GST on pending works contract milestones and transitional input tax credit
- Ruling
- GUJ/GAAR/R/2017-18/3 dated 17.1.2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
In short
The Gujarat Authority for Advance Ruling (GAAR) examined whether testing and commissioning work performed after the Goods and Services Tax (GST) rollout qualifies as a taxable works contract. It also addressed whether a business can claim transitional input tax credit (ITC) for materials bought under the old tax regime when no further inputs are needed for the remaining project phase.
What has changed
How it worked before
Many businesses were uncertain about how to treat project milestones that straddled the transition from the old tax regime to GST. Contractors often assumed they could claim transitional credit for past material purchases to offset the tax burden on remaining project phases, regardless of whether those materials were still being actively used.
What has changed
The authority ruled that testing and commissioning an underground pipeline is a works contract, making the post-GST portion of the work taxable under the new law. Furthermore, it denied the transitional ITC claim because the law requires inputs to be used for taxable supplies, and the pending testing phase did not require any additional materials.
Who this affects
This ruling is relevant to construction companies, infrastructure contractors, and engineering firms that had ongoing projects during the transition to GST in 2017.
What you should do
If you are in a similar situation, you should review your specific contract milestones and the timing of your supply to determine your GST liability. Remember that an advance ruling is only binding on the business that requested it and its specific tax officer, so you cannot automatically apply this logic to your own tax filings without professional advice.
The ruling in detail
Authority for Advance Ruling
M/s. R.B. Construction Company
GUJ/GAAR/R/2017-18/3 dated 17.1.2018 · Gujarat
Questions before the authority
- Does the work executed and invoice to be raised for the pending event of testing and commissioning by the applicant after the implementation of the Goods and Services Tax Act amount to supply, and specifically supply of works contract?
- Is the applicant entitled to enjoy proportionate credit worth 10% duty of excise and VAT paid on materials bought vide invoices showing Excise and VAT separately, under the transition provisions so that there is no double taxation i.e. levy of tax on tax is avoided?
Facts
The applicant was engaged in a tender for the Rajkot Municipal Corporation to supply, lay, and commission an underground pipeline network. While the supply and laying of pipes were completed in the pre-GST era, the testing and commissioning phase remained pending upon the implementation of GST. The applicant sought clarity on the taxability of this pending milestone and the eligibility to claim transitional input tax credit for materials purchased under the previous tax regime.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of activity | Works contract Treated as a supply of services |
| Transitional ITC eligibility | Not entitled Condition of using inputs for taxable supplies not met |
The authority ruled that the activity constitutes a works contract and is subject to GST for the portion of supply occurring after the appointed date. It further held that the applicant is not entitled to claim transitional input tax credit under Section 140(6) because no inputs were required to be used for the pending testing and commissioning phase.
Reasoning
The authority determined that the pipeline network is an immovable property, bringing the activity under the definition of a works contract per Section 2(119) of the CGST Act. Regarding ITC, the authority relied on Section 140(6), which requires that inputs be used or intended for use in making taxable supplies. Since the only pending activity was testing and commissioning, which required no further inputs, the applicant failed to satisfy the statutory conditions for transitional credit.
Provisions relied on
- Section 2(119) of the CGST Act, 2017
- Section 7 of the CGST Act, 2017
- Section 13 of the CGST Act, 2017
- Section 140(6) of the CGST Act, 2017
- Section 142(11) of the CGST Act, 2017
- Clause 6(a) of the Second Schedule to the CGST Act, 2017
For the practitioner
This ruling clarifies that **pending milestones** in a works contract are subject to GST if the time of supply falls after the implementation of the Act. It serves as a warning that transitional ITC claims under Section 140(6) are strictly contingent upon the **actual use of inputs** for taxable supplies. It does not provide relief for taxpayers who have completed the material-intensive phases of a project prior to the GST transition.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/guj-2017-18-3_17-01-18_rb_const_0.pdf
Legibility of the scan, as read: high.
Prepared 21-10-2026.
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