CONTRACTOR’S ALL RISK POLICY FOR WORK CONTRACTS

A working knowledge of Works Contract under GST is much needed for inclusion of GST amount in loss assessment claims, especially for admissible losses covered under Contractors All Risk Policy. 

The Contractors All Risk policy is usually taken out by a commercial contractor or builder, but it can also be taken out by the owner of the project. 

Following points have been reproduced from: WORK CONTRACTS in GST Prepared by: National Academy of Customs, Indirect Taxes & Narcotics & Slide1 (gstcouncil.gov.in/sites/default/files/2024-04/workscontractservices_pra.pdf)

“Under GST laws, the definition of “Works Contract” has been restricted to any work undertaken for an “Immovable Property”

The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017 as “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.”

Thus, from the above it can be seen that the term works contract has been restricted to contract for building construction, fabrication etc. of any immovable property only.

Any such composite supply undertaken on goods say for example a fabrication or paint job done in automotive body shop will not fall within the definition of term works contract per se under GST.

Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST.

As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as a supply of services. Thus, there is a clear demarcation of a works contract as a supply of service under GST.

As per section 17(5) (c) of the CGST Act, 2017, input tax credit shall not be available in respect of the works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.

Thus, ITC for works contract can be availed only by one who is in the same line of business and is using such services received for further supply of works contract service.

For example a building developer may engage services of a sub-contractor for certain portion of the whole work. The sub-contractor will charge GST in the tax invoice raised on the main contractor.

The main contractor will be entitled to take ITC on the tax invoice raised by his subcontractor as his output is works contract service.

However if the main contractor provides works contract service (other than for plant and machinery) to a company say in the IT business, the ITC of GST paid on the invoice raised by the works contractor will not be available to the IT Company.

Plant and Machinery in certain cases when affixed permanently to the earth would constitute immovable property. When a works contract is for the construction of plant and machinery, the ITC of the tax paid to the works contractor would be available to the recipient, whatever is the business of the recipient. This is because works contract in respect of plant and machinery comes within the exclusion clause of the negative list and ITC would be available when used in the course or furtherance of business.

Place of Supply in respect of Works Contract Works Contract under GST would necessarily involve immovable property.

In view of the same the place of supply would be governed by Section 12(3) of the IGST Act, 2017, where both the supplier and recipient are located in India. The place of supply would be where the immovable property is located.

In case the immovable property is located outside India, and the supplier as well as recipient both are located in India, the place of supply would be the location of recipient as per proviso to Section 12(3) of the IGST Act, 2017.

As per Section 13(4) of the IGST Act, 2017, in cases where either the Supplier or the Recipient are located outside India, the place of supply shall be the place where the immovable property is located or intended to be located”.

In summary: 

Input tax credit is available to both a builder and a taxable person while constructing plant and machinery. But input tax credit is not available to any taxable person who constructs on his own account even if it is for business use.

The above interpretation is absolutely personal in nature and is not binding on any one in particular.

 

LIABILITY OF ROAD CARRIERS IN MARINE INSURANCE CLAMS

Many a times Transporters, Vehicle Owners undertaking carriage of goods are reluctant to offer ‘Damage Certificate’ or accept ‘letters of Monetary Claim’ lodged onto them by the Insured after a loss for preserving the Right of Recovery of the Insurers, citing “Carriage at Owners risk” as ground for their denial.

The highlighted part of the paragraphs are worth noting for reference by all concerned in the chain of transportation and insurance for carriage of goods by road.

The Carriage by Road Act, 2007 is an Act of the Parliament of India which provides for the regulation of common carriers of goods by roads. The Act was published on 29th September 2007.

The Act states that no person shall engage in the business of common carrier, after the commencement of the Act, unless a certificate of registration has been granted to him.

The Act defines a “common carrier” as a person engaged in the business of collecting, storing, forwarding or distributing goods to be carried by goods carriages under a goods receipt or transporting for hire of goods from place to place by motorized transport on road. It also includes a goods booking company, contractor, agent, broker and courier agency engaged in the door-to-door transportation of documents, goods or articles utilizing the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles.

