THE

JHARKHAND GAZETTE

EXTRAORDINARY

PUBLISHED BY AUTHORITY

4 BHADRA, 1944 (S)

RANCHI, FRIDAY 26^THAUGUST, 2022

COMMERCIAL TAXES DEPARTMENT

--------

NOTIFICATION

26^th August, 2022

Sub: Standard Operating Procedure (SOP)/Directive for post-GST payments of pending

bills related to work orders issued during pre-GST period.

S.O. No. 33 Dated 26 August, 2022--The matter relates to the Works Contract awarded by

the State Government departments/ local authorities in the pre GST period and payments and

execution of those Works Contract Services (partly or wholly) is to be made in the post GST period

i.e. from 1.07.2017.

The Goods and Services Tax (GST) has come into force w.e.f 1^st July 2017 by subsuming

various indirect taxes such as Central excise duty, Service tax VAT, CST, Entry tax, etc. Subsequent

to the enactment of GST Act w.e.f. 01.07.2017, different work departments of State Government have

sought clarifications on modalities of treatment of pending bills of different contractors where in the

contract was awarded in pre-GST regime, i.e., VAT regime and the works has completed

partly/wholly after the implementation of GST. Hon’ble Jharkhand High Court has directed the

Government of Jharkhand to issue guidelines on this matter in its order dated 16-03-2021 in WP (T)-

2108/2019.

No. 422

Jharkhand Gazette (Extraordinary), Friday, 26^th August, 2022

The main issue under consideration is for the payment of pending bills related to work order

issued during pre GST period and supply of Works Contract services is executed under GST regime

which is discussed as below;-

The term “Works Contract” is defined under sec 2(lxiii) of JVAT Act, 2005 as follows-

" Works Contract” means and includes any agreement for carrying out for cash or deferred

payment or other valuable consideration, for assembling, construction, fabrication, erection,

installation, modification, fitting out, improvement or repair of any building, road, bridge or

commissioning of any other immovable or movable property.

The term "Works Contract" is defined under sec 2(119) of JGST Act, 2017 as follows-

" 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”.

As per Para 6(a) of schedule II of JGST Act, 2017, Works Contract as defined in Sec 2(119)

shall be treated as supply of Services.

Under JVAT Act 2005, works contracts covered both movable and immovable property

whereas "Works Contract" under GST is restricted only to immovable property. In this context,

under GST, construction, building, erection, installation services etc. involving supply of both

taxable goods along with labour and other services may be construed as composite supply*.

The term composite supply is defined under Sec 2(30) of the GST Act as follows:-

*Composite supply means a supply made by a taxable person to a recipient consisting of

two or more taxable supplies of goods or services or both or any combination thereof, which are

naturally bundled and supplied in conjunction with each other in the ordinary course of

business, one of which is a principal supply.

Illustration: Where goods are packed and transported with insurance, the supply of goods,

packing materials, transport and insurance is a composite supply and supply of goods is a

principal supply.

In such cases the rate of tax shall be determined by applicable rate on principal supply.

Before introduction of the GST, the tax was levied separately on services as service tax

by the central government and on goods used in the works contract attracted central excise

duty of centre and vat of state government. For any Works contract, the goods attracted

central excise duty and VAT and Services attracted service tax.

3 Jharkhand Gazette (Extraordinary), Friday, 26^th August, 2022

Works Contract tasks

Tax type

Supply of Goods

VAT

Supply of Services

Services Tax

a new product emerges while a

Work Contract is being completed

Central Excise Duty

6. During VAT regime materials used in works contract or the goods as it may be called,

were taxable @5%, 5.5% or 14.5% or 14% and labour charges were not taxab le. Also, the

rate of Tax Deduction under JVAT Act was at Source (TDS) @ 4%. Whereas the Central taxes

were levied as service tax on services given by way of labour, design, architect etc. and central

excise duty on such goods manufactured.

7. Keeping in view the difficulties faced and feedback received so far and in compliance to

the direction given by the Hon’ble High Court of Jharkhand an SOP is being issued in

consultation with the departments concerned and after the approval of the Competent

Authority.

Under the GST tax regime, the rate of GST on Works Contracts for Government work

was notified at 18% vide notification no-11/2017,CT(R) dated 28.06.2017. However, the rate of

GST on Works Contracts for Government work was reduced to 12% [Notification no. 20/2017-

CT (Rate) dated 22.08.2017].

