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CA Sanjay Jain, Partner SSPJ & Co.
sanjay@spjca.in, +91-8383006028
Impact of Section 142(11)(c) of Central Goods & Service Tax, 2017 & its compliance on suppliers providing Works Contracts and Builders Services
- Introduction
Section 142 of Central Goods and Service Tax Act, 2017 (“CGST”) contains provisions for various business situation which may arise in a business entity during initial transitional period from existing laws to GST regime. Section 142(11) of CGST envisages one such situation and it says that:-
(a) Notwithstanding anything contained in section 12, no tax shall be payable on goods under this Act to the extent the tax was leviable on the said goods under the Value Added Tax Act of the State;
(b) notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994;
(c) where tax was paid on any supply both under the Value Added Tax Act and under Chapter V of the Finance Act, 1994, tax shall be leviable under this Act and the taxable person shall be entitled to take credit of value added tax or service tax paid under the existing law to the extent of supplies made after the appointed day and such credit shall be calculated in such manner as may be prescribed.
- Analysis of section 142(11)
The provisions of this sub section deal with situation wherein point of taxation had already been occurred under the erstwhile State VAT Laws and /or Chapter V of Finance Act, 1994 but the supplies of goods or services or both are made on or after 1st July, 2017, being appointed date under the CGST.
Clause (a) of this subsection says that if the VAT was leviable on goods under the State VAT laws then such goods shall not be subject to tax again under section 12 of CGST. Similarly, under clause (b) of this subsection, if the service tax was leviable on services under Chapter V of Finance Act, 1994 then such services shall not be subject to tax again under section 13 of CGST.
In both these clauses, the Parliament had used the word “leviable” instead of word “paid”. Thus it may be inferred that the intention of the Parliament is to avoid double taxation on all supply of such goods or services made on or after appointed date which had already suffered tax under the erstwhile state laws or Finance Act, as the case may be. It appears that it is immaterial whether taxes so levied on the dealer or service provider was actually paid to the government exchequer or not by them.
It is pertinent to note that point of taxation under the VAT Laws was usually sale of goods, i.e. transfer of property in goods, whereas under the Finance Act, it was time of provision of services or receipt of payment, whichever is earlier. Therefore, both these clauses are mutually exclusive in operation and does not make any conflict among themselves.
However clause (c) of this subsection considers a situation where both VAT and service tax was paid (not levied or leviable) on a transaction under the VAT Laws and Finance Act, but whole or partial supplies of goods or services is made on or after appointed date. In this case, tax under CGST shall be leviable and credit of earlier taxes so paid will be available in the prescribed manner.
However, it may be noted that the Parliament, in this clause, had used the word “paid” instead of word “leviable”. Thus, it appears that it is immaterial whether the tax was leviable or not under the erstwhile VAT Laws & Finance Act, but it must have been actually paid to the government exchequer by or on behalf of dealer or service provider for the purpose of application of this clause.
This situation normally arises in the case of works contracts including builders’ construction activities (i.e. flats, villa, shops etc.) where both type of taxes were paid as per following manner.
- Works Contracts
- VAT- The contractee was under obligation to deduct & deposit works contract tax (WCT) on advances paid to contractors even though not leviable till the raising of invoice upon completion of certain agreed milestone or stages of contract;
- Service Tax: The contractor was under obligation to charge and deposit service tax on such advances.
- Construction of flats etc. by Builder/ Developer
- VAT- The Builder /Developers was under obligation to deposit VAT on advances received from prospective customers in the case of under construction properties provided he opted for composition schemes as applicable for builders or developers;
- Service Tax: The builder / developer was under obligation to charge and deposit service tax on such advances.
Thus, while under service tax in terms of Finance Act, 1994, the contractor or builder were liable to deposit tax on advances from their customers, no such obligation were there in case of State VAT laws except the situation discussed above.
This leads to a query whether a builder / developer who had not paid any taxes on advances received from his customers, will be hit by this clause?
In author’s view, this clause shall have no impact on builders who had not paid any VAT on such advances under respective State laws.
- Transitional Compliance
As per rule 118 of CGST Rules, 2017, any supplier who is covered under clause (c) of sub section (11) of section 142 of CGST Act, is required to file electronically a declaration in Form GST- TRAN-1 within a period of ninety days of the appointed date declaring the proportion of supply on which Value Added Tax or service tax has been paid before the appointed day but the supply is made after the appointed day, and the Input Tax Credit admissible thereon.
- Conclusion
In view of the legal provisions enumerated above, all suppliers who comes under the ambit of this sub section should draw a plan to arrive at proportionate value of supply over which taxes to be paid under GST and credits to be claimed for taxes paid earlier under existing laws.
Disclaimer:-
This article is authored for general awareness purpose and do not represent any financial, legal or professional opinion or advise in any manner for any purpose.
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