before this it was 12%.

However, you need to check when the time of supply attracts i.e. section 14 and then decide on rate since this cannot be decided merely on period of service provision

[Shilpi Jain]

The 3 factors that you need to consider are

a. Date of providing services

b. invoice issue date

c. date of receipt of payment from customer.

Which period do majority of the above events fall will decide the rate of tax 12% or 18%

[Ryan Vaz]

For the period April 2022 to June 2022, works contract services provided by a sub-contractor to a main contractor for road construction awarded by the PWD attracted GST at 12% (6% CGST + 6% SGST or 12% IGST).

The service qualifies as a works contract under Section 2(119) of the CGST Act, 2017 and is classified under SAC 9954 (Construction Services).

The main contractor was executing road construction work for the PWD, which generally qualifies as a Governmental Authority/Government Entity under Notification No. 11/2017-CT (Rate), subject to the prescribed conditions. Since road construction constitutes original works undertaken for public use and not for commerce or business, the main contract was covered under Entry 3(vi) of Notification No. 11/2017-CT (Rate), attracting GST at 12%.

Further, Entry 3(ix) specifically covers a composite supply of works contract services provided by a sub-contractor to a main contractor who is supplying services covered under Entry 3(iii) or Entry 3(vi) to the Central Government, State Government, Union Territory, local authority, Governmental Authority or Government Entity. Accordingly, where the main contractor was supplying road construction services to the PWD under Entry 3(vi), the sub-contractor's services were also covered under Entry 3(ix) and liable to GST at 12%.

Applicable GST Rate

• CGST: 6%
• SGST: 6% (intra-state supply)
• IGST: 12% (inter-state supply)

For works contract services relating to immovable property such as roads, the place of supply is the location of the immovable property in terms of Section 12(3) of the IGST Act, 2017.

Reverse Charge Mechanism (RCM) was generally not applicable to such supplies. The sub-contractor was required to charge GST on a forward charge basis.

The main contractor would ordinarily be entitled to claim Input Tax Credit (ITC) of the GST charged by the sub-contractor, since the services were used in providing outward taxable works contract services and were not hit by the restrictions under Section 17(5) of the CGST Act, 2017.

[C Yogesh]

Resp. Sir,

Whether the main contract would cover under entry 3(vi) or under entry 3(iv)?

Sr no.3(iv)-Composite supply of works contract in relation to-

(a) a road, bridge, tunnel, or terminal for road transportation for use by general Public;

(b) ...

Sr. No. 3(vi)- Composite supply of works contract services of

(a) civil structure or any other original works meant predominantly for

use other than for commerce, industry, or any other business or

profession;

(b) .............

What would be the tax rate on sub-contract services if main contract covered under entry 3(iv)?

[KALLESHAMURTHY MURTHY K.N.]

Sir,

The tax rate on works contracts for Government Departments, State or Central, or UT, for roads and bridges was 12% up to 17-08-2022. From 18-07-2022, the concession rate was withdrawn, and the 18% tax rate was restored.

For government authority and Government entity, the concession rate of tax of 12% was prevailed up to 31-12-2021 and the rate of tax w.e.f. 1-1-2022, is 18%.

Tax rate for both the main contractor and the subcontractor is the same. For more details, refer to Issue ID No. 117711 dated 17-12-2021 on this TMI platform.

[Sadanand Bulbule]

I welcome the replies.

[C Yogesh]

Thank you all for your timely replies.

[Ryan Vaz]

• Specific vs. General Entry
  • Entry 3(iv)(a) specifically covers roads, bridges, tunnels and road terminals for public use.
  • Entry 3(vi)(a) is a residual/general entry for civil structures predominantly meant for non-commercial use.
  • Under GST classification principles, a specific entry overrides a general entry. Therefore, where the subject matter is a road/bridge/tunnel/road terminal, classification under 3(iv) is generally appropriate.
• Subcontractor Rate
  • If the main contractor's supply qualifies under Entry 3(iv) and attracts the concessional works contract rate, one must examine whether the subcontractor falls under the specific subcontractor entry (earlier Entry 3(ix) and related amendments).
  • The concessional treatment for subcontractors was intended for works contract services supplied to a main contractor who, in turn, provides eligible government works contract services taxable at the concessional rate.
• Important Caveat
  • GST rates on government works contracts have undergone several amendments over the years.
  • The applicable rate for the subcontractor can vary depending on:
    • Date of supply/contract period,
    • Identity of the recipient (Government, Government Entity, NHAI, PSU, etc.),
    • Whether the subcontract itself satisfies the notification conditions.

[YAGAY and SUN]

The applicable GST rate on works contract services provided by a sub-contractor to the main contractor during the period April 2022 to June 2022, in relation to road construction work awarded by the PWD Department, would generally be 12% (6% CGST + 6% SGST), subject to fulfillment of prescribed conditions.

Entry No. 3(iv) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, prescribed GST at the rate of 12% for composite supply of works contract services supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of:

(a) a road, bridge, tunnel, or terminal for road transportation for use by the general public; and

(b) works supplied to Government, Government Entity, or Government Authority.

Further, Entry No. 3(ix) of the said notification specifically extended the concessional rate to sub-contractors providing works contract services to the main contractor where the main contractor was supplying services covered under the concessional entries relating to roads and other specified infrastructure projects.

Accordingly, where:

(i) the principal contract awarded by the PWD Department pertains to construction of roads for public use;

(ii) the main contractor is supplying eligible concessional works contract services to the Government department; and

(iii) the sub-contractor is providing a part of such works contract services to the main contractor,

the sub-contractor would also be entitled to charge GST at 12%.

The concessional rate would apply only if the nature of work executed by the sub-contractor forms an integral part of the eligible road construction project. In case the supply pertains to independent commercial services or pure supply of goods not qualifying as works contract services, the benefit may not be available.

Therefore, for the period April 2022 to June 2022, the applicable GST rate on the works contract services supplied by the sub-contractor to the main contractor, in relation to road construction work awarded by the PWD Department, would ordinarily be 12% (6% CGST + 6% SGST).

AI Summary

Works contract services for public road construction were discussed as attracting concessional GST for subcontractors under the applicable notification entries. Works contract services supplied by a sub-contractor to a main contractor for road construction awarded by a public works department were described as ordinarily attracting GST at 12% during April 2022 to June 2022, where the principal supply qualified as eligible works contract service for public road construction and the subcontract formed an integral part of that project. The discussion linked the concessional treatment to the notification entries covering road, bridge and other public infrastructure works, and noted that the subcontractor rate generally followed the rate applicable to the main contractor when the underlying contract satisfied the prescribed conditions.