The Act mandates that every consignor shall execute a goods forwarding note (GFN) which would include a declaration about the value of the consignment and goods of dangerous and hazardous nature. When the consignor issues the GFN to the carrier of goods, the counterparty is required to issue a goods receipt. Every common carrier is liable to the consignor for the loss or damage to any consignment in accordance with GFN.

Section 12 & 17 of The Act is worth noting in this regard.

Section 12 in The Carriage By Road Act, 2007:  Conditions limiting exonerating the liability of the common carrier

(1) Every common carrier shall be liable to the consignor for the loss or damage to any consignment in accordance with the goods forwarding note, where such loss or damage has arisen on account of any criminal act of the common carrier, or any of his servants or agents.

(2) In any suit brought against the common carrier for the loss, damage or non--delivery of consignment, it shall not be necessary for the plaintiff to prove that such loss, damage or non-delivery was owing to the negligence or criminal act of the common carrier, or any of his servants or agents.

(3) Where any consignment has been detained for examination or scrutiny by a competent authority and upon such examination or scrutiny it is found that certain prohibited goods or goods on which due tax not paid or insufficiently paid have been entrusted to the common carrier by the consignor which have not been described in the goods forwarding note, the cost of such examination or scrutiny shall be borne by the consignor and the common carrier shall not be liable for any loss, damage or deterioration caused by such detention of the consignment for examination or scrutiny:

Provided that the onus of proving that such incorrect description of goods in the goods forwarding note was received from the consignor shall be on the common carrier.

Explanation. For the purposes of this section, competent authority means any person or authority who is empowered to examine or scrutinise goods by or under any law for the time being in force to secure compliance of provisions of that law.

17. General responsibility of common carrier.—Save as otherwise provided in this Act, a common carrier shall be responsible for the loss, destruction, damage or deterioration in transit or non-delivery of any consignment entrusted to him for carriage, arising from any cause except the following, namely:—

(a) act of God;

(b) act of war or public enemy;

(c) riots and civil commotion;

(d) arrest, restraint or seizure under legal process;

(e) order or restriction or prohibition imposed by the Central Government or a State Government or by an officer or authority subordinate to the Central Government or a State Government authorised by it in this behalf:

Provided that the common carrier shall not be relieved of its responsibility for the loss, destruction, damage, deterioration or non-delivery of the consignment if the common carrier could have avoided such loss, destruction, damage or deterioration or non-delivery had the common carrier exercised due diligence and care in the carriage of the consignment.

Carriage by Road Rules, 2011

In exercise of the powers conferred by the Carriage by Road Act, 2007, the Central Government of India made the Carriage by Road Rules, 2011. These Rules relate to the regulation of common carriers of goods by roads. The Rules came into force on 28th February 2011.

Liability for loss of or damage to any consignment

Liability of the common carrier is limited to ten times the freight paid or payable, provided that the amount so calculated does not exceed the value of the goods as declared in GFN.

In case of partial damage to the goods, the evaluation of damage may be done by an independent Government approved valuer or surveyor selected by the consignor out of the list notified by the common carrier and the cost of such evaluation is to be borne by the common carrier. The liability for loss of documents sent along with the consignment order should not exceed rupees five hundred. In case of perishable goods, the consignor or the consignee should select the Government approved valuer or surveyor within a period of 24 hours from the time of report of the loss or deterioration of the goods, failing which the common carrier shall be free to select the said valuer or surveyor. The delivery of the consignment by the common carrier is treated as prima facie evidence of delivery of the goods as described in the GFN unless notice of the general nature of loss of, or damage to, the goods is given in writing, by the consignee to the common carrier at the time of handing over of the goods to the consignee. The responsibility of the common carrier is limited to the transit period, from the date of taking over the goods in his or her charge from the consignor to the date of arrival at the destination point plus three calendar days. The date of arrival of the consignment is taken as the day on which the goods physically arrive at the destination or the day when the consignee or consignor is informed of the arrival of the goods at the destination, whichever is later. The liability of the common carrier is to be calculated on the actual freight collected or due or ninety per cent of total charges excluding the taxes shown on goods receipt, whichever is higher.