However, vide Notification No. 22/2021,CT (Rate) Dated – 31/12/2021, rate has

been changed to –

Services

Rate of Tax

w.e.f

Work

contract

services

provided

Government

authorities

and

Government

entity.

18%

01-01-2022

Vide Notification No. 03/2022, Dated – 13/07/2022

Services

Rate of

Tax

W.e.f

Work

contract

services

provided

central

Government,

state

Government

and

local

authorities.

18%

18-07-2022

Composite supply of works contract involving

predominantly earth work (that is constituting more

than 75 % of the value of the work contract) provided

to the central Government, state Government, local

authorities.

12%

18-07-2022

Jharkhand Gazette (Extraordinary), Friday, 26^th August, 2022

So in the period between 22.08.2017 till 17.07.2022 the rate of GST on Works

contract has been @ 12% for the service supplied to central government state government and

local authority.

9. Incidence of applicable taxes of Service Tax/VAT/ GST

Incidence of the applicable taxes shall be as follows:-

Sr.

No.

Completion of works

contract

Invoice Date

Payment Date

Applicability of Taxes

Applicable

TDS

Service

Tax

VAT on

Material used

GST

1 Up to 30.06.2017

Up to 30.06.2017 Up to 30.06.2017 Yes

Yes

VAT TDS

2 Up to 30.06.2017

Up to 30.06.2017 After 30.06.2017

Yes

VAT TDS

3 Up to 30.06.2017

After 30.06.2017

Yes

GST TDS *

4 From 01.07.2017

From 01.07.2017

Yes

GST TDS *

* TDS under GST is made applicable w.e.f. 01.10.2018. Provision of TDS was not applicable between

01.07.2017 to 30.09.2018

10.

Availability of Input Tax Credit (ITC) under GST

Unlike the VAT regime, where ITC of central taxes (Service tax and central excise duty)

were not available for discharging state tax liability, and the credit of CST was also not

available, under GST all this taxes whether levied under SGST, CGST and IGST is

available for ITC credit (Except for credit of SGST/CGST only restricted to SGST/CGST

liability respectively). Further the ITC of both goods and services are now available.

Thus it removes the cascading effect of tax by facilitating seamless flow of credit. The

aim of GST is to remove the restrictions of ITC credit in the supply chain.

In the GST regime, the input tax credit of IGST, CGST and SGST charged on any

supply of goods and/or services used or intended to be used in the course of

furtherance of business is permissible. Works Contractor is eligible to avail ITC

credited to his electronic credit ledger on GST portal subject to conditions

prescribed therein.

It is also pertinent to mention that under GST regime cross utilization of credit

of Goods and Services are available to offset ones liability which was not available

during the pre GST regime.

ii.

It is also important to mention that under GST works contractors are eligible for

availing transitional ITC on stock of Goods purchased from 01.07.2016 onwards and

declared in the returns filed, by way of filing TRAN-1 and TRAN-2.

5 Jharkhand Gazette (Extraordinary), Friday, 26^th August, 2022

11.

Payments for Work Contracts

The contract price is generally inclusive of all taxes in most of the contracts; these taxes

have now been subsumed under GST. In order to arrive at the incidence of applicable VAT/

Service Tax/ GST as mentioned at Para 9 above, the total work shall be categorized as follows:

(i)

Works completed up to 30.06.2017 and Billing completed by 30.06.2017.

(ii)

Works completed up to 30.06.2017 and Billing not completed by 30.06.2017.

(iii)

Works yet to be completed as on 01.07.2017.

JGST Act, 2017 shall be applicable for all the works mentioned above at (ii) & (iii).

12.

Following procedure may be adopted by various Executing Agencies/Authorities for

calculating the incidence of tax while making payments as per the provisions in the contracts:-

i. The Goods and Services in the various project under different major heads (like Earth, Sand,

Steel, Cement, Bitumen etc.) and for services (design, consultancy, security, architect etc.) are

to be intimated by the contractor and checked/ confirmed by the respective executing

agencies/authorities in consultation with the concerned higher authority/technical wing for

each of the Project.

ii. In order to compile the above information, an indicative Excel format is suggested for

guidance and attached as (Annexure-1). It indicates various Goods and Services in the various

project which attract various rates of taxes including Central Excise Duty, CST, VAT and other

taxes, which were already included in the contract price as per the original contract.

iii. Under VAT regime, Rate of tax on major commodities used in Works contract

were as under:-

Commodities

VAT(Rate of Tax)

Central Excise Duty (Rat

e of Tax)

Steel

5 %

12.36 %

Cement

14.5 %

12.36 %

Bitumen

5.5 %

12.36 %

For rate of Tax on other commodities Part B of schedule II of JVAT 2005 and First

Schedule and the Second Schedule to the Central Excise Tariff Act,1985 may be referred to.

