The Government of Jharkhand on August 26, 2022, issued a notification regarding the primary matter under examination the payment of outstanding invoices for work orders issued before the implementation of the Goods and Services Tax (GST), as well as the provision of services under Works Contracts carried out under the GST regime, which is detailed below-
•The term “Works Contract” is defined under sec 2(lxiii) of JVAT Act, 2005 as follows- " Works Contract” means and includes any agreement for carrying out for cash or deferred payment or other valuable consideration, for assembling, construction, fabrication, erection, installation, modification, fitting out, improvement or repair of any building, road, bridge or commissioning of any other immovable or movable property.”
•The term "Works Contract" is defined under sec 2(119) of JGST Act, 2017 as follows- " A contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract”. As per Para 6(a) of Schedule II of JGST Act, 2017, Works Contract as defined in Sec 2(119) shall be treated as supply of Services.
•Under JVAT Act 2005, works contracts covered both movable and immovable property whereas "Works Contract" under GST is restricted only to immovable property. In this context, under GST, construction, building, erection, installation services, etc. involving the supply of both taxable goods along with labour and other services may be construed as composite supply.
•The term composite supply is defined under Sec 2(30) of the GST Act as follows- Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
•During the VAT regime materials used in the works contract or the goods as it may be called, were taxable @5%, 5.5% or 14.5% or 14% and labour charges were not taxable le. Also, the rate of Tax Deduction under the JVAT Act was at Source (TDS) @ 4%. Whereas the Central taxes were levied as service tax on services given by way of labour, design, architect etc. and central excise duty on such goods manufactured.
•Under the GST tax regime, the rate of GST on Works Contracts for Government work was notified at 18% vide notification no-11/2017,CT(R) dated 28.06.2017. However, the rate of GST on Works Contracts for Government work was reduced to 12% [Notification no. 20/2017- CT (Rate) dated 22.08.2017]. However, vide Notification No. 22/2021, CT (Rate) Dated – 31/12/2021, the rate has been changed, between 22.08.2017 till 17.07.2022 the rate of GST on Works contract has been @ 12% for the service supplied to central government state government and local authority.
•Availability of Input Tax Credit (ITC) under GST
•No revision of contractual value should be considered if there is no clause for revision in contractual value due to a change in the rate of tax mentioned in the contract.
•As per section 51 of the Jharkhand GST Act, 2017 / the Central GST Act, 2017, GST– TDS @ 2 % (1% CGST + 1 % SGST) must be deducted after 01.10.2018 from payments to contractors / suppliers.
•The Administrative Departments should issue suitable instructions to the competent agency/authority responsible for making payments to the works contractors to implement this directive/SOP.
Disclaimer- In Annexure I, the process for calculating the incidence of tax under the Pre- and Post-GST regimes is explicitly outlined
[Notification No. S.O. No. 33]