In view of the above governing clauses of The Carriage by Road Act, 2007 & Carriage by Road Rules, 2011, Refusal to offer Damage Certificate or accept letters of Monetary Claim has no legal standing.

 The above interpretation is absolutely personal in nature and is not binding on any of the parties in particular.

 

Importance of E-way BILL in Marine Cargo Loss Assessment

Many a times the Invoice copy carries vehicle no. which is different from the actual vehicle that has suffered damage while carrying the consignment

To verify that the loss / damage of the cargo has actually happened under an insured transit, scrutiny of the E-way bill may be of immense help to the concerned Surveyors and Loss Adjusters.

 “Handbook-on-E-way-Bill-under-GST.pdf The Institute of Chartered Accountants of India” may be referred for guidance.

Following points in bold fonts are worth noting:

E-way bill (FORM GST EWB-01) is an electronic document (available to supplier / recipient / transporter) generated on the common portal evidencing movement of goods of consignment value more than ` 50,000/-.

 It has two components:–

Part A comprising of details of GSTIN of supplier & recipient, place of delivery (indicating PIN Code also), document (tax invoice, bill of supply, delivery challan or bill of entry) number and date, value of goods, HSN code, and reasons for transportation; and

Part B - comprising of transport details - transport document number (goods receipt number or railway receipt number or airway bill number or bill of lading number) and road vehicle number

E-way bill is valid throughout the country.

 As per Rule 138 of the CGST Rules, 2017, an EWB has to be generated prior to the commencement of transport of goods or movement of goods.

Even if the movement of goods is caused due to reasons other than supply, the e-way bill is required to be issued. Reasons other than supply include movement of goods due to job-work, replacement under warranty, recipient not known, supply of liquid gas where quantity is not known, supply returns, exhibition or fairs, for own use, sale on approval basis etc.

In a nutshell, EWB is to be generated by the consignor or consignee himself (if the transportation is being done in own/hired conveyance or by railways or by air or by vessel) or the transporter (if the goods are handed over to a transporter for transportation by road).

Where neither the consignor nor consignee generates the EWB and the value of goods is more than ` 50,000/- it shall be the responsibility of the transporter to generate it. In case the goods to be transported are supplied through an e-commerce operator, the information in Part A may be furnished by such e-commerce operator.

The consignment value of goods shall be the value, determined in accordance with the provisions of section 15 of the CGST Act, 2017, declared in an invoice, a bill of supply or a delivery challan, as the case may be, issued in respect of the said consignment and also includes the Central tax, State or Union territory tax, integrated tax and cess charged, if any, in the document and shall exclude the value of exempt supply of goods where the invoice is issued in respect of both exempt and taxable supply of goods.

In view of the valuation provisions in Section 15 of the CGST Act, 2017, customs duty shall also be includible in the value of goods.

 In case of movement of goods for reasons other than supply, the movement would be occasioned by means of a delivery challan which is a mandatory document. The delivery challan has to necessarily contain the value of goods as per Rule 55 of the CGST Rules, 2017. The value given in the delivery challan should be adopted in the EWB.

Where the goods are transferred from one conveyance to another, the consigner or the recipient, who has provided information in Part-A of the FORM GST EWB-01, or the transporter shall, before such transfer and further movement of goods, update the details of conveyance in the EWB on the common portal in FORM GST EWB-01. Any transporter transferring goods from one conveyance to another in the course of transit shall, before such transfer and further movement of goods, update the details of the conveyance in the EWB on the common portal in FORM GST EWB-01.

Part-B (Vehicle details) can be updated as many times as one wants for movement of goods to the destination. However, the updating should be done within the validity period and at any given point of time, the vehicle number updated should be that of the one which is actually carrying the goods.

The validity of EWB is not recalculated for subsequent entries in Part-B.

The validity period of the EWB depends upon the distance, the goods have to be transported.

The validity period of the EWB is calculated based on the ‘approx. distance’ entered while generating the EWB. As per Rule 138(10) of the CGST Rules, for every 100 Kms one day is the validity period for EWB and for every 100 KM or part thereof thereafter one more day is added. For example, if the approx. distance is 310 Kms then the validity period is 3+1 days.