Jharkhand Gazette (Extraordinary), Friday, 26^th August, 2022

Similarly under GST, Rate of Tax on Goods and Services were:-

Commodities

GST(Rate of Tax)

Steel

18 %

Cement

28 %

Bitumen

18 %

For detailed rates of tax on other Goods and Services involved in execution of work

contracts, schedule I, II, III and IV to JGST 2017 may be referred to.

iv.

The same format can be used to compile the information for each ongoing project. The

Goods and Services in the various project should be checked and verified by the concerned works

department on the basis of bill of quantity, estimate, schedule of rate and other technical

specifications. The Pre-GST rate of tax such as Central excise duty/ VAT on materials and service tax

on services and post-GST rates (of SGST, IGST, CGST) on supply of works contract should be checked

and verified.

v. After completion of the said exercise, the costs on account of the subsumed taxes under

pre GST and post GST in the particular contract are to be finalized and agreed by concerned

state department and Contractor. That is to say the incidence of tax in pre GST and post GST

should be calculated that has been factored in the cost of project. The cost so arrived at be

compared from the original contract price to arrive at the actual balance of cost of the project

i.e. whether there is an increase or decrease in cost of the project.

vi. The state work department may receive certification from any accredited agencies/charted

accountant as deemed fit and accordingly the concerned state department shall assess the

incidence of total tax (inclusive of central and state taxes) applicable in the pre GST regime and

compare it with the total incidence of tax as applicable on such goods and services under the

GST regime.

vii.

While calculating the positive or negative impact of GST, the state department must

keep in mind the availability of ITC of goods and services both in case of GST unlike in the VAT

regime where ITC of services were not available.

13.

After comparing the net increase/decrease in tax liability to the total tax levied under

VAT regime and GST regime and also accounting the ITC availability, any conclusion

regarding negative or positive impact on cost may be arrived at.

14.

It may be clarified that under no circumstances there will be a revision of any

contractual values in the contract, in cases where the work has to be completed

before 30.06.2017 as per the contract, but the execution got delayed as a result of

delay on part of the contractor.

Jharkhand Gazette (Extraordinary), Friday, 26^th August, 2022

15.

No revision of contractual value should be considered if there is no clause for

revision

contractual

value

due

ange in the rate of tax is mentioned in the contract.

16.

As per section 51 of the Jharkhand GST Act, 2017 / the Central GST Act, 2017, GST–

TDS @ 2 % (1% CGST + 1 % SGST) must be deducted after 01.10.2018 from

payments to contractors / suppliers.

17.

The Administrative Departments should issue suitable instructions to the competent

agency/authority responsible for making payments to the works contractors to

implement this directive/SOP.

18.

For the sake of convenience and to explicitly explain the procedure for calculation of

incidence of tax in Pre and Post GST regime is being explained with an example in

Annexure I.

(File No. Va.Kar/Vividh/20/2020)

By the order of the Governor of Jharkhand,

Aradhana Patnaik,

Secretary,

Commercial Taxes Department,

Jharkhand, Ranchi.

Project/ Contract details

Table- I

Gross Original

Value of the

Works Contract

given prior to

GST

implementation

Value of of the

Works Contract

rendered upto

30.6.2017 as per

original contract

Balance value of the

Works Contract to be

rendered after

01.07.2017

Remarks

Rs. 200000

Rs. 100000

Half value of

the work

completed

before GST

and rest after

GST

Considering half the value of work i.e. of Rs. 1,00,000 is done in the

post GST period i.e. after 01.07.2017, the breakup of the

material/service cost is as under-

Table- II

Project

Contituents

Percentage of

Contituents

Gross Original

Value of the

Contract

Total

Pre GST

Post GST

(a) Gross

Value of

Contract

200,000

100,000

100,000

(b) Less:

Margin

20,000

10,000

10,000

the

Project

(a-b)

180,000

90,000

90,000

(d) Bitumen

17%

30,600

15,300

15,300

(e) Steel

14,400

7,200

7,200

(f) Cement

12%

21,600

10,800

10,800

(g)

Aggregates,

Sand etc

16%

28,800

14,400

14,400

Jharkhand Gazette (Extraordinary), Friday, 26^thAugust, 2022, 9

(h) Pipes

1,800

900

900

(i) Oth.

