Composite contract taxability in GST and work contract. Impact on real state. Sale/purchase of immovable property will be outside GST.

1. Taxation of Composite contract
under GST Bill 2017.
1. The intention is here to tax works contract
(Including any transfer of property in goods in the
execution of contract) related to immovable
property as supply of service. Works contract as
well as sale of under construction apartment
shall be subjected to GST. Currently service tax
charge on 40% of project value, thus the effective
service tax rate is 6%, similarly effective vat rate
around 1% charge on project value in different
state. We should wait for what will be tax rate on
work contract in new tax regime.
2. Now, question arises in mind what will be
treatment of composite contract related to
movable property, the concept of composite
supply and mix supply has been insert in GST Bill,
2017.
3. Once it is clear that work contract will be tax in
GST as service, the distinction between goods
and service is relevant only for Place of supply
and Point of Taxation.
4. The transaction of sale/purchase of immovable
property shall be constitutionally outside the
ambit of GST and shall be liable to stamp duty
and property tax under state law.

2. A transaction of works contract,is now, sometimes, taxed twice; firstly as saleby the State Government and secondly as serviceby the
Central Government.
Works contracts can straddletwo taxableactivities asper the current law.There is of coursesupply of goods. Then, due to the very
nature of the contract, there is supply of services.
As of now, the supply of goods is taxablein the form of Value Added Tax (VAT), whilethe services element is taxableas servicetax.
In law, there have been differingviews of the Supreme Court and the High Court’s on the applicability of this theory. The final word of
the Apex court in BSNL and Others vs. Union of India (SC 2006) was that the aspects doctrinepertains to legislativecompetence and
not the application of taxation on the same components of a transaction.
At present, State VAT laws havespecific provisionsfor taxingworks contracts.To avoid taxingthe services element, these laws and
associated rules providefor either separation of labour and materials or percentage deductions in transaction value.Another method
is of prescription of a lower rate of tax in a composition/lump-sumscheme for works contracts.The servicetax lawhas also provided
for similar treatment to avoid taxation of saleof goods as partof a works contract.
The overarching concept in a GST is one of supply which subsumes the concepts of sale of goods, provision of services and
manufacture. In GST Model, goods as well as services will be taxed on a uniform rate. Therefore the dispute whether a
transaction is subjected to VAT or Service tax comes to end.
After article 246 of the Constitution,the following article shall be inserted, namely:—
"246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every
State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods,or of services,or
both takes place in the course of inter-State trade or commerce.
In article 366 of the Constitution,—
(i) after clause (12), the following clause shall be inserted, namely:—
‘(12A) “goods and services tax” means any tax on supply of goods,or services or both except taxes on the supply
of the alcoholic liquor for human consumption;’;
All supply of goods or services or both will attractCGST (to be levied by Centre) and SGST (to be levied by State) unless kept out of
purview of GST. GST will beapplicableeven when the transaction involves supply of both (goods and services).In effect, woks contracts
will also attractGST. As GST will be applicableon supply ‘the erstwhiletaxableevents such as manufacture‘, sale‘,provision of services
etc. will losetheir relevance.
Transition Provisions under GST
Goods and/or service suppiedon or After
appointedday--tax has beenpaidata rate
spacefied under GST
Goods and/or service suppiedon orafter
appointedday,No tax under GSTwherepayment
has beenreceived anddepositebefore appointed
day.
Goods and/or service suppiedon or before
appointedday-No taxwherepart payment is
received afterappointedday ,iftax has been
paid under theearlierlaw.

3. For taxinga transaction in GST, two things are important one is supply and other is goods or serviceor both
Section 7
Supply includes—
(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to
be made for a consideration by a person in the course or furtherance of business,
(b) Importation of services, for a consideration whether or not in the course or furtherance of business, and
(c) An activity specified in Schedule I, made or agreed to be made without a consideration and
(d) The activity is to be treated as a supply of goodsor a supply of services as referred in schedule II.
(2) Notwithstanding anything contained in sub-section (1),
(a) activities or transactions specified in schedule III; or
(b) activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged
as public authorities, shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to sub-section (1) and sub-section (2), the Central or a State Government may, upon recommendation of the Council, specify, by
notification, the transactions that are to be treated as—
(a) a supply of goodsand not as a supply of services; or
(b) a supply of services and not as a supply of goods.
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such
principal supply;
(b) a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate
of tax.
Section 2(56)
“Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass
and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;
Section 2(102)
“Services’’ means anything other than goods, money and securities but Includes activity relating to use of money/ conversion by cash/
any other mode from one form, currency or denomination, to another form, currency or denomination for which a separate
consideration is charged.
Now, we discusstheprovision of draftGST Provisions related to Composite contract,
Supply
Goods service Both
Composite Contract
In relationto
immovable property
Work contract Sec
2(119) & schedule II
Sale ofunder
constructed property
(Sechedule II)
In relationto movable
property
Composite supply
Sec2(30)
Mixed supply sec 2(74)
Treatment and process
to other person goods
ScheduleII