 For movement of over dimensional cargo or multimodal shipment in which at least one leg involves transport by ship, the validity is one day for every 20 KM (instead of 100 KM) and for every 20 KM or part thereof one more day is added. Please refer Rule 138(10) for details.

 One needs to transport the goods with an EWB specifying the vehicle number, which is carrying the goods. However, where the goods are transported for a distance of less than fifty kilometers within the State from the place of business of consignor to the place of transporter for further transportation, then the vehicle number is not mandatory.

 Similar exception up to 50 KM has been given for movement of goods from place of business of transporter to place of business of consignee

 No EWB is required for movement of goods upto a distance of 20 Km from the place of business of consignor to a weighbridge for weighment or from the weighbridge back to the place of business of consignor, within the same State, subject to the condition that the movement of goods is accompanied by a delivery challan issued in accordance with Rule 55.

 Any person can verify the authenticity or the correctness of EWB by entering EWB number, EWB date, Generator ID and Document number in the search option of EWB Portal.

 Where multiple consignments are intended to be transported in one conveyance, the transporter may indicate the serial number of e-way bills generated in respect of each such consignment electronically on the common portal and a consolidated EWB in FORM GST EWB-02 may be generated by him on the common portal prior to the movement of goods

 If the consignee refuses to take goods or rejects the goods the transporter can get one more EWB generated with the help of supplier or recipient by indicating supply as ‘Sales Return’ and with relevant document details, and return the goods to supplier.

 Following are special situations where the EWB needs to be issued even if the value of the consignment is less than ` 50,000/-. As per the Provisos to Rule 138(1) of CGST Rules, 2017, where goods are sent by a principal located in one State to a job worker located in any other State, the EWB shall have to be generated by the principal irrespective of the value of the consignment.

Also, where handicraft goods are being transported from one State to another by a person who has been exempted from the requirement of obtaining registration, the EWB shall have to be generated by the said person irrespective of the value of the consignment.

 If the goods are being purchased and moved by the consumer to his destination himself as per the e-way bill rules, EWB is required to be carried along with the goods at the time of transportation, if the consignment value is more than ` 50,000/-. Under this circumstance, the consumer can get the EWB generated from the taxpayer or supplier, based on the bill or invoice issued by him.

 If the vehicle breaks down, when the goods are being carried with an EWB, then the transporter can get the vehicle repaired and continue the journey with the same EWB. If he has to change the vehicle, then he has to enter the new vehicle details in that EWB, on the e-way bill portal, using ‘Update vehicle number’ option in Part B and continue the journey in new vehicle, within the original validity period of EWB.

 Movement of goods which are in transit to or from Nepal/Bhutan, has been exempted from EWB.. Temporary vehicle number can also be inserted as vehicle number for the purpose of EWB generation.

Declaration and Disclaimer: 

The above view is very much personal based on my understanding of the GST Law and Insurance framework for loss assessment in case of Marine Cargo Insurance Policy. 

The Opinion is personal and not binding on any one. 

Sekhar Sengupta (ssg.noida@gmail.com)

Qualified IBBI Plant & Machinery Valuer 

Qualified Fire, Marine & Engineering Surveyor

Treatment of GST amount in Marine insurance Cargo Claims: 

 There exists lot of confusion among the Insurance Loss Adjusters and brokers who generally guide the insured in case of loss of goods during marine transits. 

  FIRE INSURANCE CLAIMS: 

 A clear understanding of applicable provisions of Goods and Services Tax (GST) law while assessing loss in case of a Fire or Burglary Insurance Policy has been explained by CMA Mr. Shiba Prasad Padhi Cost Accountant in MAY, 2022 VOLUME - 111 - THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

 “When there is a loss of stock or capital goods and the Insured lodges his claim with the Underwriter, the gross loss amount so claimed by the Insured is inclusive of GST paid. Tax cost is also to be indemnified to an Insured in case the liability falls on the Insured. As per provision of Sec. 17 (5) (h) of the Central GST Act, 2017, ITC will not be available to a taxable person in case the goods are lost or destroyed or stolen or they are written off. An Insured who has already availed ITC after purchase of stock or capital goods should not be paid the GST amount unless the Insured makes a reversal of the same in the above situation”. 

