GST registration for works contract and construction companies – Will GST registration is required to do any project outside the state?

1.0 Introduction

GST registration for works contract and construction companies is one of the most typical concepts which are being discussed in the country. People have many questions with few answers and hence, as a result, we thought of writing on this disputed topic and clear all the ambiguity around this issue.

Further, though there are many issues for works contractors and construction companies, but we shall first answer the queries relating to GST registration for construction companies and works contractors.

2.0 The problem of GST registration for works contractors

The works contractors or construction companies undertake many different activities nowadays like advisory, manpower supply, construction of bridges etc. Further, in the modern era, these companies’ works on PAN India model and undertakes projects in different parts of the country. Also, since works contract is governed by two laws (VAT and service tax), hence VAT registration for each project in the state becomes mandatory.

However, with advent of GST, the concept of one nation one tax emerges and therefore, it becomes important to understand the GST impact on works contract and construction companies and to remodel them.

Let us understand the problem by ways of example:

ABC is a construction company from Nasik, Maharashtra is into construction business of bridges and works on PAN India basis based upon their requirements at various sites.

Since company is operating both within and outside the state, then hence they need to transfer certain goods machines to another state. Further, their construction usually takes more than 6 months to complete and hence, the following questions emerge from the above problem:

• Since, projects take more than 6 months to complete, whether GST registration is to be taking in each state for each project?
• If the answer to the above is no, then how to transfer material to under state?

3.0 Answer to the above queries

As per the facts of the example and current practice, company is registered under different VAT laws in different states for the sole purpose of saving VAT liability, because the mentioned operations includes stock transfer to different states where contract is executed.

3.1 Reasons for multiple registration under VAT

There are two basic reasons of stock transfer and having different state VAT registration which are as follows:

• The company is involved in trading of goods all over India. However, it was facing a problem of high cost on account of CST being non creditable. Hence, to avoid this problem, company used to take VAT registration in the different state and transfer the goods from Nasik  to that particular state via stock transfer and then sell goods by charging local VAT thereon. By doing this transaction, the company is able to skip the problem CST being non creditable and comes at par with the local supplier of that particular state.

• The second reason being the works contract. Company used to charge a single amount for bridge construction under which the transfer of goods, consumable takes place. Further, all these goods, consumables, machines are then transferred to that state where bridge construction takes place against form F to avoid levy of CST. Thereafter, after the end of each month, company used to raise invoice to levy the tax as per the local state laws.

3.2 No separate Registration under GST

Under GST regime, the above complex system can be eased easily. Company does not require maintaining separate registration in each state because under GST the flow of credit is seamless and the same is available to the buyer even on interstate purchases.

Company need not maintain the separate VAT registration because under GST regime, works contract is covered under the definition of service and which also can be provided directly from Nasik, Maharashtra to anywhere in the country.

Further, the place of supply in case of construction of bridges shall be the location of the construction site.

So if company is executing any works contract outside the state, then it shall be treated as interstate supply and therefore IGST shall be applicable and therefore, no separate GST registration is required to be maintained.

4.0 How goods and machine shall be transferred to project site? Against which invoice the goods and machines will be sent at the construction site legally under GST?

Material, Goods and machines can be easily transferred against the delivery challan in the name of the client and at the place where construction is taking place. This is because when you send material to the site, the same cannot be considered as a taxable supply and hence, no question of issuing tax invoice and charging GST arises.

4.1 If it is not supply then why GST is charged in case of stock transfer?

GST is applicable in the case of stock transfer because it happens to a related party and as per schedule I, any supply between related party shall be considered as supply with or without consideration.

However, in our case, the client and the ABC company is not related and hence, movement of any material without consideration is not a supply under GST, therefore goods, material and machines can be sent on delivery challan.

5.0 When GST registration becomes mandatory?

Suppose, if you open a branch in any state other than your registered state, then only GST registration is mandatory this is because GST registration is completely dependent upon the place from where you are making supply. Hence, if you open the branch at Noida, then GST registration shall be mandatory.

6.0 Conclusion

In the light of all the analysis done above, we can conclude that GST registration is not required for doing projects outside the state. However GST shall be mandatory if you open a branch outside the state.

However, in case you have any query, then you may write to us at info@hubco.in.

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