GST Updates

Works Contract Services Part -II-Scope of Services covered by Notification 20/2017, 24/2017, 31/2017 read with 11/2017

This update discusses nature of Works Contract/Services covered under notifications 20/2017, 24/2017 and 31/2017 alongwith the original notification 11/2017.

  1. The Chapter heading amended by Notification No. 20/2017 and 24/2017 is 9954 which pertains to “Construction Services”.
  • Notification No. 11/2017 was issued on 28th June 2017 which provided that composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017 is taxable at the rate of 9%. Similar Notification was issued under relevant SGST Act. Therefore the aggregate tax rate worked out to be 18%.
  • Notification No. 20/2017 was issued on 22nd August 2017, Notification No. 24/2017 was issued on 21st September 2017 and Notification No. 31/2017 was issued on 13th October 2017 which reduced tax rate on certain works contract from 9% in CGST to 6% in CGST.

Let’s try to understand the impact of these notifications alongwith the original notification dated 28th June 2017.

 

  1. Nature of Services Covered under the Notifications:

The description of Service which have been amended through Notification 20/2017 dated 22nd August 2017, 24/2017 dated 21st September 2017 and 31/2017 dated 13th October 2017 are as follows:

 

S. No. Notification Date Entry No. Description of Services
1. 20/2017  

22nd August 17

 

Iii Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied to the Government, a local authority or a  Governmental  authority  by  way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of
2. 20/2017 iv Composite supply of works contract as defined in clause  (119)  of  section  2  of  the  Central  Goods and Services    Tax    Act,    2017, supplied     by     way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of
3. 20/2017 v Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to
4. 24/2017  

21st September 17

vi Services provided to the Central Government, State Government,  Union  Territory, a  local  authority  or  a governmental authority by way of  construction, erection, commissioning,   installation,   completion,   fitting   out, repair, maintenance, renovation, or alteration of –

 

5. 31/2017 13th October 2017

 

vii Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, involving predominantly earth work (that is, constituting more than 75per cent. of the value of the works contract)
6. 31/2017 viii Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 and associated services, in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the offshore area beyond 12 nautical miles from the nearest point of the appropriate base line.

 

3. Is there any change in the scope of the supply for Notification vis-a-vis 20/2017, 24/2017 and 31/2017

 

  • It can be observed from the above table that Notification No. 20/2017 and 31/2017 covers “Composite Supply of Works Contracts Services defined in clause (119)  of  section  2  of  the  Central  Goods and Services    Tax    Act,    2017…” whereas Notification  24/2017 covers “Services Provided …by way of”. The questions now arises how does these words alter scope of notifications and what’s the impact of these subtle changes in the notification. Does Notification No. 24/2017 dated 21st September 2017, broadens the scope of supply covered under the notification.

 

  • The issue now arises that whether use of different words changes the scope of the two notifications. The meaning of the words “Composite Supply of Works Contracts Services defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017” makes it very clear and there is no ambiguity with respect to the use of these words that the works covered under these notifications are purely works contract as defined under clause 119 of section 2 of Central Goods and Service Tax Act. For A Contract being in the nature of Works Contract, Section 2(119) of the Central Goods and Service Tax Act prescribes two conditions as follows:

a) The contract should be a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property.

b) There should be transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract

  • However, Notification No. 24/2017 uses words “Services Provided to ….by way of ….”. It seeks to cover all services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration.

 

  • Therefore, whereas under notification 20/2017 and 31/2017, supply of services have to satisfy additional condition relating to being in the nature of works contract, however under notification no. 24/2017, there is no additional condition of services provided should be in the nature of works contract. Notification 24/2017 only provides for “Services provided by way of ….”.

 Example: A contract allotted for repairing of building, for being covered in the purview of Notification No. 20/2017, has to satisfy additional condition of being in the nature of works contract, however for being covered under the purview of notification 24/2017, it is sufficient if it’s in the nature of repairing of building and not necessarily being in the nature of works contract. Therefore scope of notification 24/2017 is much broader than the scope of notification 20/2017.

 

In the next update, we would be discussing about the activities covered for concessional rate under the said notifications.

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