The impact of various provisions of GST Law becomes more complex in the dimensions which they create as one discusses these provisions. For instance, whether a person who is doing works contract in various states requires registration in all those states? The answer could be as follows:
- If a person is registered in a state say in Maharashtra and he is given works contracts by his client in four different states then it would obviously be very uneconomical for him to take all the things required by him for executing the works contract from his registered address in Maharashtra
- He would invariably be purchasing most of his inputs locally from the state in which the works contract is executed and would therefore be unable to take input credit unless he has a local registration
- The question which now arises is whether the purchases made by him in another state say Kerala can by any imagination be construed as an interstate supply for the person supplying the goods?
- As specified in Section 8 (1) of the IGST Act, the answer to this would be an emphatic “No” the reason being that the place of supply and the location of the Supplier both are in the same state and therefore would constitute an Intra state sale.
- However a close look at Section 12 (1) and 12 (2) of the IGST Act, which is triggered off when the item under consideration is not covered within the situations specified in Sections 12(3) to 12 (14) reveals that there could be a different dimension to this argument. As works contract is not covered under 12(3) to 12(14) it would be attracted under the residual clause 12(2)(b), for supplies made to an unregistered person the place of supply would be the location of the recipient where the address on record exists, which in the instant case is Maharashtra and therefore the place of supply could be construed as Maharashtra and therefore could be interpreted as an Interstate sale.
- Now going further, if this is treated as an interstate sale then an IGST invoice would have to be raised on the recipient at his Maharashtra address for which he would be eligible to take input credit and the recipient could further do the billing for the works contract from Maharashtra by means of an IGST invoice on his client in Kerala
- Now if suppose the registered office of the awarder company is also in Maharashtra and it asks the contractor to bill everything on its corporate address in Mumbai irrespective of where the work is actually undertaken then what happens? Would it mean that all these contracts would be billed as local supply of services by the contractor?
The dimensions of reasoning could go to great extents and only time will tell which interpretation would withstand the test of time
By: CA Seetharaman K C -
July 4, 2017
Discussions to this article
In case of supply of goods to a works contractor, the provisions of Section 10, would apply. Therefore, the article proceeds on an incorrect premise. The said contention could arise only with respect to services supplied to a works contractor.
Arvind Baheti
Sh.C.A.Seetharaman K.C,
Sir, Pl. throw light on the point raised by Sh.Prahlad Jadhav on 4.7.17
It has been rightly pointed out that Section 10 of the IGST Act would be invoked in case of goods . Actually the intention was to look at the provisions of Section 10 (1) (b) with respect to supply of goods under a works contract which reads as under
Section 10 (1) (b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person;
The above section actually says that :
- .Where a Works contractor (third person) who is located in one state (say Kerala) who is awarded a works contract in another state (say Karnataka) and if such works contractor instructs a supplier of goods in that state to deliver specified goods to the awarder's premises then it would be deemed that such goods have been received by the Works Contractor and the place of supply would be the principal place of business of such person i.e Kerala, which would make it an IGST sale and would be chargeable to IGST.
- Again as per Section 12 (3) of the IGST Act, when the Works Contractor from Kerala executes the works contract say interior decoration contract in Karnataka by using the materials already delivered at site and providing labour /service by himself the place of supply of such service would be the location of the immovable property which is Karnataka. This means that the bill for services which would be raised by the Works Contractor would again be an IGST Bill for services
- This would also mean that this works contractor can take the IGST credit for the materials billed to him by the supplier of goods and charge the IGST for labour supplied by him and discharge the net tax liability from Kerala itself without any registration being required in Karnataka.
- The question which arises here is that as the services and materials are actually consumed in the state of Karnataka, should the tax also flow to that state? and whether this kind of an arrangement would be acceptable to the consuming state?
The intention of bringing out this subject was to try and find some clarity on several diverse opinions which are coming up in this area of multi location tax payers, however some paragraphs were missed out in the earlier post which is regretted.
SIR IF THE SUPPLY IS CONSIDERED TO BE IGST THEN WHAT ABOUT E-WAY BILL NOW
WILL THE SUPPLIER SEND GOODS WITH E-WAY BILL AS WE ARE CONSIDERING IT INTER STATE
Sir, in this scenario, how will the records of stock be kept in Karnataka by the works contractor without having registration in Karnataka. Shouldn’t the works contractor take registration in Karnataka??
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