There has always been a doubt over the requirement of registration for a person supplying Work Contract (hereinafter referred to as WCT) service because of varied understanding of the legal provisions involved therein.
Let’s refer to some rulings in this regard:-
CASE NAME | FACTS & RULING |
IN RE: JAIMIN ENGINEERING PRIVATE LIMITED [2018 (9) TMI 694 – AUTHORITY FOR ADVANCE RULINGS, RAJASTHAN] | Facts:- Supplier is engaged in construction of cold storages at various parts of Country. They are expecting to do some construction work in the state of Rajasthan whereas they are located in the state of Gujarat and registered there in GST. Ruling:- While supplying services if the supplier of services (i.e. applicant who in the given case is a Works Contractor and is registered in State of Gujarat) has any place of business/office in the State of Rajasthan i.e. has a fixed establishment for operation in State of Rajasthan (place where the services are to be provided) then he is required to get himself registered in State of Rajasthan.
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IN RE: M/S. T AND D ELECTRICALS [2020 (4) TMI 693 – AUTHORITY FOR ADVANCE RULING, KARNATAKA] | Facts:- Applicant is registered as works contractor and wholesale supplier in Jaipur, Rajasthan. They have been awarded a contract by M/s Shree Cement Ltd., Rajasthan for work of the contract include complete electrical & instrumentation jobs; installation, testing and commissioning at township. The job involves supply of material and installation, testing and commissioning of the same at township, Karnataka Cement Project (a unit of Shree Cement Ltd.,) in the state of Karnataka. Ruling:- Separate GST registration in other State not needed for execution of contract in that state
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IN RE: M/S. GEW (INDIA) PVT. LTD. [2021 (11) TMI 394 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA] | Facts:- In this case, the applicant is a company who got a sub-contract work from M/s. L&T, claimed to be a works contract, for erecting steel structure casted and bolted on ground in the civil foundation, at the site at Karwar, Karnataka. Ruling:- A. The applicant need not obtain separate registration in Karnataka, for supply of services and can raise the invoice by charging IGST from their registered office at Noida, UP, with place of supply as Karnataka. B. Since the applicant are neither having nor intending to have any establishment at the site at Karwar, Karnataka, they cannot obtain ISD registration for the site at which they are delivering service.
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M/S PRAGATI ENGINEERS VERSUS UNION OF INDIA & ORS. [2022 (5) TMI 345 – DELHI HIGH COURT] | Facts:- The petitioner has already obtained registration in Delhi and the aforesaid clause mandates that the petitioner should obtain registration in the State in which the work is to be taken up, or as required by the GST authorities. The petitioner claims that since it is already registered in Delhi, it cannot be required to be registered at any other place Ruling:- The company is required to take registration as ‘casual taxable person’ (defined in section 2(20) of CGST Act) in Hyderabad in which the work is taken up where there is no fixed place of business. The Delhi HC opines that the concern of the petitioner having no place of business/ fixed establishment in Hyderabad is sufficiently addressed by the definition of casual taxable person.
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Although the majority of them have ruled that there shall not be any mandatory requirement for regular registration in states where WCT supply is given, still we shall look upon some legal provisions of CGST Act 2017 on which the aforementioned rulings have emphasized: –
- Section 22. Persons liable for registration – Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees: ……………………
The term “from where he makes a taxable supply of goods or services or both” takes us to:-
- Section 2(71). Definition of “location of the supplier of services” means –
(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;
(b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
(c) where a supply is made from more than one establishment, ……………..
(d) in absence of such places, ………………….
and, post reading clauses (a) and (b) it is important to understand the definition of: –
- Section 2(50). Definition of “fixed establishment” means – A place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs
- Section 2(85). Definition of “place of business” means – A place from where the business is ordinarily carried on, and includes
(a) warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called;
Although it is a subjective topic, in cases where the contractor is allotted a temporary workplace adjacent to or on work sites by the principal employer/client for the execution of work, such sites shall not fall under the definition of “Fixed Establishment” because:-
- Such sites are temporary in the form of portable prefabricated cabins/ containers for site engineers/supervisors to use for the execution of work and don’t have a sufficient degree of permanence.