4. Section 2(30)
“Composite supply” means a supply made by a taxable person to a recipient consisting two or more supplies of goods or services, 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;
Section 2(90)
“Principal supply” means the supply of goodsor services which constitutes the predominant element of a composite supply and to which
any other supply forming part of that composite supply is ancillary.
Example: Indian Airlines provides passenger transportation service.They also supply food on board to passengers.Supply of transpor tation
services would be the principal supply and theserviceas a whole would qualify as compositesupply.
Section 2(74)
“Mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each
other by a taxable person for a single price where such supply does not constitute a composite supply
Examples: Supply of soap bars where soap boxes are given free of cost; supply of wheat for which a bottle of honey is given free of cost.
In the above example of honey being supplied with wheat, both wheat and honey will betaxed at the rate of tax applicablefor honey
(being commodity taxed at higher rate).
2 or more
supplies of
goods/
services
Naturally
bundled
One
principal
supply
2 or more
supplies of
goods/
services
Not a composite
supply
Single price

5. The provision of declared service continue without any modification, in GST law also, for removing any ambiguity of taxation of work
contract, the work contract and sale of under constructed property shall be subjected to tax as service under GST. Schedule II define the
matters to be treated as supply of goodsor service and Sec 2(119) defines the work contract.
Schedule II
MATTERS TO BE TREATED AS SUPPLY OF GOODS OR SERVICES
5. The following shall be treated as “supply of service”
(a)……………….
(b) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly
or partly, except where the entire consideration hasbeen received after issuance of completion certificate, where required, by the
competent authority or before its first occupation, whichever is earlier.
Explanation.- For the purposes of this clause-(1) the expression "competent authority" means the Government or any authority authorized
to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such
authority, from any of the following, namely:–
(i)an architect registered with the Council of Architecture constituted under the Architects Act, 1972;or
(ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii)a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
(2) the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure;
6. Composite supply
The following composite supplies shall be treated as a supply of services, namely:—
(a) works contract as defined in clause (119) of section 2; and
(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human
consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for
cash, deferred payment or other valuable consideration.
Schedule III
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY
OF SERVICES
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Section 2 ((119) “works contract” means 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 orin some other form) is involved in the execution of such contract;
The work contract as well as sale of under construction propertyshall be taxable as Supply of service, whichalsoinclude the value ofgoods which is
transfer in executionof workcontract.Schedule II specifiesthat works contracts will be treated as supplyof services and accordingly, provisions of time
of supplyand place of supplyof services shall applyto works contract transactions.
Fabrication/
Completion
Renovation/
Alteration/
Commissioning
Repair/
Maintenance
Improvement/
modification
Erection/
Installation/
Fitting out
Building/
Construction

6. Contract for Work Vs Contract of Sale
It shall be notable that if we constructedimmovable property on its own and later onsale to other personthen it is a contract for sale of immovable
propertyandnot workcontract andshall be out of GST ambit, constitutionallysale andpurchase ofproperty, subject to clause (b) of para 5 of schedule
II, shallbe matter of state and liable to stamp dutyand propertytax.
Now it is veryclear from the Schedule III paragraph 5, that sale ofconstructed property shall not be liable for GST.
Negative List of Credit;
Sec 17(4) notwithstanding anything containedinsub-section(1) of section 16 and subsection(1), (2), (3) and(4) of section18, input tax credit shall
not be available inrespect of the following:
(a) …………………
(b)………………
(c) Works contract serviceswhensuppliedfor constructionof immovable property, other than plant and machinery, except where it is an input
service for further supplyof works contract service;
(d) goods or servicesreceived bya taxable person for construction ofanimmovable propertyon his own account, otherthan plant and machinery,
even when used incourse or furtherance of business;
Explanation 1.- For the purpose ofthis clause, the word“construction” includesre-construction, renovation, additions or alterations or repairs, to
the extent of capitalization, to the said immovable property.
Explanation 2.- ‘Plant andMachinery’ means apparatus, equipment, machinery, pipelines, telecommunicationtower fixedto earth by foundationor
structural support that are used for making outward supplyand includessuch foundationandstructuralsupports but excludesland, building or any
other civil structures.
Conclusion:
By treatingwork contract as service provide the complete solutionof continuesdispute arise inpast between goods or service. Onceitis clear
that work contractwill betax in GST as service,the distinction between goods and serviceis relevantonly for Placeof supply and
Pointof Taxation.
Thank You,
CA AMIT KUMAR
PH.+9197129429
E MAIL:- CAAMITDHAMA@GMAIL.COM