Rule 56(14): Separate Accounts for Every Works Contract

Rule 56 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Everywhere else in the rules, the accounting unit is the registered person. Here it is the contract.

"Every registered person executing works contract shall keep separate accounts for works contract showing — (a) the names and addresses of the persons on whose behalf the works contract is executed; (b) description, value and quantity of goods or services received for the execution of the works contract; (c) description, value and quantity of goods or services utilized in the execution; (d) the details of payment received in respect of each works contract; and (e) the names and addresses of suppliers from whom he received goods or services."

Received versus utilised

Clauses (b) and (c) are the pair that matters, and they are deliberately separate.

Received — everything procured for the contract. Cement delivered to site, steel in the store, sub-contract services invoiced.

Utilised — everything actually consumed in the contract. Cement poured, steel fixed, services performed.

The difference is closing stock at site, plus anything diverted to another contract.

That difference is what an officer reconciles. Material received for Contract A and used on Contract B, without a transfer entry, produces a shortfall in one and an unexplained excess in the other — and the shortfall side engages s.35(6), which taxes unaccounted goods as if supplied. Rule 56(6): undeclared storage →

Clause (d): payment received

"Details of payment received in respect of each works contract."

This connects to the time of supply. A works contract on immovable property is a continuous supply of services in most cases, and s.31(5) ties the invoice to the due date of payment where it is ascertainable from the contract. Continuous supply of services →

The payment record is therefore the evidence that the invoicing timeline was met — or the evidence that it was not.

It also carries retention money, which is where Rule 37 exposure sits for the contractor's own suppliers: retention held beyond 180 days is unpaid consideration, and the credit on the retained portion must be reversed proportionately. The 180-day rule →

Free-issue materials

Rule 56(14) does not name them, but they belong in clauses (b) and (c).

Where the employer supplies cement, steel or other material free of cost, those goods are received for the execution of the works contract and utilised in it. They must appear in the contract account even though no purchase invoice exists.

Two reasons:

The reconciliation. Without them, the utilised quantity exceeds the received quantity by the free-issue volume, and the account does not balance.

The valuation position. Whether their value enters the taxable value under s.15(2)(b) turns on whether the contractor was contractually liable to procure them. The contract account, showing them received from the employer against the employer's issue records, is part of the evidence. Free-issue materials and works contract value →

Clause (e): the suppliers

"Names and addresses of suppliers from whom he received goods or services."

Per contract, not merely a vendor master. The purpose is traceability — an officer examining a contract can identify every upstream supplier for that contract without reconstructing it from the general ledger.

It also supports the s.17(5)(c) chain exception: a contractor takes credit on sub-contractors because it is making a further supply of works contract service, and the contract account is where that chain is visible. Section 17(5)(c) →

Why "each works contract" and not "each project"

The rule says "separate accounts for works contract" and "each works contract" in clause (d).

A single project may involve several contracts — a main contract, variation orders treated as separate contracts, and distinct contracts with different employers on the same site. Each is its own accounting unit.

Conversely, one contract executed across several sites is one account.

The distinction matters because the place of supply for a works contract on immovable property is the location of the property under s.12(3) of the IGST Act — so a contract spanning two States raises registration and place-of-supply questions the contract account must support. When a second State registration becomes mandatory →

Key takeaways

• Rule 56(14) requires separate accounts for each works contract — five records.
• Goods received and goods utilised are recorded separately; the difference is site stock.
• Free-issue materials belong in both, even without a purchase invoice.
• Payment records evidence compliance with the s.31(5) invoicing timeline and expose Rule 37 retention risk.
• Supplier records per contract support the s.17(5)(c) chain exception.
• The accounting unit is the contract, not the project or the client.

Read next

• Works Contract: Why It Is Not a Composite Supply Question
• Free-Issue Materials and the Value of a Works Contract
• Section 17(5)(c): Works Contract Services
• Continuous Supply of Services and Section 31(5)

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition).