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Para 9.5.3 - GST in Contracts | KartavyaDesk

Non-Consultancy Manual

Original Rule Text

b) The Procuring Entity shall not pay a higher GST rate if leviable due to any misclassification of the HSN number or incorrect GST rate quoted mistakenly by the Contractor. Wherever the contractor invoices the Services at GST rate or HSN number, which is different from that incorporated in the contract, payment shall be made as per GST rate, which is lower of the GST rates incorporated in the contract or billed. However, the Procuring Entity shall not be responsible for the contractor's tax payment or duty under a misapprehension of the law. The Contractor shall be required to adjust his basic price to the extent required by a higher tax rate billed as per invoice to match the all-inclusive price mentioned in the contract. c) In case of undue profiteering by the contractor relating to GST tax, the Procuring Entity shall treat it as a violation of the Code of Integrity in the contract and avail any or all punitive actions thereunder, in addition to recovery and action by the GST authorities under the Act. d) The contractor should issue Receipt vouchers immediately on receipt of all types of payments along with tax invoices after adjusting advance payments, if any, as per Contractual terms and GST Provisions. e) Liquidated damages (refer to para 9.4.7 above for its quantum) or any other reduction (Price Variation or Exchange Rate variation, etc.) should be shown as deductions on the invoice and GST shall be applicable only on the net balance payment due. Similarly, any increase due to any variation should be shown as added to the invoice value. The Contractor shall be required to adjust his basic price to the extent required to adjust the applicable GST rate within the nett balance invoice value. f) While claiming reimbursement of duties, taxes etc. (like GST) from the Procuring Entity, as and if permitted under the contract, the contractor shall also certify that in case it gets any refund out of such taxes and duties from the concerned authorities later, it (the contractor) shall refund to the Procuring Entity, the Procuring Entity’s share out of such refund received by the contractor. The Contractor shall also refund the appropriate amount to the Procuring Entity immediately on receiving the same from the concerned authorities. g) All necessary adjustment vouchers such as Credit Notes/ Debit Notes for any short/ excess services delivered or revision in prices or any other reason under the contract shall be submitted to the Procuring Entity in compliance with GST provisions.

What This Means

Para 9.5.3 of the Manual for Procurement of Non-Consultancy Services deals with Goods and Services Tax (GST) related aspects in government contracts. Essentially, it protects the government from paying more GST than necessary due to contractor errors or misinterpretations. It also ensures that contractors don't unfairly profit from GST and that proper documentation is maintained for all transactions. This rule applies whenever GST is applicable to a non-consultancy service contract and affects both the government procuring entity and the contractor providing the service.

Specifically, the government will only pay the lower of the GST rate specified in the contract or the rate billed by the contractor, preventing overpayment due to incorrect HSN codes or rates. Contractors are responsible for adjusting their basic price to align with the agreed-upon all-inclusive price, even if they bill at a higher tax rate. Furthermore, the rule emphasizes transparency and accountability, requiring contractors to issue proper invoices and vouchers, and to refund any GST refunds received later to the government. Any undue profiteering related to GST can lead to punitive actions.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

  • •Government will pay the lower of the GST rate in the contract or the rate billed by the contractor.
  • •Contractors must adjust their basic price to match the all-inclusive price in the contract, even with higher billed GST.
  • •Undue profiteering related to GST is a violation of the Code of Integrity and can lead to punitive actions.
  • •Contractors must issue proper invoices and vouchers, including adjustments for advances and variations.
  • •Contractors must refund any GST refunds received later to the government.

Practical Example

The Ministry of Electronics and Information Technology (MeitY) contracts with 'SecureTech Solutions' for cybersecurity services. The contract specifies a GST rate of 18%. However, SecureTech Solutions mistakenly invoices the services at a 28% GST rate due to a misclassification of the HSN code. According to Para 9.5.3, MeitY will only pay GST at the 18% rate specified in the contract. SecureTech Solutions must adjust its basic price to ensure the total invoice amount (including the 18% GST) matches the all-inclusive price agreed upon in the contract.

Later, SecureTech Solutions receives a GST refund from the tax authorities related to the cybersecurity services provided to MeitY. As per Para 9.5.3, SecureTech Solutions is obligated to refund MeitY's share of the refund immediately upon receiving it. Failure to do so would be a violation of the contract and could lead to penalties.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

What happens if the contractor bills GST at a higher rate than specified in the contract?▼
The Procuring Entity will only pay GST at the lower of the two rates (contract rate or billed rate). The contractor must adjust their basic price accordingly.
What constitutes 'undue profiteering' related to GST?▼
Undue profiteering refers to the contractor unfairly benefiting from GST, such as charging a higher price than justified by the actual GST rate or retaining GST refunds that should be passed on to the Procuring Entity.
What kind of documentation is required for GST-related transactions?▼
Contractors must issue proper tax invoices, receipt vouchers, and adjustment vouchers (Credit Notes/Debit Notes) as per GST provisions, reflecting all payments, deductions, and variations.
If the contractor receives a GST refund related to the contract, who is entitled to it?▼
The contractor must refund the Procuring Entity's share of the GST refund immediately upon receiving it from the tax authorities.
How are deductions like Liquidated Damages handled for GST purposes?▼
Liquidated damages and other reductions should be shown as deductions on the invoice, and GST is applicable only on the net balance payment due.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Test Your Knowledge

Question 1 of 3

According to Para 9.5.3 of the Manual for Procurement of Non-Consultancy Services, if a contractor mistakenly quotes a higher GST rate than what is specified in the contract, the Procuring Entity will pay:

Related Rules

Para 3.2Manual for Procurement of Non-Consultancy Services, 2025 - Para 3.2 - Chapter 3Para 4.1.1Manual for Procurement of Non-Consultancy Services, 2025 - Para 4.1.1 - Chapter 3Para 4.2.3Manual for Procurement of Non-Consultancy Services, 2025 - Para 4.2.3 - Chapter 3Para 4.4Manual for Procurement of Non-Consultancy Services, 2025 - Para 4.4 - Chapter 3Para 6.8Manual for Procurement of Non-Consultancy Services, 2025 - Para 6.8 - Chapter 6

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