1. The document discusses the transition of construction services provided to the government from VAT/Service Tax to GST. Key exemptions and tax rates for such services are outlined under the previous and new GST regimes. 2. Under GST, construction services provided to government and related entities are generally taxable at 18% or 12%, though some services are exempt. Input tax credit rules and compliance requirements have also changed with the introduction of GST. 3. A circular from the Government of Maharashtra provides guidelines for price revisions to construction contracts considering GST implications and anti-profiteering rules. Calculations in the circular suggest contract prices may reduce by approximately Rs. 1.50 out of Rs. 100

1. Optitax’s Consulting LLP. All copyrights reserved
MAY 2018
Optitax’s
R
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Transition of construction services provided
to Government from VAT/Service Tax to GST

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Sr No Particulars
1 Maharashtra Value added Tax VAT
2 Excise Duty ED
3 Service Tax ST
4 Central Goods and Services Tax, 2017 CGST Act
5 State Goods and Services Tax, 2017 SGST Act
6 Integrated Goods and Services Tax, 2017 IGST Act
7 Notification No. 25/2012-S.T., DT. 20/06/2012 Mega exemption
8 Circular No.GST-1017/81/1 dated 19 Aug 17 The Circular
Glossary

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Executive Summary
Nature of Services Service Tax
GST
1 July 17 to
21 Aug 17
22 Aug 17 to
till date
18
18
18
12
12
12
Exempt
Exempt
Exempt
A historical monument, archaeological site
or remains of national importance,
archaeological excavation, or antiquity etc
Canal, dam or other irrigation works
Pipeline, conduit or plant for
(i) water supply
(ii) water treatment, or
(iii) sewerage treatment or disposal
Note: 1. Irrespective of the exemption provided in Finance Act, 1994, VAT was applicable
2. GST rate of above mentioned services had been changed from 22 Aug 2017 however, the above services provided
by sub-contractors to main contractors are taxable @18% till 24.01.2018 and thereafter @12% as applicable to main contractor

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Executive Summary
a civil structure or any other original works
meant predominantly for use other than for
commerce, industry, or any other business
or profession
a structure meant predominantly for use as
(i) an educational,
(ii) a clinical, or
(iii) an art or cultural establishment
a residential complex predominantly meant
for self-use or the use of their employees or
other specified persons
Nature of Services
Service Tax
GST
01 July 12 to
31 March 15
1 April 15 to
28 Feb 16
1 March 16
to 30 June 17
Contracts entered & stamp duty on such contracts
had been paid prior to 1 March 15
1 July 17 to
20 Sept 17
21 Sept 17 to
Till date
18
18
18
12
12
12
Exempt
Exempt
Exempt
Taxable
Taxable
Taxable
Exempt
Exempt
Exempt
Note: 1. Irrespective of the exemption provided in Finance Act, 1994, VAT was applicable
2. GST rate of above mentioned services had been changed from 21 sept 2017 however, the above services provided
by sub-contractors to main contractors are taxable @18% till 24.01.2018 and thereafter @12% as applicable to main contractor

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01 Taxability
02 Exemption
03 Rates
Service Tax & VAT Goods and Service Tax
04 Credits
Index
05 Compliance
06 Price revision & Comparison

