1. The document discusses the taxation of composite contracts under the Goods and Services Tax (GST) regime in India. 2. It explains that works contracts and sale of under-construction apartments will be taxed as services under GST. This will provide a uniform solution and end disputes around whether transactions are subject to VAT or service tax. 3. Key provisions around composite supply, mixed supply, works contracts, and input tax credit in relation to works contracts are analyzed from the GST law and model.

1. By CA Amit Kumar
Tax Consultant (indirect tax)
Sanjay Sabran & Comapany
Taxation of
Composite
contract under
GST
1. The intention is here to tax works contract(Includingany
transfer of property in goods in the execution of contract)
related to immovable property as supply of service.Works
contractas well as saleof under construction apartment
shall besubjected to GST. Currently servicetax charge on
40% of project value,thus the effective servicetax rate is
6%, similarly effectivevat rate around 1% chargeon project
valuein different state. We should waitfor what will betax
rate on work contractin new tax regime.
2. Now, question arises in mind what will betreatment of
composite contractrelated to movable property, the
concept of compositesupply and mix supply has been
insertin GST Law Nov, 2016.
3. Once it is clear thatwork contractwill be tax in GST as
goods or service, the distinction between goods and service
is relevantonly for Placeof supply and Pointof Taxation.
4. The transaction of sale/purchaseof immovableproperty
shall beoutsidethe ambit of GST and shall beliableto
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.
For taxinga transaction in GST, two things are important one is supply and other is goods or serviceor both
Transition Provisions under GST
Goods and/or service suppiedon or After
appointedday--tax has beenpaidata rate
spacefied under GST (Sec 159 ofGST)
Goods and/or service suppiedon orafter
appointedday,No tax under GSTwherepayment
has beenreceived anddepositebefore appointed
day.(Sec 160 ofGST)
Goods and/or service suppiedon or before
appointedday-No taxwherepart payment is
received afterappointedday ,iftax has been
paid under theearlierlaw. (Sec161 ofGST)

3. Section 2(95)
“Supply” shall have the meaning as assigned to it in section 3;
Supply includes—
(1)
(a) all forms of supply of goods and/or services such as sale,transfer,barter, exchange, license,rental,leaseor disposal madeor agreed to
be made for a consideration by a person in the courseor furtherance of business,
(b) importation of services,for a consideration whether or not in the course or furtherance of business, and
(c) a supply specified in ScheduleI, made or agreed to be made without a consideration.
(2) Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or
a supply of services.
(3) Notwithstanding anythingcontained in sub-section (1),
(a) activities or transactionsspecified in scheduleIII;or
(b) activities or transactionsundertaken by the Central Government, a State Government or any local authority in which they areengaged
as public authoritiesas specified in ScheduleIV, shall betreated neither as a supply of goods nor a supply of services.
(4) Subject to sub-section (2) and sub-section (3), the Central or a State Government may, upon recommendation of the Council,specify,
by notification,the transactionsthatareto be treated as—
(a) a supply of goods and not as a supply of services;or
(b) a supply of services and not as a supply of goods; or
(c) neither a supply of goods nor a supply of services.
(5) The tax liability on a composite or a mixed supply shall bedetermined in the followingmanner —
(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(49)
“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(92)
“Services’’ means anything other than goods.
Explanation 1.- Services includetransactionsin money but does not includemoney and securities;
Explanation 2.- Services does not includetransaction in money other than an activity relatingto the use of money or its conversion by
cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate
consideration is charged
Supply
Goods service Both

4. Now, we discusstheprovision of draftGST Provisions related to Composite contract,
Section 2(27)
“Composite supply” means a supply made by a taxable person to a recipient comprising 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(78)
“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 and does not constitute, for the recipient an aim in itself, but a means for
better enjoyment of the principal supply
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(66)
“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
Composite Contract
In relationto
immovable property
Work contract Sec
2(110) & schedule II
Sale ofunder
constructed property
(Sechedule II)
In relationto movable
property
Composite supply
Sec2(27)
Mixed supply sec 2(66)
Treatment and process
to other person goods
ScheduleII
2 or more
supplies of
goods/
services
Naturally
bundled
One
principal
supply

5. 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 c ost.
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).
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(110) 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;
(f) Works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works
contract;
Section 2(110)
“Works contract” means a contract wherein transfer of property in goods is involved in the execution of such contract and includes
contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair,
maintenance, renovation, alteration or commissioning of any immovable property;
Note: From the means part of definition it is seemed that contract related to movable property also cover in work contract but
intention here is to cover only contract related to immovable property only.
2 or more
supplies of
goods/
services
Not a composite
supply
Single price

6. 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.
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 ofreal estate shall be matter of state and liable to
stampdutyandpropertytax. Incase of Larsen and Tourbro v.State of Karnataka (2014) it was held that if the contract entered into after constructionis
completed, it is not a work contract.
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 goods or service,the distinction between goods and serviceis relevant only for Placeof supply
and Point of Taxation
Thank You,
CA AMIT KUMAR
PH.+9197129429
E MAIL:- CAAMITDHAMA@GMAIL.COM
Fabrication/
Completion
Renovation/
Alteration/
Commissioning
Repair/
Maintenance
Improvement/
modification
Erection/
Installation/
Fitting out
Building/
Construction