Introduction<\/strong><\/span><\/h2>\n

Works Contract Service is a specie of construction service. This activity has special relevance as it has been a very litigation prone issue. Earlier, after introduction of service tax on services, complexities of ‘works contract’ increased as issue of valuation, TDS and reverse charge made this issue complex.<\/span><\/p>\n

After introduction of GST and abolition of distinction between goods and services, really the concept of ‘works contract’ has become redundant. However, this term is continuing in GST also.<\/span><\/p>\n

“<\/strong>Works contract”<\/strong> 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 – section 2(119) of CGST Act.<\/span><\/p>\n

Works contract as defined in section 2(119) of CGST Act is ‘supply of service’ – para 6(a) of Schedule II of CGST Act.<\/strong><\/span><\/p>\n

Distinction Between Construction Service And Works Contract Service<\/strong><\/span><\/h2>\n

Construction contract is also a ‘works contract’. However, under GST, distinction has been made between ‘works contract service’ and ‘construction of complex’.<\/span><\/p>\n

The distinction is that in case of works contract, a customer (recipient of supply of service) approaches the supplier of service (contractor) to undertake construction as per his requirements. In almost all the cases, the land is owned by or taken on lease by customer. The contractor enters into contract with customer and then undertakes construction with his own material. If the material is supplied by recipient himself (customer), then it is not works contract. It is simple contract for work.<\/span><\/p>\n

In construction of complex, the builder or developer normally does not have any identified customer. Even if he has some identified customers before commencement of construction, he is undertaking construction activity on his own and not on basis of contract with customer. The land never belongs to the customer.<\/span><\/p>\n

As an illustration, a society awards a contract to a contractor to construct residential complex in premises owned by society, it will be a ‘works contract’ and not ‘construction of complex’.<\/span><\/p>\n

Construction Of Residential, Commercial Or Industrial Complex<\/strong><\/span><\/h2>\n

As per para 5(b) of Schedule II of CGST Act, following is ‘supply of service’<\/span><\/p>\n

\u2018Construction 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<\/strong> issuance of completion certificate, where required, by the competent authority or after its first<\/em><\/strong> occupation, whichever is earlier<\/em><\/strong>.\u2019<\/span><\/p>\n

Explanation. <\/em>\u2014For the purposes of this clause-<\/span><\/p>\n

\n
• the expression “competent authority” means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely \u2013<\/span><\/li>\n<\/ul>\n
  \n
  1. an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or<\/span><\/li>\n
  2. a chartered engineer registered with the Institution of Engineers (India); or<\/span><\/li>\n
  3. a licensed surveyor of the respective local body of the city or town or village or development or planning authority.<\/span><\/li>\n<\/ol>\n
     \n
     • the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure.<\/em><\/span><\/li>\n<\/ul>\n

       Residential Complex:<\/strong><\/span><\/h2>\n

       “Residential complex” means any complex comprising of a building or buildings, having more than one single residential unit<\/span><\/p>\n

       \n
       • para 2 of Notification No. 12\/2017-CT (Rate) and No. 9\/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.<\/span><\/li>\n<\/ul>\n

         Single Residential Unit:<\/strong><\/span><\/h2>\n

         “Single residential unit” means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family<\/span><\/p>\n

         \n
         • para 2 of Notification No. 12\/2017-CT (Rate) and No. 9\/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.<\/span><\/li>\n<\/ul>\n

           The tax rate is 12% – SGST – 6% and CGST – 6%.<\/span><\/p>\n

           IS COMPLETION CERTIFICATE ESSENTIAL FOR BUILDER OR DEVELOPER OR FIRST OCCUPATION SUFFICIENT?<\/strong><\/span><\/h2>\n

           If entire consideration<\/strong> is received ‘after its first occupation’,<\/em><\/strong> a builder or developer is not liable to pay GST, even if completion certificate or occupancy certificate is not obtained from authorities.<\/span><\/p>\n

           The words ‘after its first occupation’<\/em><\/strong> are confusing.<\/span><\/p>\n

           ‘Occupation’ by whom?<\/span><\/p>\n

           The ‘occupation’ should be of that particular flat which is being sold or any flat in that complex?<\/span><\/p>\n

           In many places, there is delay in issuing completion certificate [Corruption is of course one major reason, but there can be other reasons too]. However, the customers start occupying the flats.<\/span><\/p>\n

           State Authorities register flat even before obtaining completion certificate<\/strong>:<\/span><\/h2>\n

           In many States, documents relating to flats are registered by State Government authorities even before building is completed. Thus, State Governments have willy-nilly accepted these transactions as transactions in immovable property.<\/span><\/p>\n

           Registration under Registration Act required only in case of immovable property:<\/strong><\/span><\/h2>\n

           As per section 17(1)(b<\/em>) of Registration Act, Non-testamentary Instrument purport or operate to create, declare, assign, limit or extinguish (whether present or future) any right, title or interest (whether vested or contingent) of the value of over Rs. 100 in immovable property requires compulsory registration with Registrar or Sub-Registrar appointed by Government.<\/span><\/p>\n

           As per section 2(6) of Registration Act, Immovable property includes any land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit arising out of land, and things attached to earth or permanently fastened to anything which is attached to earth, but does not include standing timber, growing crops or grass.<\/span><\/p>\n

           Tax on land and buildings is State subject<\/strong>:<\/span><\/h2>\n

           Taxes on lands and buildings is specified in Entry No. 49 of List II (State List).<\/span><\/p>\n

           This entry is continuing under GST Law also.<\/span><\/p>\n

           Thus, even under GST Law, Taxes on lands and buildings is within jurisdiction of State Government. Central Government can impose tax on land and buildings only to the extent permitted by GST Council. This is done by including ‘deeming provision’ in Schedule II of CGST Act or in a notification.<\/span><\/p>\n

           Conclusion:<\/strong><\/span><\/h2>\n

           It can be argued that once the buyers start occupying the flats, the building is complete and is ‘immovable property’.<\/span><\/p>\n

           It is not necessary that the flat being sold itself should have been occupied. In that case, GST should not apply for subsequent sale of other flats, even if completion certificate has not been obtained. This is particularly so where State Registering Authorities register the sale deed and willy-nilly accept is as sale of immovable property.<\/span><\/p>\n

            <\/p>\n","protected":false},"excerpt":{"rendered":"

           Introduction Works Contract Service is a specie of construction service. This activity has special relevance as it has been a very litigation prone issue. Earlier, after introduction of service tax on services, complexities of ‘works contract’ increased as issue of valuation, TDS and reverse charge made this issue complex. After introduction of GST and abolition … Read more<\/a><\/p>\n","protected":false},"author":309,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[15],"tags":[509],"class_list":["post-4420","post","type-post","status-publish","format-standard","hentry","category-gst","tag-gst-for-builders-and-developers"],"yoast_head":"\n