Works Contract taxable at 12% with ITC for services provided by sub-contractor to contractor for NHAI

Last updated: 24 August 2021

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A sub-contractor providing works contract services to a contractor for the National Highway Authority of India (NHAI) has been clarified by the Andhra Pradesh Authority of Advance Ruling. The ruling states that these services are taxable at 12% under the 'Construction Services' category. Furthermore, the sub-contractor is eligible to claim Input Tax Credit (ITC) on inward supplies of machinery like road rollers and cranes, as these are considered input services for further supply and not blocked credits.

Court :
Andhra Pradesh Authority of Advance Ruling (AAR)

Brief :
In Building Roads Infrastructure & Construction Pvt. Limited. [AAR No. 07/ AP/GST/2021 dated January 18, 2021], Building Roads Infrastructure & Construction Pvt. Limited ('the Applicant') being a subcontractor sought a clarification on taxability of works contract services provided to contractor of National Highway Authority of India ('NHAI') along with eligibility to claim Input Tax Credit ('ITC') on inward supply of machines like Road Roller, Grader, Hydra Crane etc.

Citation :
AAR No. 07/ AP/GST/2021 dated January 18, 2021

In Building Roads Infrastructure & Construction Pvt. Limited. [AAR No. 07/ AP/GST/2021 dated January 18, 2021], Building Roads Infrastructure & Construction Pvt. Limited ('the Applicant') being a subcontractor sought a clarification on taxability of works contract services provided to contractor of National Highway Authority of India ('NHAI') along with eligibility to claim Input Tax Credit ('ITC') on inward supply of machines like Road Roller, Grader, Hydra Crane etc.

The Hon'ble Andhra Pradesh Authority of Advance Ruling ('AAR') noted that supply of service by the Applicant falls under item 3(iv) under Heading 9954- 'Construction Services' of the amended provisions of the Notification No.11/2017- Central Tax (Rate) dated June 28, 2017('Services Rate Notification') followed with the tax rate being applicable at 12%

Observed, the inward supply the goods of the above mentioned goods neither fall under Section 17(5)(c) of the Central Goods and Services Tax Act, 2017 ('CGST Act') as it is in the nature of input service for further supply of works contract service nor under Section 17(5)(d) of the CGST Act because the same is certainly not on the Applicant's own account but as a sub-contractor to a contractor of NHAI.

Therefore, the clauses of blocked credits under Section 17(5)(c) and (d) ibid are not applicable to the instant case and thus eligible for claiming ITC subject to the requisite conditions as mentioned in the Section 16(2) of the CGST Act.

FAQ :

Works contract services provided by a sub-contractor to a contractor of the National Highway Authority of India (NHAI) are taxable at 12%.

These services fall under item 3(iv) of Heading 9954, which covers 'Construction Services'.

Yes, the sub-contractor is eligible to claim ITC on inward supplies of machines like Road Rollers and Hydra Cranes, provided the requisite conditions under Section 16(2) of the CGST Act are met.

No, the machines are not considered blocked credits under Section 17(5)(c) or 17(5)(d) of the CGST Act because they are used as input services for further supply and not on the applicant's own account.