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Contents

Services provided to Govt. & Local Authority

Works Contract under VAT & GST

Govt., Local Authority, GovernmentalAuthority & Govt. Entity.

Services provided by Govt. & Local Authority

GST PPU , CT, GOWB

Reverse charges in relation to Govt. Supply.

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Concept of works contract in VAT

GST PPU , CT, GOWB

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The Forty-sixth Amendment inserted a clause, (29-A), into Article 366 which says:

(29-A) `tax on the sale or purchase of goods' includes- “(b) 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.”

In WBVAT Act, 2003 this contract was applicable forbuilding, construction, repair, processing etc of any

immovable property or any movable property[Sec 2(57) of WBVAT Act, 2003].

In WBVAT Act, 2003 there was no concept ofpredominant supply. Tax was payable on the taxable valueof transfer of goods only.

Concept of works contract in VAT

GST PPU , CT, GOWB

Concept of works contract in GST

5GST PPU , CT, GOWB

6Works contract in GSTSection 2(119): “works contract” means a contract for -

building

construction

fabrication

completion

erection

installation

fitting out

improvement

modification

repair

maintenance

renovation

alteration

commissioningof 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;

GST PPU , CT, GOWB

Immovable Property

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“Immovable Property” has not been defined in theFinance Act, 1994. However, in terms of section 4 of theGeneral Clauses Act, 1897, the definition of immovableproperty is as under:“Immovable Property” shall include land, benefits to arise out ofland, and things attached to the earth, or permanently fastenedto anything attached to the earth.”

It may be noted that the definition is inclusive and thusproperties such as buildings and fixed structures on land wouldbe covered by the definition of immovable property. Theproperty must be attached to some part of earth even ifunderwater.

GST PPU , CT, GOWB

8Illustration 1: Immovable property

Ans: If a machine (sayGen set) is fastened on aframe and is capable ofbeing shifted from thatplace, it is capable ofbeing sold. It is goodsand not immovableproperty.– Mallur SiddeswaraSpinning Mill case (166)ELT 154 (SC).

Installation of a heavy generation on the

ground of any Govt. Office by a contractor.

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Supply – Composite & Mixed

Composite Supply Mixed Supply

Two or more taxable supplies ofgoods/ services or both or anycombination thereof whennaturally bundled and supplied inconjunction with each other inordinary course of business

One of the supplies is theprincipal supply

Two or more individualsupplies of goods/ servicesor both or any combinationthereof made in conjunctionwith each other for a singleprice

Rate of tax applicable

That of the principal supply

Rate of the supply which attracts the highest rate of tax

9GST PPU , CT, GOWB

Works contract: Whether it is a supply of goods or service or both?

As per Schedule – II, entry 6 (a), thecomposite supply of works contract asdefined in clause (119) of section 2 willbe treated as supply of services.

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So, primarily it is a composite supply but as per Sch. II itis to be treated as supply of service. Thus, in case ofcomposite supply of works contract the rule of principalsupply does not apply.

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Illustration 2: Composite works contract to Govt.

PWD awarded a public road repair & maintenance job to a contractor X.

Is it a works contract?

What should be the rate of tax?

Answer: 1. It is a composite works contract supplied by contractor X, hence the SGST rate is 6%. [Item no. iii of Sl. No. 3 of Notification no.1135-FT dt.28.6.17, 12/2017 – Central Tax (Rate) read with notification no.1497-FT dt.22.08.2017, 20/2017-Central Tax (Rate)].

2. Pure service is provided to the Govt. for activity in relation to functions entrusted to Panchayat under article 243G or to a Municipality under article 243W of the Constitution, it is exempted. [Sl. No. 3 of Notification no.1136-FT dt.28.6.17, 12/2017 –Central Tax (Rate)].

If material is supplied by PWD free of cost what will be the rate of tax?

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Illustration 3: Supply of composite works contract

A cold storage construction project is carried by a contractor ‘X’.

2. Whether the works contractor is entitledto claim ITC?

1. What will be the rate of tax on thiscomposite works contract?

3. Whether the owner of cold storage isentitled to claim ITC on the inward supply ofinput, input service or capital goodsrequired to build the cold storage?

