Tamil Nadu’s Public Works Department and Highways Department are in the process of revising their schedule of rates segregating the taxes subsumed under the new Goods and Services Tax (GST) regime form the schedule of rates, an official statement said.

In an order issued here, the Finance Department said: “The Government is also examining the full implications of the GST on works contract and government procurement. The Public Works Department and Highways Department are in the process of revising schedule of rates to separate out taxes subsumed under the new GST regime from the schedule of rates.”

According to the government, difficulties have arisen on account of GST regime in government works contracts.

“Typically, existing contracts include clauses stating that risk arising due to change in law would be borne by procuring entities. However, it has been brought to notice of the Government that existing works contracts in some departments do not provide for such a clause,” the order said.

The government said that GST is a major tax law change and it has therefore taken a policy decision that the risk on account of change of tax law in government works contracts due to introduction of the GST shall be borne by the procuring entity.

“The Government accordingly will notify detailed guidelines for evaluating the net change in tax liability on contracts for the purpose of payments to be made to the contractors and entering into supplementary agreements with contractors,” the order said.

The Tamil Nadu government has directed its department and other services/goods procuring entities to make ‘on account’ payment to contractors as per the existing contract terms.

According to Finance Department’s order: “Any difference on account of final payment due based on the guidelines to be issued and the ‘on account’ payment made as above may be adjusted from out of the 5 percent amount retained with the procuring entity. The payment of final bill in cases where on account payments have been made shall be made only after the notification of the guidelines.”