Overview: Work Contract and Council in GST | Tax Law - CLAT PG PDF Download

What is a Works Contract?

• A works contract is essentially a contract for services that may also involve the supply of goods during the execution of the contract. It represents a composite supply of both services and goods, with the service component being the primary focus.
  
• A works contract can pertain to both immovable and movable property. For example, if a subcontractor is engaged in building work, it constitutes a works contract concerning immovable property. Similarly, contracts related to movable property, such as fabrication, painting, or annual maintenance, also fall under the broad definition of a works contract.

Position under GST

• Under GST laws, the definition of "Works Contract" has been narrowed down to encompass only work undertaken for "Immovable Property." This is in contrast to the previous VAT and Service Tax provisions, which included works contracts for movable properties as well.
• As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts are classified as a supply of services. This distinction highlights the categorization of works contracts as service supplies under GST.

Place of Supply in Respect of Works Contract

• The place of supply for works contracts under GST is determined by the location of the immovable property involved in the contract.
• If both the supplier and recipient are located in India, the place of supply is where the immovable property is situated.
• If the immovable property is outside India and both the supplier and recipient are in India, the place of supply is the location of the recipient.
• When either the supplier or recipient is located outside India, the place of supply is where the immovable property is located or intended to be located.

Conclusion
A works contract is classified as a supply of services under GST. Previously, there were challenges in the tax treatment of works contracts, as both the Central and State Governments imposed taxes on different components of the contract. GST aims to simplify this by defining works contracts for immovable property only, treating them as a supply of services, and establishing a uniform tax rate across India. This streamlining makes the taxation of works contracts more straightforward and easier to manage under the GST framework.

GST Council

• Article 279A of the Constitution empowers the President to constitute the Goods and Services Tax Council (GST Council), a joint forum of the Centre and States.
• The GST Council was constituted on 15th September 2016, with the Union Finance Minister as its Chairman and Finance/Taxation Ministers from States and Union Territories as members.
• The Council makes recommendations on tax rates, exemptions, threshold limits, and other important GST-related issues.
• Decisions are made by a majority of three-fourths of the weighted votes, with the Centre having one-third weightage and States together having two-thirds.
• The Vice Chairperson of the Council is chosen from the State Ministers.
• The quorum for meetings is 50% of total members, and decisions require a 75% majority.
• The Council's recommendations cover all aspects of GST, including laws, rules, and rates.