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GST impact on Works contracts and EPC

GST Impact on works contracts and EPC

In this article we will discuss the provisions of GST in context with the works contracts and EPC contracts. Works contracts have a history of litigation. It is expected to be simplified in GST. It will help in understanding the GST impact on works contracts and EPC.

Works contracts are treated as services.  A much need clarify should help this sector to avoid litigation in terms of difference between goods and services. All GST rate and provisions ( like place of supply rules etc as are applicable to services) shall apply to works contracts ( more clarity will be required now).  The major gain from this treatment is that the tax would be now charged on the actual contractual base. Also, local versus inter-state works contracts, that at present leads to innumerable disputes, should get eliminated. Hence, EPC contract prices may come down somewhat on account of this new tax-efficient structure, which in turn should benefit project.

  But turnkey projects that involve high imports of goods ( no VAT or service tax), conducting interstate sales by way of sales in transit ( Section 3(b) of CST Act sales) and taking benefit of Supreme Court judgment in the case of State of AP v Larsen and Toubro( 2008) will have examine their stakes pre-GST and post –GST regime.  My take is that such projects, if spreading into GST regime, will suffer a higher cost and I personally doubt such costs shall be covered in “change in law” clauses more so if the prices were quoted “all inclusive”.  The long drawn arguments between the owners and the contractors shall drag on and may lead to litigation – either in arbitration or in courts- with regard to exact interpretation of “change in law” clauses.

Logistics

Logistically India should become One Market; logistics firms may require larger and fewer godowns; bigger vehicles than smaller vehicles; transport sector shall enjoy greater economies of scale.  And if check posts are improved it will save a lot of labor time.   Experts feel if all goes well this sector may optimize their costs favorably by more than 20 percent.  A little doubtful; but definitely this sector shall gain tremendously.

Others

For roads, VAT is generally applicable on goods used for construction, whereas service tax is exempt on the actual construction of road. The on going projects will have to take a call and compute the negative impact as there is not likely to be any exemption.  Whether for the ongoing projects exemption will

For any query you can post a comment or send an email to the author at fcarashmijain@gmail.com.

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Profile photo of CA Rashmi Jain CA Rashmi Jain

New Delhi, India

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