Materials

1,800

900

900

Electrical

item

15%

27,000

13,500

13,500

Labour

30%

54,000

27,000

27,000

100%

180,000

90,000

90,000

Project/ Contract details

The request from the works contractor has come for the escalation in the cost of contract, post GST allegedly on

account of increase in incidence of tax due to implementation of GST. A comparision has been made on that half

value of the left work i.e. Rs. 1,00,000 with incidence of tax in pre and post GST and their effective cost on the

project on account of these taxes thereof.

Table- III

GST

Implica

tions

(For

balanc

work)

Pre GST

GST

Basic

price

(Cost

excluding

Output VAT,

Input VAT &

Excise/

Service Tax)

Excise

duty/

service

tax

rate and

its

amount

of Excise

duty/Ser

vice tax

Input

VAT

rate

and

amoun

t of

input

VAT

Output

VAT rate

and

output

VAT

consideri

ng VAT

Input

Cost

Incl.

all

taxes

duties

GST

rate

GST

Amou

GST

12%

work

contrac

Total

cost

under

GST

consider

ing GST

Input

Excess

cost

due to

GST

9=(2+8)

@ 12%

10=(2+8

)

Cost

of the

projec

t (a-b)

90,00

12%

Bitum

12,912

12%

(1549)

5.5%

(795)

5.5%

(44)

15,30

18%

2,324

1,828

14,740

Steel

6,108

12%

(733)

(342)

(17)

7,200

18%

1,099

865

6,973

Ceme

8,270

12%

(992)

14.5%

(1343)

14.5%

(195)

10,80

28%

2,316

1,270

9,540

Aggre

gates,

Sand

etc

13,612

(0)

5.5%

(747)

5.5%

(41)

14,40

681

1,715

15,327

Pipes

763

12%

900

18%

137

108

871

Jharkhand Gazette (Extraordinary), Friday, 26^thAugust, 2022

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झारखÖड राजकȧय मुġणालय

झारखÖड राजकȧय मुġणालय, राँची ɮवारा Ĥकाͧशत एवं मुǑġत

राँची ɮवारा Ĥकाͧशत एवं मुǑġत,

झारखÖड गजट

झारखÖड गजट (असाधारण

असाधारण)

) 422 -- 50

(92)

(43)

(2)

Oth.

Materi

als

693

12%

(83)

14%

(109)

14%

(15)

900

18%

125

791

Electri

cal

items

10,337

12%

(1240)

14.5%

(1679)

14.5%

(244)

13,50

1,240

11,577

Labou

23,478

15%

(3522)

(0)

27,00

2,817

26,295

Cost

of the

projec

76,173

8211

5058

558

90,00

6,682

9,943

86,115

-3,885

Pre GST

In above example it is assumed that cost of project inclusive of all taxes and duties excluding

profit margin is Rs. 90,000 as shown in column '6'.

The base price in column 2 has been arrived by back calculation from column 6 after deducting VAT

output considering VAT input, VAT input and Excise duty/service tax as mentioned in column 5,4,3

respectively .

So the aggregate cost arrived at in pre GST is Rs. 76173 + Rs. 8211(on account of central excise duty/

service tax) + Rs. 5058 (VAT on the raw material) + Rs. 558 (VAT on final works contract adjusting ITC)

totaling to Rs. 90,000.00.

For sake of convenience, the education cess and secondary & heigher education cess has not been

considered for calculation of central taxes in above example.

GST

Considering the base price of goods and services as specified in column 2, and applying the applicable

GST rate on such material/ services, the GST amount of RS. 6,682 has been calculated in column 8.

* During the period of 22.08.2017 to 17.07.2022 the GST rate on works contract has been 12%.

The GST rate of 12% on supply of works contract services would be applicable on the sum of basic price

of Rs. 76,173 specified in column 2 and GST amount as specified in column 8.

So the aggregate cost arrived in GST period is Rs. 76,173 + Rs. 9,943 adjusting the ITC, totaling amount

Rs. 86,115 which is Rs. 3,885 less than pre GST period.