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Taxability
• The construction contracts are generally in the nature of
works contract whereunder property in goods gets
transferred during execution of works
• In simple words the buyer/ client simultaneously gets
services and the property in goods from the suppler/
seller
• The liability of such goods getting transferred under Sales
tax was always a matter of dispute. It reached to the Apex
Court and the liability of Sales tax on such transactions
was ruled out
• The amendment of the Constitution of India provided for
levy of Sales tax on the portion of goods getting
transferred in a works contract
• The Sales tax being subject of State Governments the
respective States prescribed three different methods to
work out/ to ensure that the portion of goods is subjected
to Sales tax/ VAT
VAT Service Tax
• The Service tax since inception in the year 1994 was
evolved from time to time till the year 2012 when any
services not forming part of negative list were
considered as taxable
• The service portion in the works contract in the nature
of construction services was brought under tax net in
the year 2005
• The service portion in the transactions defined as works
contract were made taxable in the year 2007
• The abatement notification, exemption notification and
alternative valuation methods were issued/ prescribed
to ensure that only the service portion in such contracts
is subjected to tax
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Service Tax
• The negative list based taxation defined the term
service as per Section 65(B)(44) of the Finance Act as
“service” means any activity carried out by a person for
another for consideration, and includes a declared
service
• The declared services defined under Section 66E of the
Finance Act include works contract
• The Construction services in the nature of works
contract provided to Government are therefore liable to
tax under the Finance Act unless otherwise specifically
exempted
GST
• In terms of Section 7 of the CGST Act, Supply includes
all forms of supply of Goods or services made or agreed
to be made for a consideration in the course or
furtherance of business
• The term works contract is defined under the CGST Act
and the same is declared as service as per Schedule II
issued under Section 7 of the CGST Act
• The construction services in the nature of works
contract provided to Government therefore qualifies as
supply under GST and is liable to tax unless otherwise
specifically exempted
Taxability
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Entry No. 12 of Mega exemption
Exemption
Service
Tax
Service provider
Service recipient
Nature of service
Any person
• Government
• Local authority
• Governmental
authority
• Construction
• Erection
• Commissioning
• Installation
• Completion
• Fitting out
• Repairs
• Maintenance
• Renovation
• Alteration
In relation to
a) a civil structure or any other original works meant
predominantly for use other than for commerce, industry, or
any other business or profession
b) a historical monument, archaeological site or remains of
national importance, archaeological excavation, or antiquity
etc
c) a structure meant predominantly for use as
(i) an educational,
(ii) a clinical, or
(iii) an art or cultural establishment
d) canal, dam or other irrigation works
e) Pipeline, conduit or plant for
(i) water supply
(ii) water treatment, or
(iii) sewerage treatment or disposal
Vide Notification No. 6/2015, dated 1 March 15, w.e.f 1 April 15,
clause (a), (c) & (f) had been deleted. Accordingly the said activity
is taxable during the period 1 April 15 to 28 Feb. 16
f) a residential complex predominantly meant for self-use or the
use of their employees or other specified persons
Note for VAT
Generally the contractors use
to follow composition scheme
for payment of VAT. In such
case the VAT was payable on
entire contract value at the
rate of 5 percent. The VAT
authorities in Maharashtra
required assessees to include
amount of Service tax payable
in the contract value.
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Service
Tax
Exemption
Amendment of Mega exemption vide Notification 9/16 -S.T. dated 1 March 16, w.e.f 1 March 16
Service provider
Service recipient
Nature of service
Any person
• Government
• Local authority
• Governmental
authority
• Construction
• Erection
• Commissioning
• Installation
• Completion
• Fitting out
• Repairs
• Maintenance
• Renovation
• Alteration
In relation to
a) a civil structure or any other original works meant predominantly for use other than for
commerce, industry, or any other business or profession
b) a structure meant predominantly for use as
(i) an educational,
(ii) a clinical, or
(iii) an art or cultural establishment
c) a residential complex predominantly meant for self-use or the use of their employees or
other specified persons
Entry No.12A was inserted to provide benefit to the following services provided to Government
subject to the condition that the said services are provided in terms of a contract which had been
entered into prior to the 1 March 15 and on which appropriate stamp duty, if applicable, had been
paid prior to such date. The benefit of such exemption was available upto 31 March 20 (however
service tax being subsumed in GST the said Service tax exemption will apply only till 30 June 17)
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GST
Exemption
Exemption under Notification 12/17 – Central Tax (Rate), dated 28 June 17
Service provider Service recipient Nature of service
Any person • Central Government
• State Government
• Union territory
• Local authority
• Governmental authority
Pure services
(excluding works contract
service or other composite
supplies involving supply
of any goods)
In relation to
any function entrusted to a
Panchayat under article 243G of
the Constitution or in relation to
any function entrusted to a
Municipality under article 243W
of the Constitution
Few examples of 243W as
follows:
• Urban planning including
town planning
• Planning for economic and
social development
• Water supply for domestic,
industrial and commercial
purposes
• Public health, sanitation
conservancy and solid
waste management
Service provider Service recipient Nature of service
Any person • Central Government
• State Government
• Union territory
• Local authority
• Governmental authority
Composite supply of goods
and services in which the
value of supply of goods
constitutes not more than
25 per cent. of the value of
the said composite supply
Sr No.
3
Sr No.
3A
• New entry no.3A has been inserted via Notification No.2/2018 – Central Tax (Rate), dated 25.01.18 to give benefit of the
said exemption to Composite supply of goods and services in which the value of supply of goods constitutes not more than
25 per cent. of the value of the said composite supply
• In case of contractors who are engaged in providing taxable as well as exempt supply then provisions for reversal of input
tax credit shall be required
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GST
Rates
Entry no.3 of Notification 11/17 – Central Tax (Rate), dated 28 June 17 as amended
Service provider
Service recipient
Nature of service
Any person
• Central
Government
• State
Government
• Union territory
• Local authority
• Governmental
Authority
• Government
Entity*
Composite supply
of works contract
as defined in
clause (119) of
section 2 of the
CGST Act
In relation to
a) a historical monument, archaeological site or
remains of national importance, archaeological
excavation, or antiquity etc
b) canal, dam or other irrigation works
c) Pipeline, conduit or plant for
(i) water supply
(ii) water treatment, or
(iii) sewerage treatment or disposal
1 July 17 to
21 Aug 17
22 Aug 17 till
date
18
18
18
12
12
12
03
Note: 1. *Till 13 Oct. 17 Government entity was not covered in service recipient
2. GST rate of above mentioned services had been changed from 22 Aug 2017 however, the
above services provided by sub-contractors to main contractors are taxable @18% till
24.01.2018 and thereafter @12% as applicable to main contractor

