Railways gets relief from GST cut on works contract:

Railways gets relief from GST cut on works contract:

Context

The Goods and Services Tax(GST) Council’s decision to roll back the increase in tax rate for government work contracts comes as a relief for the Indian Railways.

Introduction:

• The government has fixed a goods and services tax (GST) rate of 12 per cent for work contracts, giving the impression of a higher burden on the construction sector.
•  The contractors were demanding more money for contracts awarded before July 1 due to increased tax liability but the Railways had refused to pay for the higher tax amount

Key points:

• The tax on construction activity, including composite works contracts, was increased to 18% from 12% under GST.
• However, Finance Minister Arun Jaitley announced after the GST Council meeting on Saturday that government works contracts, for both Centre and States, would attract 12% GST with input tax credit.
•  Under the extant indirect tax regime, work contracts usually cover three types of taxable activities: Supply of goods (inputs), services and manufacturing.
• While most of the steel products will be taxed at 18 per cent under the GST regime, against the current indirect tax incidence of roughly 17.5 per cent, those of cement will attract 28 per cent, against around 23-24 per cent now.    

Panel set up by Railway Ministry:

• The Railway Ministry has also constituted a committee to examine the impact of GST on the works contracts after receiving representations from contractors on increased tax liability.
• Work related to track, construction of bridges, earthwork in embankment, supply, unloading and spreading of ballast, among others were facing increased tax liability after the government’s initial move to increase GST on such projects.