Liability of GST

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This discussion clarifies the Goods and Services Tax (GST) liability for a Public Sector Undertaking (PSU) involved in a make-up water system project. The PSU reimbursed GST to the irrigation department, which then subcontracted the work. The core question is whether both the PSU and the contractor must pay GST, and if any exemptions apply. The consensus is that both parties are liable for GST, with no general exemption available for the PSU. While the PSU pays GST under Reverse Charge Mechanism (RCM) for services from the government department, the contractor pays under Forward Charge Mechanism (FCM). Reimbursement of expenses to the irrigation department is generally not subject to GST, and specific exemptions under notification 12 of 2017 are unlikely to apply.

Sanjeev

Sanjeev (Querist)
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08 April 2024 Sir,
PSU was entered into MoU with irrigation department for construction of make up water system for its thermal power project. As per terms and conditions of MoU- PSU was required to reimburse GST to irrigation department. The above work was further awarded by irrigation department to private contractor. PSU was also deposit GST under RCM for above work and work executing contractor of irrigation department also deposit GST for above work.
Kindly clarify that
(1) Wheather psu as well as work executing contractor of irrigation department (both the parties) are required to deposit GST for above work?
(2) Wheather any GST exemption available for PSU for above work?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 April 2024 1 Only the work executing contractor of irrigation department is required to deposit GST.
2 No GST exemption.

Sanjeev

Sanjeev (Querist)
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09 April 2024 Sir
During the discussion, psu states that above work involves two services first service provdid by irrigation department to psu and second service which is provided by contractor to irrigation department. Thus both the parties pay GST and psu deposit GST under applicable RCM.

CA L Gopal Shah

CA L Gopal Shah (Expert)
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09 April 2024 1) Two transactions are involved here Both PSU and Contractor need to pay GST
2) No Exemption on such transaction in GST
3) No RCM in works contract in GST it will be in FCM

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 April 2024 GST not applicable on reimbursement of expenses to irrigation department.
GST payable under RCM only on payment for services provided by irrigation department.

Sanjeev

Sanjeev (Querist)
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10 April 2024 Sir
Can psu claim GST exemption for above case under entry no. 4 of GST notification 12 of 2017.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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10 April 2024 No, it will not fall under such exemption.
Double GST payment will not arise.
Pay to the contractor directly and pay only service charges to government irrigation department.
I am a retired power generation PSU Executive Director/Finance, we followed such arrangements.

CA L Gopal Shah

CA L Gopal Shah (Expert)
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10 April 2024 From PSU point of view
RCM is applicable on services rendered by the Government department to PSU

No RCM on services given to Government departments by PSU, it will be FCM

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