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GST
Rates
Entry no.3 of Notification 11/17 – Central Tax (Rate), dated 28 June 17 as amended
In relation to
a) a civil structure or any other original works meant
predominantly for use other than for commerce,
industry, or any other business or profession
b) a structure meant predominantly for use as
(i) an educational,
(ii) a clinical, or
(iii) an art or cultural establishment
c) a residential complex predominantly meant for self-use
or the use of their employees or other specified persons
1 July 17 to
20 Sept 17
21 Sept 17 to
Till date
18
18
18
12
12
12
Service provider
Service recipient
Nature of service
Any person
• Central
Government
• State
Government
• Union territory
• Local authority
• Governmental
Authority
• Government
Entity*
Composite supply
of works contract
as defined in
clause (119) of
section 2 of the
CGST Act
03
Note: 1. *Till 13 Oct. 17 Government entity was not covered in service recipient
2. GST rate of above mentioned services had been changed from 21 sept 2017 however, the
above services provided by sub-contractors to main contractors are taxable @18% till
24.01.2018 and thereafter @12% as applicable to main contractor

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GST
Rates
Entry no.3 of Notification 11/17 – Central Tax (Rate), dated 28 June 17 as amended
Service provider
Service recipient
Nature of service
Any person
• Central
Government
• State
Government
• Union territory
• Local authority
• Governmental
Authority
• Government
Entity
Composite supply
of works contract
as defined in
clause (119) of
section 2 of the
CGST Act
In relation to
Composite supply of works contract as defined in
clause (119) of section 2 of the CGST Act involving
predominantly earth work (that is, constituting
more than 75 per cent of the value of the works
contract)
1 July 17 to
12 Oct.17
13 Oct 17 to
Till date
18 2.5
03