Ans: 1. * SGST=@6% if it is for storage of agricultural produce. *[Entry no. (v) of Sl. No. 3 of Notification no.1135-FT dt.28.6.17, 12/2017 –Central Tax (Rate) read with notification no.1497-FT dt.22.08.2017, 20/2017-Central Tax (Rate)].

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Local Authority: Applicability of GST

1. Whether services provided by Local Authority are taxable?

2. Whether Local Authorities are required to be registered?

1. Community halls / guest houses are given on rent.

2. Ponds given on lease to Fisheries

3. Stadium given on rent for various functions.

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Government

Under WBSGST Act, 2017 ‘Government’ meansthe State Government of West Bengal [sec2(53)] and in CGST Act, 2017 ‘Government’means the Central Government [sec 2(53)].

As per clause (23) of section 3 of the GeneralClauses Act, 1897 ‘Government’ includes bothCentral Government and any StateGovernment.

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Local Authority

Local authority: Sec 2(69) :-Panchayat, Municipality,Municipal Committee, Zilla Parishad, District Board, and anyother authority legallyentitled to, or entrusted bythe Central Government orany State Government withthe control or managementof a municipal or local fund;

Cantonment Board as defined in section 3 of the Cantonments Act, 2006; a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution; a Development Board constituted under article 371 of the Constitution; or a Regional Council constituted under article 371A of the Constitution;

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Governmental Authority & Government Entity Not.no.1796-F.T. Dt.13.10.17[32/2017-State Tax (Rate)“Governmental Authority”means an authority or a board orany other body, -(i) set up by an Act of Parliament

or a State Legislature; or(ii) established by any Govt,

with 90 per cent. or moreparticipation by way of equityor control, to carry out anyfunction entrusted to aMunicipality under art.243W ofthe Constitution or to a Panchayatunder art.243G of theConstitution;

“Government Entity” meansan authority or a board or anyother body including a society,trust, corporation –(i) set up by an Act of Parliament

or a State Legislature; or(ii) established by any Govt,with 90 per cent. or moreparticipation by way ofequity or control, to carry out

a function entrusted bythe Central Govt, State Govt,Union Territory or a localauthority.”

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Services provided BY the Govt. & Local Authority

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18Illustration 3: Registration & Tax liability of Govt.

Whether discharging of sovereign functions by the Govt./Local Authority is a supply of service?

Whether there is anyoutput tax liability inrespect of such activities?

Whether Govt. is alsorequired to obtain PANbased GSTIN?

Ans: Govt. is also required to obtain PAN based GSTIN in case of any taxable supply subject to the provisions of s.22 & 24

2(84): in the definition of

‘Person’, Govt. is

included.

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Major activities of Govt.

Example 1: Zilla Parishadundertakes construction of Roads, culverts, bridges, ferries, etc.Example 2: Block provides adult and non-formal education. Example 3: Panchayat undertakes development of Rural housing project.

Whether all these are taxable supplies?

Notification No.1138-FT of WBGST dt.28.06.17:Services by Govt./LocalAuthority by way of anyactivity in relation to afunction entrusted to aPanchayat under article243G of the Constitutionare neither to betreated as supply ofgoods or services.

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1. Agriculture, including agricultural extension. 2. Land improvement, implementation of land

reforms, land consolidation and soil conservation. 3. Minor irrigation, water management and

watershed development. 4. Animal husbandry, dairying and poultry. 5. Fisheries. 6. Social forestry and farm forestry. 7. Minor forest produce.

Functions entrusted to a Panchayat under Article 243G of the Constitution

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8. Small scale industries, including food processing industries.

9. Khadi, village and cottage industries. 10. Rural housing. 11. Drinking water. 12. Fuel and fodder. 13. Roads, culverts, bridges, ferries, waterways and

other means of communication. 14. Rural electrification, including distribution of

electricity. 15. Non-conventional energy sources.

Functions entrusted to a Panchayat under Article 243G of the Constitution

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16. Poverty alleviation programme. 17. Education, including primary and secondary

schools. 18. Technical training and vocational education. 19. Adult and non-formal education. 20. Libraries. 21. Cultural activities. 22. Markets and fairs. 23. Health and sanitation, including hospitals,

primary health centres and dispensaries.