- Such sites have no suitable structure in terms of human and technical resources to supply WCT services, rather such trait is present in the head office of the registrant (registered Place of Business) from where his designing and planning team is instructing on whose directions the site engineers/ supervisors usually operate.
Practical & Legal Challenges in having multiple registrations in WCT Supply states: –
- Filing of registration Form REG-01: – There is no written agreement (neither rent agreement nor consent letter) for occupancy of such work site offices, to be uploaded for filing Form REG-01.
Also, there is neither any Fixed Establishment nor Place of Business anywhere else, in the state where work has been carried on, for it to qualify as the “Location of supplier of services” pertaining to relevant WCT Services.
- No godown or storage of goods:- Goods are usually kept under open sky, near railway tracks (Railway contracts), or at work sites in case of WCT services involving Bridge works, Construction of residential or commercial buildings, Road constructions, Contracts involving construction of structures in Cement plants, Government or Private departments etc.
It gets consumed very soon post-delivery, and there is no specific need to store it in Godowns or Warehouse, hence such sites don’t fall under clause (a) of the definition of “Place of business”.
- Complying with Section 35 read with CGST Rules 2017:- Even if the person applies for registration at some place foreign to the actual work site in the state post somehow arranging necessary documents (although it shall not be advisable), the books of accounts pertaining to such WCT Supply are still maintained at the Principal place of business (Head office) which is in strict violation of legal provisions, if separate registration is taken.
- Acknowledging the Legal notice/letters:- The applicant would not be able to acknowledge the physical notices/letters served under various provisions especially Chapters 12 to 15 at such place, because such premises are not occupied by any person and are used for the sake of registration only (if applied).
- Casual Taxable Person: – Such registrations are usually considered a good option for, a person who does not have a fixed place of business in the state for execution of work contracts, but there is a limitation as per section 27 of the law for a period of validity which is merely 90 days (which can be extended to 90 more days).
So basically, if the contract includes an execution period of more than 180 days i.e. 6 months, then such a category of registration is not among the available option.
CONCLUSION:-
INPUT TAX CREDIT
Input Tax Credit (hereinafter referred to as ITC):- For the WCT supplier there involves both inward supply of Goods and Services:-
Legal Provisions:-
Section 16 – Eligibility and conditions for taking input tax credit
Sub-section 2
(b) he has received the goods or services or both.
Almost all the sub-section/clauses are considered to be fulfilled but there has been a buzz over clause (b) of sub-section 2 which asks for receipt of goods or services to avail the itc and is contended that if the person is not registered in a particular state then how does the goods or services qualify to be “RECEIVED” by WCT provider, without presence in that state as the supply is delivered at work site and not at the place of registration.
But, there is an explanation to this clause which has further been amended via CGST Amendment Act CGST Amendment Act 2018 w.e.f 01-02-2019 in respect of services. It says:-
[Explanation. – For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services–
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;]
CONCLUSION:-
PLACE OF SUPPLY (For Inward supplies)
Let’s again refer to a ruling in this regard –
CASE NAME | FACTS & RULING |
IN RE: M/S. T AND D ELECTRICALS [2020 (4) TMI 693 – AUTHORITY FOR ADVANCE RULING, KARNATAKA] | Facts:- Applicant is registered as works contractor and wholesale supplier in Jaipur, Rajasthan. They have been awarded a contract by M/s Shree Cement Ltd., Rajasthan for work of the contract include complete electrical & instrumentation jobs; installation, testing and commissioning at township. The job involves supply of material and installation, testing and commissioning of the same at township, Karnataka Cement Project (a unit of Shree Cement Ltd.,) in the state of Karnataka. Ruling:- A. The dealer in Rajasthan has to charge CGST & SGST when the goods, purchased by the applicant, are shipped to project site in Karnataka, under bill to ship to transaction in terms of Section 10(1)(b) of the IGST Act 2017. B. The dealer in Karnataka has to charge IGST when the goods, purchased by the applicant, are shipped to project site in Karnataka, under bill to ship to transaction in terms of Section 10(1)(b) of the IGST Act 2017.