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Credits
VAT
Service Tax
GST
• Input tax credit is available on all inputs, capital goods and
inputs services used or intended to be used in the course
or furtherance of business subject to conditions mentioned
in Section 16 read with Rules made thereunder
• Further, input tax credit is available only if registered
person received the goods at registered place of business
under GST
• Reversal of ITC availed will be required for goods lost,
stolen, destroyed or disposed off by way of gift or free
sample unlike in VAT where there were no need to reverse
the credit in above scenarios
CENVAT credit of inputs was not available however,
CENVAT credit of capital goods and input services
was available.
The set-off available on within State purchases was
subject to retention i.e. use to get reduced by 4
percent. The recipient was required to deduct tax at
source at the rate of 2 percent from the payments
due to the contractor
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Compliance
VAT
Service Tax
GST
• Monthly filing of following return where aggregate turnover
is more than Rs. 1.5 Cr
a. GSTR-1
b. GSTR-2
c. GSTR-3
• Where aggregate turnover is less than Rs.1.5 Cr then above
mentioned return shall be quarterly
• In addition to monthly GST returns, every registered person
will be required to file annual by 31 December of following
the end of such financial year
• Every registered person whose turnover is more than Rs.2 cr,
will be required get his books of accounts audited from CA or
CMA
Note :
1. Currently GSTR-3B shall be filed on monthly basis
irrespective of aggregate turnover
2. Due dates for GSTR-2 & GSTR-3 are not yet notified .
Government is in the process of introducing a single return
instead of filling GSTR 1, GSTR 2 and GSTR 3 returns.
• Filing of half yearly ST-3 return
• No statutory mandatory records were required to be
maintained though records relating to CENVAT
credit availed, CENVAT register and records
substantiating appropriate liability being discharged
were required to be maintained
• The assessees were required to submit list of
records maintained by them
• Parodical return and annual VAT audit05

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Price
revision
The Government of Maharashtra has issued a the Circular providing guidelines related to price revision of the contracts
considering implications of GST primarily on account of anti profiteering provisions. The calculations in the said Circular suggest
that price of the contract worth Rs. 100 will get reduced by Rs. 1.50. Contents of the Circular are explained below for ease of
reference:
Contract price Rs.100
Material price Rs.70
Labour component Rs.30
Presumption : 50% cost towards machinery on account of hiring & 50% towards own purchases
Sr
No
Material/Service Pec. In
material cost
Cost
(Rs.)
ED/ST
Rate (%)
ED/ST
(Rs.)
MVAT
Rate (%)
MVAT
(Rs.)
1 Cement/RMC
25 17.50
12+
Rs.120/M.T
2.26 13.50 2.08
2 Stone metal 25 17.50 - - 6 0.99
3 Consumable 20 14 14 1.09 13.50 1.66
4 Machinery purchase 10 07 12.50 0.70 13.50 0.83
5 Machinery hire 10 07 15 0.9 1 - -
6 Site expenses 05 3.5 - - - -
7 Site expenses liable to
Service Tax
05 3.5 15 0.45 - -
A Material Cost (Total 70 6.22 5.56
B Labour component 30
C Total (A+B) 100 6.22 5.56
Contract outside Municipal
Corporation area
Particulars Rs.
5% MVAT on contract price 5
Embedded ED 6.22
4% MVAT on retention on
material value of Rs.56
2.24
Total Cost 13.46
Contract inside Municipal
Corporation area
Particulars Rs.
5% MVAT on contract price 5
Embedded ED 6.22
4% MVAT on retention on
material value of Rs.56
2.24
3%* LBT/Octroi on Rs.56 1.68
Total Cost 15.14
Actual total Rs.5.41/-
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Comparison
06
Comparison of Cost of Road contract under Service Tax/VAT and GST
Contract price Rs.100
Material price Rs.70
Labour component Rs.30
Contract outside Municipal Corporation area
Cost under ED/
ST/MVAT
Cost under
GST
Contract inside Municipal Corporation area
Cost under ED/
ST/MVAT
Cost under
GST
13.46 12* 15.14 12*
* Under GST credit is freely available on inputs including capital goods and input services used or intended
to be used in the course or furtherance of business subject to other conditions of the GST law

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DISCLAIMER
The report is for private circulation. The view in the document is based on the completeness and accuracy of the facts stated and any assumptions that were included therein. If
any of the facts and assumptions is not complete or accurate, it is imperative that we be informed accordingly, as the inaccuracy or incompleteness thereof could have a material
effect on our conclusions. Our analysis and discussions are based on a study of relevant provisions of Customs law and Rules and Regulations made there-under, and the judicial
and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions. Any such
changes, which could also be retrospective, also could have an effect on the validity of the conclusions. Unless you specifically request otherwise, we will not update our advice for
subsequent changes or modifications to the law and regulations or to the judicial and administrative interpretations thereof. 7
Thank You !
Optitax’s
R
Pune
C-26/11, Ketan Heights, Kothrud,
Pune – 411038, Maharashtra, India.
Contact no: 020-25421898
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