Functions entrusted to a Panchayat under Article 243G

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24. Family welfare. 25. Women and child development. 26.Social welfare, including welfare of the

handicapped and mentally retarded. 26.Social welfare, including welfare of the

handicapped and mentally retarded. 27. Welfare of the weaker sections, and in particular,

of the Scheduled Castes and the Scheduled Tribes. 28. Public distribution system. 29. Maintenance of community assets.

Functions entrusted to a Panchayat under Article 243G

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24Illustration 4: Tax liability for services by Govt.

Public health, sanitation conservancy and solid waste management services are undertaken by Municipality.

Primary health centre supplies medicines to indoor patients.

Contract of construction of roads, bridges, etc.

Municipalities /Panchayat collects trade license fee.

Whether all services of PWD, Municipality, Block Health Centre make any

supply of taxable service?

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Services by Central Government,State Government, Union territory, localauthority or governmental authority byway of any activity in relation to anyfunction entrusted to a municipalityunder article 243W of the Constitutionare exempted.

Sl. No. 4 of Notification No.1136 – FT dated 28.06.2017

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Services by Central Government,State Government, Union territory,local authority or governmentalauthority by way of any activityin relation to any function entrustedto a Panchayat under article 243G ofthe Constitution are exempted.

Sl. No. 5 of Notification No.1136 – FT dated 28.06.2017 read with Not. No.1796 FT dt.12.10.2017 (32/2017 – CT Rate)

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1. Urban planning including town planning. 2. Regulation of land-use and construction of buildings. 3. Planning for economic and social development. 4. Roads and bridges. 5. Water supply for domestic, industrial and commercial purposes. 6. Public health, sanitation conservancy and solid waste management. 7. Fire services.

Functions entrusted to a Municipality under Article 243W of the Constitution

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8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded. 10. Slum improvement and up-gradation.

11. Urban poverty alleviation. 12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

Functions entrusted to a Municipality under Article 243W of the Constitution

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13. Promotion of cultural, educational and aesthetic aspects. 14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.15. Cattle pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths. 17. Public amenities including street lighting, parking lots, bus stops and public conveniences. 18. Regulation of slaughter houses and tanneries

Functions entrusted under Article 243W of the Constitution

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Illustration 5: Govt. Tenders

Ans: Such supply of service by the Govt. is a activity in relation to function entrusted under art. 243G or art. 243W of the constitution. Therefore, it is exempted. [Sl. No. 4, 5 of Notification no.1136-FT dt.28.6.17, 12/2017 –Central Tax (Rate)].

Application Fees received byPWD from a contractor forparticipating in a Govt.tender for construction of apublic road. Whether it is ataxable service?

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Illustration 6: Govt. Tenders

Ans 1: There is no supply of goods or service or both. Therefore it is not taxable.

1. Ernest money received by PWD from a contractor for allotting roadconstruction works contract. Whether it is a taxable service?

2. Mobilization advance is received by the contractor. Whether any taxinvolvement is there in this advance?

3. Contractor raised first RA bill. What will the impact of tax on that RA bill?

Ans against 2 & 3: As per column (iv) of sl. No.3 in Not. No.1135 FT. dt.28.6.2017 read with Not. No.1497 FT dt.22.08.2017, the supply of composite works contract to the Govt. is taxable @6% for SGST & @6% for CGST.

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Services by the Central Government, StateGovernment, Union territory or local authority areexempted excluding –(a)services by the Department of Posts by way of speed post,express parcel post, life insurance, and agency services provided to a personother than the Central Government, State Government, Union territory;

(b) services in relation to an aircraft or a vessel, inside or outsidethe precincts of a port or an airport;

(c) transport of goods or passengers; or

(d) any service, other than services covered underentries (a) to (c)above, provided to business entities

Sl. No. 6 of Notification No.1136 – FT dated 28.06.2017

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33Illustration 7: Supply by the Govt./Local Authority

Many are of the view that it is taxable as the service is provided by a Government to a Business Entity whose turnover is above Rs.20 Lakh(assumed) in the preceding financial year and the consideration involved is > Rs.5000/-. GST will be payable under reverse charge.[Sl. No. 6, 7 & 9 of Notification no.1136-FT dt.28.6.17, 12/2017 –CT(Rate). Sl. No.5 of Notification no.1137 dt. 28.6.17, 13/2017-CT(Rate)]

Now if the Fees are collected by PWD from a contractor for participating in a Govt. tender for construction of new building of Commercial Tax Department, whether it is taxable or not?