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As already ruled above, for goods procured from suppliers registered in the same state of registration, CGST + SGST would be charged and from suppliers registered in any other state including the state of the work site, IGST would be charged by suppliers.
For services, it has been interpreted that the sub-contractor of services which can be in the form of Manpower supply, Engineering work, Earth work, Machinery rental services, etc. or even the complete work being sub-contracted to some other person,
Place of supply shall be decided based upon the location of immovable property as per Section 12(3) (a) of the IGST Act which is reproduced below:
(3) The place of supply of services,––
(a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or
(b)…… (c) ……, (d) ……
shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located:
One important thing to be noted here is that clause 3 is to be referred to only in case the services provided are “directly” in relation to an immovable property, whereas such direct relation is absent in case of services provided by the sub-contractor to the principal contractor, instead such services are made to Principal Contractor as per his directions, hence Place of supply is to be determined as per section 12 (2) (a) i.e. it will be the location of registered person.
CONCLUSION:-
and,
For services, as discussed above Place of supply shall be determined as per Section 12(2) (a) of the IGST Act and it shall be the location of the registered person (Contractor).
DOCUMENTS FOR THE MOVEMENT OF GOODS
- E-Way bill
CBIC has issued a press release dated 23/04/2018 in this regard, clarifying the requirement of the E-Way Bill for the “Bill to Ship to” model of supplies.
There is an option over the E-Way bill portal which allows to select the transaction type as a “Bill to Ship” model and goods can be delivered to work sites conveniently in such a scenario.
- Delivery Challan
Rule 55(1) (c) of CGST Rules 2017, governs the rule pertaining to “Transportation of goods without issue of invoice”
The contractor is required to move consumables and assets to the work site, for mobilization of work and later post-completion or during the work, such goods are also moved to other sites (which may be in some other state too) as per requirement of work.
Such transactions don’t qualify for the supply of goods, rather the goods are said to be moved for “Own use”
In such cases, a delivery challan needs to be prepared as per Rule 55(1) (c).
Also, the value of goods shall be determined as per books of accounts, and no tax shall be mentioned as such “transport is not for the supply to any consignee”.
HOW REVENUE TRAVELS IN WORK CONTRACT SERVICES
Place of supply is a crucial factor in determining the state to which revenue should accrue.
From section 12(3) (a) of the IGST Act it seems the lawmakers have an interest in accruing the revenue to the state where such immovable property is located in the case of WCT supplies.
Let’s understand this with an example:-
Party A having its head office in Madhya Pradesh, has been awarded a contract for the construction of an immovable property located in Rajasthan by Party B registered in Rajasthan.
For the execution of work, Party A will procure goods and services from various sellers across the country to be delivered directly to the work site located in Rajasthan.
It will also deploy owned assets and goods for own use at different intervals during the contract period, which will not be bought afresh and will be re-used at other sites post-completion of the present contract.
Here we are going to compare 2 Cases:-
- Party A doesn’t take separate registration in Rajasthan
- Party B takes separate registration in Rajasthan
CONCLUSION:-
Hence the WCT supplier shall be at his liberty to take the registration and shall not be forced to take separate registration, as it is not in violation of the provisions of law as discussed above.
SUGGESTIONS
- CBIC shall come up with circulars or amendments in statute to bring more clarity to legal provisions for Work contractors.
- Some standard operating procedures shall be introduced for work contractors operating in other states.
- GSTN and CBIC shall introduce an option to update additional business places in Core-field, which is located in a state, other than the state of the principal business place.
- Casual taxable person registration shall be allowed to be valid for more than 6 months, as per the time limit of the work order.
- Some specific changes shall be made in the Eway bill form for transit of goods on delivery challan (for own use)
- Assessment, Audit, Demand & Recovery, etc. notices/letters shall always be communicated electronically to GSTIN held by head office for timely compliance, because GSTIN of site offices are held for a temporary period and nobody is present their post completion of work to acknowledge the physical notices.
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