Agenda Item No,
Sub: Implementation of GST in NHAI- Approval for consequential Change in Law, NHAl as
@ Business Entity, Methodology to be adopted for various payments and amendments
Fequited in future contract/bidding documents,
Proposal: The proposal is to seek approval of the Board of Authority on Implementation of
GST in NHAI- Approval for consequential Change in Law, NHAI as a Business Entity,
Methodology to be adopted for various payments and amendments required in future
contract/bidding documents.
2. Background:
Goods and Service Tax Act, 2017 has been implemented in india with effect from
01.07.2017. The Act has subsumed various Indirect Taxes of both the Central & State
Governments, such as Central Excise Duty, Service Tax, Central Sales Tax (CST) /
State Value Added Tax (VAT), Additional Custom Duty (CVD) and Special Additional
Duty (SAD) apart from Entry Tax and Octroi Charges etc.
b. NHAI have been receiving queries from its Stakeholders I.e. Contractors / Vendors /
Consultants with regard to applicability of GST on payments to be made by the ROs/
PlUs / HQ and includes Contract payments. NHAI Kave been interacting with the
'MORTH as well as the GST Authorities, and various representations are also made to
them with regards to the applicability of GST on various transactions in NHAI.
¢-_ Inorder to address the immediate issues on GST, Standard operating Procedure (SoP)
was presented to Executive Committee on 08.08.2017.
d, Itwas further deliberated in a subsequent meeting held on 10.08.2017 in presence
of Chairman, Members and CGMs in NHAI HQ. It was decided to seek the approval of
the Authority of the Board, on the subject.
3. Legal opinion on Change in Law/ NHAI as Business Entity under GST Act :
Legal Opinion has been received from Advocates (M/s Lakshmi Kumaran & Sridharan )
Confirming that NHAI is a “BUSINESS ENTITY” under GST Act, 2017 and “CHANGE IN
LAW'"'is applicable for all forms of Contracts i.e. under PPP (Toll), PPP (Annuity), Hybrid
Annuity Model and EPC.
Accordingly, NHAl has obtained GST Registration number for its Headquarters and
registrations are under process for all the States. NHAl now need to comply with the
relevant provisions of GST Act and Rules,
hey4 Payments
NHAL is dealing with various contracts under
i) Hybrid Annuity Mode (HAM),
fi) Engineering, Procurement & Construction (EPC),
iii) Built Operate & Transfer: BOT (Toll),
iv) Built Operate & Transfer-BOT (Annuity) &
¥) Operation & Maintenance Contract (O&M)
NHA\ needs to pay alll the Contractors on regular basis. In most of our EPC contracts,
the rates quoted are lump-sum and inclusive of all taxes, which has now been subsumed
to GST.
In order to streamline the payments and avoid litigation in such contracts, the following
methodology proposed to be adopted by the ROs / PIUs for contract payments.
1a) The project components under different major head (like Aggregates, Steel,
Cement, Bitumen etc...) are to be intimated by the contractors and assessed by the
concerned RO / PD in consultation with the respective IE/AE and the concerned
Contractors for each of the Project.
b) The total work is to be divided into (i) Works completed up to 30.06.2017 & ({i) work
yet to be completed w.e.f 01.07.2017.
) In order to compile the above information, an Excel format has been designed and
attached at Annexure-I, It indicates various project components which attracts
various kinds of taxes including Excise Duty, CST, VAT and other taxes, which is
already included in the awarded value as per the original contract. The same format.
can be completed for each of the projects.
d) After completion of the said exercise, the cost against the subsumed taxes (Excise
duty, CST, VAT etc.) in the particular contract are to be finalized and are to be
mutually agreed by NHAI and the Contractor. The contract cost factored in the
contract value are required to be reduced from the original contract amount to
arrive at the actual cost of the project in each of the IPCs (Interim Payment
Certificates).
e) On the reduced value of Contract, NHAI shall pay the GST to the Contractor for work
done/services rendered at the applicable rate.
(hwf) This will be an interin’ arrangement till the completion of the project. Any
subsequent development/ctarification shall be addressed periodically and shall be
finalized at the time of Final bill
b. Annuity Payments
Presently, the Annuities payments are not exempted from GST. The matter has been
referred to the GST authorities for clarification, but no communication or clarification
has been issued till date. Hence, NHAI may pay the applicable GST to the contractors
¢. Mobilization advance
Applicability of GST on mobilization advance will be as follows
~ If the mobilization advance is refundable as per the Contract Agreement, no
GST shall be payable on mobilization advance.
~ If the mobilization advance is recoverable as per the Contract Agreement in
future bills, then GST shall be applicable. It shall be paid by NHAI at the
applicable rates and shall be suitably adjusted at the time of recovery of the
Mobilization Advance,
Reverse Charge Mechanism
In case of Reverse Charge mechanism, taxes on account of GST under any of the services
defined in GST Law, shall be discharged by NHAI. The Notification no. 13/2017-Centrat
Tax (Rate) dated 28.06.2017 in this regard is attached as Annexure -I.
e. Deductibility of TDS under income Tax Ac!
TDS are to be deducted under the Income Tax Act, apart from the TDS applicable under
WCT/GST. Accordingly, wherever in terms of agreement or contract between the NHAI
and service providers, the component of “GST on services” comprised in the amount
payable is indicated separately, Tax Deducted at source under the Income Tax Act shall
be deducted on the amount paid or payable without including such “GST on Services”
component. GST for this purpose shall include IGST, CGST, SGST and / UTGST. A copy
of Circular issued by CBDT in this regard is attached herewith as Annexure-II.
5. Preparation of DPR/ Estimation of Project Cost:
With the implementation of GST various Indirect Taxes of both the Central & State
Governments have subsumed into GST. As such, at the time of preparation of DPR,
Estimation of Project Cost and while adopting the Schedule of Rates (SOR), pre-GST
taxes must be excluded from the cost. The applicable GST rate should be shown
separately. (wyChanges required in Contracts
For new Contracts, the cost of Projects should be excluding of Pre-GST taxes. GST shall
be payable as applicable. Necessary amendment has to be carried out for all new
Bid/Contract documents,
Approval sought:
Board is requested to approve the implementation of GST and the consequential actions
including the:
~ Applicability of Change in Law in all form of Contracts
- NHAI as a Business entity as per GST Act, 2017.
- Methodology proposed to be adopted for Payments.
= To incorporate required changes while Preparing DPR/ Estimation of Project Cost
and in the Contract/bidding documents with approval of MoRTH.
~ Authorize CGM(FA) to provide clarifications/issue circulars etc. on GST matters with
the approval of Member(Finance)
ial
(Rohit Kumar Singh}
Member (F)