1) Definition of Works Contract – The definition of the term 'works contract' has been curtailed to include only such contracts which are pertaining to any immovable property. Earlier, in the erstwhile Model GST law (MGL), the definition was an inclusive one to include such other contracts (other then immovable property) which involves transfer of property in goods whilst execution. Though it is now clear that a contract pertaining to immovable property only could be categorised as a works contract transaction, a fresh round of ambiguity could see a spurt on the meaning of the term 'Immovable Property'.
2) Works Contract as a 'Composite Supply' - Schedule II of the CGST Act 2017 (CGST Act) has categorised works contract as such composite supplies which would be treated as a supply of services. The erstwhile MGL did not categorise works contract as composite supplies instead it plainly stated it to be as supply of services. Further, composite supply has been defined to mean supply of two or more taxable supplies of goods or services or both out of which one would be a principal supply. Furthermore, principal supply has been defined to mean supply of such goods/services which form the predominant element under a composite supply whereas the other supplies being the ancillary one.
In aforesaid context, section 8 of the CGST Act provides for determination of tax liability in case of composite supplies. As per this provision, such liability would be determined as if the supply is of a principal supply. This could, therefore, mean that in case of works contract transaction, the tax liability would be determined basis the principal supply (i.e. the service component) unless any other specific mechanism is provided.
3) Composition Scheme –Ambiguity prevailing under the erstwhile MGL in respect of works contract supplier not being eligible to opt under Composition scheme is clarified under CGST Act. The CGST Act expressly provides that works contract supplies would not be subject to composition levy. Under the erstwhile MGL, supply of services was kept out of composition levy. Further, since works contract was categorised as supply of services under Schedule II, there was sufficient ambiguity whether works contract could be categorised as supply of services for the purpose of availing the benefit of composition scheme as the same was not expressly mentioned in the Model CGST Act. Also,since the provisions of a Schedule cannot override the Act, absence of express disallowance under the Act could have resulted in works contract getting covered under the composite levy.
4) Input tax credit – The CGST Act provides for restriction of input tax credit (ITC) on works contract services in relation to construction of an immovable property other than plant and machinery. Further, plant and machinery has been defined to include apparatus/equipment/machinery fixed to earth by foundation or structural support which are used for making outward supplies of goods/services. It further includes foundation and structural support of such machinery. However, since the definition of plant and machinery excludes telecommunication towers and pipelines laid outside the factory premises, it can be construed that works contract services when supplied in relation to such telecommunication towers and pipelines the ITC on the same would not be available which is in contrast to the erstwhile MGL. This is also evident from the fact that pro- rata method of availment of ITC in case of telecommunication towers and pipelines which was provided in the erstwhile MGL has been removed from the CGST Act.