TMI BlogWhether a contract awarded by a Govt. organization to a contractor (a Pvt. Ltd. Co.) should be treated as a ‘Works Contract’ as defined in Sec.2(119) of CGST Act, 2017 and concessional rate of GST (5% or 12%) should be applicable on the same…?X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether a contract awarded by a Govt. organization to a contractor (a Pvt. Ltd. Co.) should be treated as a ‘Works Contract’ as defined in Sec.2(119) of CGST Act, 2017 and concessional rate of GST (5% or 12%) should be applicable on the same…? - By: - ANAND SINGH - Goods and Services Tax - GST - Dated:- 4-1-2022 - - Whether a contract awarded by a Govt. organization to a contractor (a Pvt. Ltd. Co.) should be treated as a Works Contract as defined in Sec.2(119) of CGST Act, 2017 and concessional rate of GST (5% or 12%) should be applicable on the same ..? Say, there is a contract awarded by a contractee ABC (a Govt. organization) to a contractor M/s XYZ (a Pvt. Ltd. Co.) towards Extraction of Rock and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviding Rock fill for reclamation and development of Land pertaining to ABC owned project not covered under activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution, whereby contractor has to extract the rock and soil with the usage of his own oil lubricants, HSD, blasting material, spare parts, store materials and other consumables from the approved area and to fill in the designated land area for reclamation and development of Land, wherein both the area approved designated belong to the awarder/contractee (ABC) What should be the applicable rate of GST to be charged by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontractor (M/s XYZ) to the contractee/awarder (ABC a Govt. organization) for the said work; 5% or 12% of 18%....? By going through the various study materials and case laws my personal view stands that, the rate of GST for the aforesaid work should be 18% instead of 5% or 12% , as the said work does not fall under Works Contract as defined in clause 119 of section 2 of CGST Act, 2017 . To attract concessional rate of GST i.e. 12% or 5% it is essential that; The work must be composite supply of Works Contract as per Sec.2(119) of CGST Act, 2017 and The work must belongs to the Govt. Entity/organization That is, the concessional rate of GST 12% or 5% is applicable only with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the execution of Works Contract pertaining to Govt. related work falling under Works Contract as per Sec.2(119) of CGST Act, 2017 i.e. involvement of Material along with Services are mandatory to attract concessional rate of GST (12% or 5%) pertaining to Govt. work, wherein Material means/denotes transfer of property in Goods . Hereunder the appended deliberations are w.r.t. the same: The Works Contracts has been defined in clause 119 of Section 2 of the CGST Act, 2017 as; works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. The expression of the above definition u/s 2(119) of the CGST Act is transfer of property in goods and f rom the above definition, it is quite clear that, for Works Contracts transfer of property in goods must be involved in the execution of the contract. The term transfer of property in goods is not defined in the GST Act, so it is derived from Sale of Goods Act, 1930 , whereby as per Chapter-16 it is defined that, The transfer of property in goods means transfer of ownership of goods from seller to the buyer . Continuance, Black s Law Dictionar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y , defines the term transfer as under; TRANSFER (verb) , to convey or remove from one place, person, etc., to another; pass on or hand over from one to another; specifically, to make over the possession or control of (as, to transfer a title to land); sell or give. TRANSFER (noun) , an act of the parties, or of the law, by which the title to property is conveyed from one person to another. Moreover, Transfer of property though not defined in the GST Act, is defined in Section 5 of the Transfer of Property Act, 1882 as, transfer of property means an act by which a living person conveys property , in present or in future, to one or more other living persons, or to himself, and one or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other living persons; and to transfer property is to perform such act . In this section, living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals. Therefore, from what is mentioned above u/s 5 of the Transfer of Property Act, 1882 , it is quite clear that, for transfer to take place, there must be conveyance . However, the root word convey or conveyance is not defined in GST Act. Assistance may once again be made to Black s Law Dictionary which defines convey as, To pass on or transmit the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty from one another; to transfer property or the title to property by deed or instrument under seal used popularly in sense assign, sale, or transfer . Furtherance to the above, I would like to refer, in 1983, Parliament amended the Constitution by the 46 th Amendment by inserting clause (29-A) in the definition article of the Constitution, namely, Article 366 and as per Article 366(29-A)(b) tax on the sale or purchase of goods includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry or supply and a purchase of goods by the person to whom such transfer, delivery or supply is made. Moreover, the decision of the three-Judges Bench of the Supreme Court in the case of M/S. LARSEN TOUBRO LIMITED ANOTHER VERSUS STATE OF KARNATAKA ANOTHER [2013 (9) TMI 853 - SUPREME COURT] , has explained the expression whether as goods or in some other form used in parenthesis in clause 29-A(b). The Hon ble Court then referred and observed that goods in some other form in Article 366(29-A)(b) would thus mean goods which have ceased to be chattels or movables or merchandise and become attached or embedded to earth. In other words, goods which have by incorporation become part of immovable property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are deemed as goods . In Larsen and Toubro case, the Court further held that the dominant intention of the contract was immaterial and regardless. The above clarifications of the Apex Court are very important in case of works contracts where generally goods once being put to use, becomes immovable property . Accordingly, the inputs used in the works contract deemed to be goods though the same is embedded to the earth. In the above referred contract awarded to M/s XYZ (a Pvt. Ltd. Co.) by ABC (a Govt. Organization) towards execution of the contract, the goods viz. store material, spare parts, oil lubricant, HSD, blasting material and other consumables involved are in the scope of and belongs to M/s XYZ, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are integral to the execution of the work and are completely consumed during the execution of the contract work and transfer of ownership of such goods not being passed on from contractor (M/s XYZ) to contractee (ABC), hence does not establish the involvement of transfer of property in goods , as defined u/s 2(119) of the CGST Ac t. The involved Goods viz. spare parts, oil lubricant, HSD, etc. are consumable goods not the transfer of property in goods , as the same are consumed purely for the purpose of running an equipment or machinery as well as required for servicing or maintaining an equipment machinery involved in the execution of such contract and hence the same shall not be treated as transfer of prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty in goods , as lawful convey and absolute transfer of ownership of the said property i.e. consumable goods does not take place. In this connection, I would further like to refer to the alike case laws w.r.t. Delhi High Court s decision in case of VPSSR FACILITIES VERSUS COMMISSIONER OF VALUE ADDED ANR. [2017 (2) TMI 814 - DELHI HIGH COURT] , Kerala High Court s decision in M/s. Enviro Chemicals Versus State of Kerala - 2011 (2) TMI 1296 - KERALA HIGH COURT , and the Apex Court decision of Xerox Modicorp Ltd. Versus State of Karnataka - 2005 (8) TMI 359 - Supreme Court , wherein it was held that, no property in the consumable goods passes on to the contractee and consequently the said goods ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not exigible to tax. Therefore the subject work should not covered under works contract as defined in section 2(119) of CGST Act, 2017 and consequently does not qualify for the benefit of Sr.No.3 of Notification 39/2017 dated 13/10/2017 , and concessional rate of GST i.e. 12% or 5% should not be attracted. Hence, mere Development of Land without involvement of transfer of property in goods should not be treated as Composite supply of Works Contract as defined in clause 119 of section 2 of CGST Act, 2017 and accordingly GST rate of 18% should be applicable . Any comment on the above shall be appreciated. Author CA ANAND MOHAN SINGH - Reply By OmPrakash jain as = Sir, Per A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RA, Rajasthan Ruling dated 27.9.2021, in the case of Ion Exchange India Ltd., Jaipur (2022 (2) TMI 1045 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN) , it has been held that in the wake of GST, the Services provided by the applicant under customized EPC contract for Construction etc. of Sulphate Removal Plant with respect to the petroleum operations at Mangla wells are classifiable under entry No.3-Heading 9954(ii) of notfn 11/2017-CT(R) dated 28.6.2017 liable to GST @18 %. Dated: 4-1-2022 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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