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Services provided by the Central Government, StateGovernment, Union territory or local authority to a businessentity with an aggregate turnover of up to twenty lakhrupees in the preceding financial year are exempted, otherthan:-(a) services,-(i) by the Department of Posts by way of speed post, express parcel post,life insurance, and agency services provided to a person other than the CentralGovernment, State Government, Union territory;(ii) in relation to an aircraft or a vessel, inside or outside theprecincts of a port or an airport;(iii) of transport of goods or passengers; and(b) services by way of renting of immovableproperty.

Sl. No. 7 of Notification No.1136 – FT dated 28.06.2017

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Services provided by the Central Government, StateGovernment, Union territory or local authority where theconsideration for such services does not exceed five thousandrupees is exempted:

except -(a) services,-(i) by the Department of Posts by way of speed post, express parcel post,life insurance, and agency services provided to a person other than the CentralGovernment, State Government, Union territory;(ii) in relation to an aircraft or a vessel, inside or outside theprecincts of a port or an airport;(iii) of transport of goods or passengers;

Provided further that in case of continuous supply of service…….

Sl. No. 9 of Notification No.1136 – FT dated 28.06.2017

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Reverse Charge applicable: Services supplied by theCentral Government, State Government, Union territory orlocal authority to a business entity excluding, -

(1)renting of immovable property, and(2) services specified below-(i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;(iii) transport of goods or passengers.

Reverse Charge: Sl. No. 5 of Notification No.1137 – FT dated 28.06.2017

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Services provided by the Central Government, StateGovernment, Union territory or local authority toanother Central Government, State Government, Unionterritory or local authority are exempted, exceptservices-(i) by the Department of Posts by way of speed post, expressparcel post, life insurance, and agency services provided to a person otherthan the Central Government, State Government, Union territory;(ii) in relation to an aircraft or a vessel, inside oroutside the precincts of a port or an airport;(iii) of transport of goods or passengers; and

Sl. No. 8 of Notification No.1136 – FT dated 28.06.2017

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Illustration 8: Government Quarters

Govt./Local Authority provides

residential quarters to it’s

employees against charges, licence fees or deduction of

HRA.

Whether this supply of service by Govt. is taxable under GST?

As per Sl. No. 12 of Notification no.1136-FT

dt.28.6.17, 12/2017 –Central Tax (Rate) such

renting services of residential dwelling for use as residence is exempted.

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Illustration 9: Inland Water Transport Services

Whether this supply of service by Govt. is taxable

under GST?

It is an exempted service.[Sl. No.17 of Notification no.1136-FT dt.28.6.17, 12/2017 –Central Tax (Rate)]

Govt./Local Authority provides

ferry services to passengers.

If this service is provided by business entity, whether it is

exempted?

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Illustration 10: Inland Water Transport Services

Whether this supply of service is taxable under GST?

Ans: It is a taxable service. If it is a tour operators service then SGST rate is @2.5% without any ITC (Sl. No.23 of Not. No.1135 FT dt.28.6.2017)

Sundarban river cruise services

for tourism purpose.

If the supplier of service purchase River Cruise for this

purpose whether ITC is available?

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Illustration 11: Inland Water Transport of Goods

Whether this supply of service is taxable under GST?

Ans: As per Sl. No.18 of Not. No.1136 FT dt.28.6.2017, Services of

transportation of goods in inland waterways is exempted. But, services

of goods transport in other waterways are taxable. Goods

carried by vessels in other waterways is taxable @ 2.5% + 2.5%

[Sl.no.9 of Not. N.1135 FT]

Inland waterways

goods transport.

GST PPU , CT, GOWB

42Illustration 12: Non-performance of a contract

PWD awarded a road project to a contractor

“X”. PWD forfeited

Rs.10 Lakhfrom retention

money of ‘X’ for delay in

completion of works.

Whether this forfeiture is consideration against any supply of service? If yes, who is the supplier here and who is the recipient?

In an opposite scenario: Damage is caused by the Govt. due to which charges are paid by the Govt.What will happen then?

