Each item in civil work for construction involves cement, sand, steel etc. has different GST rates. The work is proposed to be executed under Works Contract mode by inviting public tender.
What is the methodology for applying GST to the estimated cost? Should GST be considered for individual items, as each item consists of material and labour, or should GST be added to the total amount for arriving at the total amount put to tender?
For input cost to the contractor....... each item at specified rate
For output works contract....... total contract amount + GST at (18%/12% GST)...... [less the ITC over input.]
Thanks for the reply
Consider PWD which awards tenders for carrying out their construction works. Design and estimation is done by the PWD itself in an item-wise mode.
Does PWD have to add GST on each item, and afterwards 18% on the total cost and then put that amount to tender? If GST is included on individual items and then on the total, then doesn’t it tantamount to “tax on tax” phenomenon.
In GST there is no chance left for 'tax on tax'...........
Why PWD add gst over each item? GST for PWD or the contractor is just estimate while filling tender form (to arrive at some cost).
GST is charged only on final bill amount, after completion of work, on actual value (no estimate here).
From this output GST....... contractor is eligible to deduct (not add) the GST paid on the individual items ( known as ITC).
Thanks for the elaborate reply and incidence of ITC.
In the case shown below, please clarify the following
1. Contractor buys from manufacturer @ GST of 28% but when he renders service to PWD, it attracts only 18%. How is that non-parity justified?
2. PWD has registered PAN & GSTIN. In such case, when PWD releases payment to Contractor, whether they should deduct GST @ 18% (Rs. 30) and release the remaining amount (Rs. 168) or they should pay the quoted price in the tender (Rs. 198)
3. Whether it is the responsibly of PWD to pay the GST @ 18 % for the services rendered to PWD?
1. First selling price of Manufacurer is OK. i.e. Rs. 110/- + GST31/-
2. Now for contractor cost of material is 110/- Similarly add cost of labour say Rs. 60/- + 11/- GST (labour is at 18% GST)
3. So for one stage of construction when the bill is raised....... material cost: 110/- Labour 60/- and (INPUT GST paid. 42/-)
4. Now take its Profit as Rs. 30/- So invoice is 110+60+30 = 200/- + 24/- (output GST @ 12%) (taking GST rate of 12% on Governmental works contract)=== 224/-
5. Here he collects Rs. 24 as GST from PWD and claims Rs. 24/- as ITC, and as such doesn't pay net GST to treasury.................. but as you said he has already (42-24) Rs.18/- ITC balance to his account.
As per GST, WORKS CONTRACT will be treated as SERVICE (not as goods or part goods/part services) and GST is applicable as per the rules. Hence, it is felt that adding Rs. 11 (18% of 60) for Labour portion is not required.
Please clarify the last two points
PWD has registered PAN & GSTIN. Can PWD withhold GST @ 12% (revised from 18% recently) for the services rendered from the bill submiited, (Rs. 160-11 = 149, as in table below) and release the balance amount to the Contractor. In such case, PWD has to file GST2R and pay Rs.11 to the treasury as "GST paid to the contractor". Is this the right methodology?
A revised table is as shown below
" As per GST, WORKS CONTRACT will be treated as SERVICE (not as goods or part goods/part services) and GST is attractable as per the rules. Hence, it is felt that adding Rs. 11 (18% of 60) for Labour portion is not required."
The labour charge is input service to contractor and is GST chargeable....... so, GST Rs. 11/- (over labour charge) will be paid by contractor.
" PWD has registered PAN & GSTIN. Can PWD withhold GST @ 12% (revised from 18% recently) for the services rendered and release the balance amount to the Contractor."
PWD will not withhold 12% GST, as it is charged by contractor, and all the contractor would be registered dealer. BUT PWD may withheld TDS of 1% over the basic bill amount, under section 51 of the CGST Act, 2017, if contract value is more than Rs. 2,50,000/-. However, no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory, which is different from the State, or as the case may be, Union Territory of registration of the recipient.
As such from the aforesaid example of bill amount 224/- PWD can retain Rs. 2.24 as TDS, which the contractor can claim back as refund by filing GST return.
Yes, 1% TDS is withheld by PWD while release of payment.
So it is now clear that even though PWD is the bearer of tax at 12%, it can permit the Contractor to remit to the treasury, the GST levied on PWD .
Is it mandatory for PWD (being a GST registered customer) to indicate this bill transaction with Contractor in the form of GST Returns (GSTR-2)?
Yes........... correct.........
Thank you sir, the explanation about labour portion, being an input service to the Contractor, is insightful.
What about GST on Comprehensive Annual Maintenance Contracts of equipment such as Chillers, UPS, DG sets, etc.?
As Comprehensive Annual Maintenance Contracts involves both materials and labour, will the materials and labour separately attract GST?
" What about GST on Comprehensive Annual Maintenance Contracts of equipment such as Chillers, UPS, DG sets, etc.?"
Any expenditure by way of material or labour or inward supply of goods/services; done over the overall need/compliance to run the business is termed as....... for 'furtherance of business'
Example........ annual AMC contract for all the business/construction equipments, travelling, insurance, material purchased in connection with these activities etc...........
The way these expenditures are allowed to be deducted for arriving net taxable income under income tax........... similarly any GST paid over these is taken as input GST paid, is allowed to be adjusted (called Input Tax Credit) against the output GST charged over the final product/supply,
The discussion holds good for the works contract of the nature other than immovable property. For immovable properties, sub-contractor can avail ITC, but for final contractor it will be added cost.
There is vagueness on an aspect where the end customer is a GST registered customer (say PWD in my case). Can PWD hold back 12% amount on the bill on account of GST in the final bill and release the remaining amount to the Contractor? Can PWD stipulate that the 12% amount which is withheld with PWD will be refunded when the Contractor produces proof of remittance of 12% amount to Govt. as GST?
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