Question23: Kindly, let us know the provisions related to GST implication on builders constructing residential houses for final consumers.

Answer: Please find enclosed here with reading material related to construction For any doubt please write to us We will be happy to help you In Present era of GST

Works contract has been defined in clause (119) of section 2 of CGST Act; the same is reproduced below:-

'works contract' means 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;

Hitherto there was complexity of treatment of whether treating Work contract services as supply of goods or supply of services. So dual tax is levied Vat on sale component and service tax on Service component.

However under GST Construction and Work Contract is deemed as supply of services according to S.no.5 (b) and S.no.6 of Schedule II and all provisions under GST are applicable as supply of services.

S.no 5 (b) and S.no.6 of Schedule II is reproduced below:-

5. Supply of Services

The following shall be treated as supply of service, namely:'

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:'

(a) works contract as defined in clause (119) of section 2; and

Input tax credit on Work contract services is governed by Section 17(5) of CGST Act, which is reproduced below:-

Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:'

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation. ''For the purposes of clauses (c) and (d), the expression 'construction' includes re-construction, renovation, additions or alterations or repairs, to extent of capitalization, to the said immovable property

The provisions will have following effect

1 ITC is available if the material or services are used for

a) For erection and commissioning of plant and machinery.

b) For providing outward supply of work contract services.

c) If the expenses are not capitalized in case of renovation repair etc

In cases other then mentioned above credit is not available.

Tax rate on Work contract services or construction services is specified in S.No.3 of amended Notification No. 8/2017-Integrated Tax (Rate).

According to Notification No. 15/2017-Central Tax (Rate) refund of unutilized input tax credit shall not be available in construction services specified in sub-item (b) of item 5 of Schedule II of CGST Act. (Reply Dt.22/12/2017)