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Services provided by the State Government,Central Government, or Union territory orlocal authority by way of tolerating nonperformance of a contract for whichconsideration in the form of fines orliquidated damages is payable to the CentralGovernment, State Government, Unionterritory or local authority under suchcontract are exempted.

Sl. No. 62 of Notification No.1136 – FT dated 28.06.2017

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Illustration 13: Permanent disposal of asset by Govt.

Directorate of Commercial Taxes, Govt. of WB. made auction sale of his old and condemned vehicle.

Q.1: Whether this will be treated as taxable supply under GST?

????

Ans: Yes, it’s a taxable supply. But, GST will bepayable under reverse charge by the registeredrecipient of such used vehicles, seized andconfiscated goods, old and used goods, waste andscrap as per notification no.1800-FTdt.13.10.2017, 36/2017 – CT (Rate).

Q.2: If this vehicle is disposed off without any consideration, whether that will be treated as supply?Ans: If ITC has been availed on such vehicle then only it will be treated as taxable supply as per Sch. I (Sec.7).

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Illustration 14: Services to Govt. under any training program.

Training programorganized by HRDDepartment ofCommercial Taxes,Govt. of WestBengal.

Ans: As per Sl. No. 72 of Notificationno.1136-FT dt.28.6.17, 12/2017 –CentralTax (Rate), Services provided to any Govt.or UT where total expenditure is borne bythe Govt./UT is exempted. But, when such aservice is provided to person other thanGovt. / Local Authority then the same istaxable.

Whether this will be treated as taxablesupply of service?

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Supplies to the Govt. & Local Authority

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Illustration 15: Supplies to Govt.

Example 1: Contractor ‘X’ is supplying pure labour to PWD in a public road project of PWD.

Example 2: Supplier ‘Y’ is supplying different materials to PWD for a public road project of PWD.

Example 3: Contractor ‘Z’ is performing works contract job in a rural housing project of Panchayat.

Whether all these supplies to Govt./Local Authority are

taxable supply under GST?

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Pure services (excluding works contractservice or other composite supplies involvingsupply of any goods) provided to theCentral/State/UT Government or localauthority or a Governmental authority by wayof any activity in relation to any functionentrusted to a Panchayat under article 243G ofthe Constitution or in relation to any functionentrusted to a Municipality under article243W of the Constitution are exempted.

Sl. No. 3 of Notification No.1136 – FT dated 28.06.2017

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Illustration 15: Supplies to Govt. against commission

State Govt. is paying margin/ commission to fair market shop for the supply of kerosene oil through PDS.

Whether this supply of service to

Govt. is taxable under GST?

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Exempted: “Service provided by Fair PriceShops to Central Government, State Governmentor Union territory by way of sale of food grains,kerosene, sugar, edible oil, etc. under PublicDistribution System against consideration in theform of commission or margin.” [Sl. No. 11A ofNotification No.1136 – FT dated 28.06.2017read with Amendment: [1498 FT, 21/2017 dt. 22.8.17 & 2025 – FT , 47/2017dt.14.11.2017 of State Tax (Rate)]

Service provided by Fair Price Shops

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Illustration 16: Miscellaneous supply

If cooked food is supplied to the Hospital,whether it will be a supply? Yes, it’s taxable.

Nature of Supply Taxable (YES/No)

Food and drinks are supplied to indoorpatients by the hospitals. No, it’s exempted

Medicine is supplied by hospital to hisindoor patients under treatment. No, it’s exempted

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Repairing of machineries by differentperson with materials. Yes, it’s taxable.

Registration fees collection byhospital/health centre for registering aoutdoor/indoor patients.

No, it’s exempted

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Illustration 17: Miscellaneous supply

Catering services sponsored by Govt.provided to a School against charges. No, it’s exempted

Nature of Supply Taxable (YES/No)

Bus /car services provided to aCollege/University against charges. Yes, it’s taxable

Bus /car services provided to a Schoolagainst charges. No, it’s exempted

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KMC / Municipality / Panchayat Hall on rent toindividual (other than business entity). No, it’s exempted

House drainage connection Charges & drainagechocking removal charges collected by KMC/Municipality.

No, it’s exemptedGST PPU , CT, GOWB

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Disclaimer:This presentation is clarificatory in nature. It is not to be construedas a legal explanation or interpretation of the Acts and the Rules.