Question

In case of demolish services, Contractor got the contract to demolish the bridges from the company and for this contractor gives money to the company and in return contractor got the scrap and malba after demolishing the bridge. My question is how we will handle this transaction in GST, As the services are provided by the contractor and also the money is paid by contractor to company? Who will raise the invoice and how to show this transaction in GST?

Answer

Facts of the case: Contractor pays consideration to company, demolishes the building and takes away the scrap and malba.

Law applicable: As per rule 27 of CGST rules,
"Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,-
(a) be the open market value of such supply;
(b) if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;................."

Interpretation: Here company is the supplier for which it receives consideration in money + kind, i.e service of demolishing the building. Since the consideration is not wholly in money, Rule 27 applies and the value of supply shall Money received + open market value of service of demolishing the building.

Conclusion: Company shall raise the invoice and charge GST on the value arrived at above in accordance with section 15 and rule 27.

Tax Planning:
(i) Since you are taking lump sum price for all types of scrap, therefore it will be covered under definition of mixed supply and accordingly the rate of tax will be the highest rate of tax applicable to any item of scrap which is sold in mixed supply. Chances are that at least one of item may attract tax @ 18% or more and thus the supply will be charged at this highest rate

(ii) Here we suggest that instead of giving the whole contract for demolition of Building and sale of scrap, first get the building demolished & then under a different contract sell the scrap with bifurcation in different heads. This way you can do some tax planning without doing tax evasion.   (Reply dt.18/03/2019)