“Recommendation as per GST & Indirect Taxes Committee, The Institute of Chartered Accountants of India First Edition: July, 2021- Practical FAQs on Input Tax Credit.Page:187: 

“In case of flood claims, fire claims or theft claims w.r.t. damaged/ stolen stocks--------- Generally, the insurance company will indemnify the insured with the value of stock before the loss. Suppose taxable value of stock is ` 100/- and GST charged is ` 18/- the insured would have taken ITC of ` 18/-. However, as per section 17(5)(h) (goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples) the insured is required to reverse the ITC of ` 18/-. Since ITC is not eligible as per above provision, the same becomes cost of the stock lost. Hence, total loss of stock is ` 118/- and the insurance company has to compensate ` 118/-. However, the insurance company may want to ensure whether ITC involved in the loss of stock has been reversed so as to validate the exact value of loss of stock. For this purpose, the insurance company requires the insured to get CA certificate confirming that ITC has been reversed in the books and GST returns though there is no express requirement for the insured to get CA certificate as per the CGST Act, 2017 or rules made thereunder. (ii) From the above discussion, the procedure adopted by insured and insurance company appears to be proper to arrive at the value of loss of stock. However, the insured has to pay interest under section 50, in this matter, since he reverses the credit belatedly that too after being pointed out by the Department. The Department may also levy penalty under section 73 or 74”. 

  MARINE CARGO INSURANCE CLAIMS:

Whenever a total loss occurs, the policy holders irrespective of their roles as supplier or receiver tries to pass the burden of GST on to the Insurer. 

The ICC /ITC policy coverage is generally for Invoice value (which is inclusive of GST) +10%.. 

If the loss happens during supply phase of transit, the supplier of the goods/ insured brings back the goods in his premises; declares the consignment as total loss and makes a claim for Invoice (inclusive of GST) amount +10%, citing Sec. 17 (5) (h) of the Central GST Act, 2017. 

The same is also the norm, If the receiver is the insured who has an insurable interest in the shipment. 

 The following guide line prepared by Directorate General of Taxpayer Services CENTRAL BOARD OF EXCISE & CUSTOMS www.cbec.gov.in may be helpful for Loss assessors as well as Insurance Company for guiding the Insured in case of Marine Cargo losses. 

 Reference Document: “Credit Note in GST, Prepared by: National Academy of Customs, Indirect Taxes & Narcotics” may be immensely helpful for GST related issues in marine claims for both insurer and the insured. 

Following two paragraphs of the above document are worth noting: 

Introduction

" A supplier of goods or services or both is mandatorily required to issue a tax invoice. However, during the course of trade or commerce, after the invoice has been issued there could be situations like: 

• The supplier has erroneously declared a value which is more than the actual value of the goods or services provided. 

• The supplier has erroneously declared a higher tax rate than what is applicable for the kind of the goods or services or both supplied. 

• The quantity received by the recipient is less than what has been declared in the tax invoice. 

• The quality of the goods or services or both supplied is not to the satisfaction of the recipient thereby necessitating a partial or total reimbursement on the invoice value.

• Any other similar reasons. In order to regularize these kinds of situations the supplier is allowed to issue what is called as credit note to the recipient. Once the credit note has been issued, the tax liability of the supplier will reduce. 

Conclusion 

The credit note is therefore a convenient and legal method by which the value of the goods or services in the original tax invoice can be amended or revised. The issuance of the credit note will easily allow the supplier to decrease his tax liability in his returns requiring him to undertake any tedious process of refunds” 

 Declaration and Disclaimer: 

The above view is very much personal based on my understanding of the GST Law and Insurance framework for loss assessment in case of Marine Cargo Insurance Policy. 

The Opinion is personal and not binding on any one. 

Sekhar Sengupta (ssg.noida@gmail.com)

Qualified IBBI Plant & Machinery Valuer 

Qualified Fire, Marine & Engineering Surveyor