IMPORTANT ASPECTS OF GST AUDIT & ASSESSMENT IN CASE OF CONSTRUCTION INDUSTRY

Definition : As per the Goods and Services Tax (GST) Act 2017, construction refers to the building, renovation, alteration, repair, or any other similar activity carried out on an immovable property. It includes civil engineering works such as roads, bridges, airports, railways, dams, pipelines, and others, as well as the construction of residential and commercial buildings, and other structures such as towers, monuments, and other public works. The GST Act considers construction as a supply of service, and the value of the construction activity is determined based on the contract price, which includes all materials, labour, and other expenses incurred during the construction process.

Type of Construction :

1. Private Construction
2. Government Construction

Private Construction : Private Construction means Providing Construction Services to Private Entities. Construction services to private entities refer to the provision of construction services by a construction company or contractor to a private individual, company, or organization for the purpose of building, renovating, or altering a structure or property that is not owned or controlled by the government. Private entities can include businesses, homeowners, landlords, developers, and other non-governmental entities. These services may include design and planning, project management, site preparation, foundation work, framing, electrical and plumbing installation, finishing, and landscaping. The construction company or contractor is typically hired through a contract, which outlines the scope of work, timeline, and payment terms.

 Government Construction : Construction services to government entities refer to the provision of construction services by a construction company or contractor to any level of government, including federal, state, or local governments, or government-owned enterprises. Government construction projects can include the construction, renovation, or repair of public buildings, infrastructure such as roads, bridges, airports, railways, dams, and utilities, as well as other public works. The construction company or contractor may be selected through a competitive bidding process, and the contract may be subject to various regulations and requirements related to transparency, accountability, and adherence to quality standards. Payment for construction services to government entities is typically made through public funds or grants, and the terms and conditions of the contract may be subject to specific government regulations or laws.

Taxable Event : The taxable event in construction services under the GST Act, 2017 is the supply of services related to construction. Construction services are considered as a supply of services under the GST Act, and therefore, are subject to GST. The value of the taxable supply is determined based on the contract price, which includes all materials, labour, and other expenses incurred during the construction process. GST is levied on the value of the taxable supply at the applicable rate, which varies depending on the nature of the construction service provided.

It’s important to note that under the GST Act, construction services are classified under the heading of “works contract services,” which means that the tax treatment of construction services may be different from other types of services. In some cases, the taxable event for construction services may occur at different stages of the construction process, such as the supply of goods used in the construction or the completion of different milestones of the construction project. Therefore, it is important for construction service providers to be aware of the specific tax implications of their services under the GST Act.

Works Contract Services : Under GST (Goods and Services Tax), works contract services are classified as a type of service. Works contract services refer to a service where goods and services are supplied together as a bundle or a package, which is intended to carry out construction, repair, renovation, alteration, or any other work related to immovable property.

Works contract services typically involve a principal contractor who hires subcontractors to carry out various parts of the work. In such cases, the principal contractor is liable to pay GST on the entire amount charged to the customer, including the amounts charged by the subcontractors.

Under GST, works contract services are subject to a tax rate of 18% (9% CGST + 9% SGST). However, for works contract services provided to the government or a government entity, the tax rate is 12% (6% CGST + 6% SGST).

It is important to note that works contract services are subject to certain conditions and requirements under GST, such as the need to issue a tax invoice, maintain proper records, and comply with various other provisions of the GST law. It is recommended that businesses consult with a qualified GST professional for guidance on the specific requirements and compliance issues related to works contract services under GST.

Place of Supply :

1. Where Recipient and Supplier Both located in india. And immovable is also in india in that case Place of Supply will be Location of Immovable Property.
2. Where Recipient and Supplier Both located in india but Immovable Property located outside india in that case place of supply will be Place of Recipient.
3. Where Recipient or supplier located outside india in that case place of supply will be location of immovable property.

Valuation of Works Contract :  Valuation of a works contract service is dependent upon whether the contract includes transfer of property in land as a part of the works contract. In case of supply of service, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.