2019 (1) TMI 1671 - AAR - GST

Government authority/ Government Entity or not - applicable rate of GST - work agreement entered into with the APSPDCL - liability of GST on value of materials recovered from our RA bills issued on cost recovery basis by APSPDCL - reverse charge mechanism - N/N. 13/2017-Central Tax Rate dated 28.06.2017. Government authority/ Government Entity or not - Whether APSPDCL is a Government authority/ Government Entity or not? - HELD THAT - The Applicant Contractee i.e. APSPDCL is a Government Company i.e. wholly owned by the Government of Andhra Pradesh. When a copy of Audited Annual Accounts of M/s APSPDCL for the Financial Year 2016-17 is examined, it is evident from the schedule of Equity Share Capital of the Annual Statement that 100% share capital is held by the Government of Andhra Pradesh in the name of Honourable Governor of Andhra Pradesh - Thus, it is concluded that the Government of Andhra Pradesh is having full control over the APSPDCL and covered under the definition of Government Entity. Nature of work undertaken by the applicant - HELD THAT - The applicant is engaged in execution of works awarded by M/s Southern Power Distribution Company of Andhra Pradesh Limited for (1) Construction of indoor sub-station with control room and civil works; (2) Electrical Works; (3) Providing bore well (4) Erection of 33KV line with 100 sqmm AAA Conductor (DC); (5) Erection of 11 KV line with100 sqmm Conductor; (6) Erection of 33 KV UG cable; (7) Erection of 11 KV UG cable ; (8) 33 KV Railway crossing. Further, for all civil works, where materials such as sand, metal, gravel etc, are involved, the rates are inclusive of seignorage charges as fixed by the competent authority of Government of A.P. and the same will be recovered from the contract bills for remittance to the Government - The contract with APSPDCL is a single composite contract for supply of the said works on semi turnkey basis under IPDS. Work undertaken to execute/Implement various schemes for constructing sub stations, providing bore wells, erection of lines and required conductors etc. Moreover, the above works undertaken by APSPDCL are for business purpose and the benefit of Concessional Rate of 12% (6% under Central tax and 6% State tax) as per notification is NOT available to the applicant. In the instant case, the contract entered by the applicant squarely falls under the works contract and falls under entry no. (ii) of S.No.3 of the table of Notification No.11/2017- Central Tax (Rate), Dated 28th June 2017 as amended from time to time and corresponding notifications under APGST Act, 2017, and the applicable rate of tax is 18% - Since APSPDCL being the Contractee are recovering the cost of the materials that are used/consumed in the services provided to them by the applicant from the R.A. Bills issued, such cost recovered is to be included in the taxable value of the supply.

Summary

Issues:
1. Determination of whether APSPDCL is a Government authority/entity.
2. Applicable GST rate on the work agreement with APSPDCL.
3. Notification under which the work falls for GST liability.
4. Tax liability on materials recovered from RA bills by APSPDCL.

Analysis:
1. The applicant sought clarification on whether APSPDCL qualifies as a Government entity. The definition of "Government Entity" under Notification No.31/2017-Central Tax(Rate) includes entities set up by an Act of Parliament or State Legislature or established by the Government with significant equity participation. It was established that APSPDCL, being wholly owned by the Government of Andhra Pradesh, falls under the definition of a Government Entity.

2. The nature of work undertaken by the applicant was examined, involving various construction and electrical works for APSPDCL. The contract was deemed a works contract as per Section 2 of CGST Act, 2017, and the applicable GST rate was determined at 18% under Notification No.11/2017-Central Tax (Rate).

3. The applicant inquired about the tax liability on materials recovered from RA bills issued by APSPDCL. While reverse charge mechanism did not apply, Section 15(2)(b) of the CGST Act, 2017 mandates including such cost recoveries in the taxable value of supply. Therefore, the recovered material costs are to be considered in the taxable value.

Conclusion:
The ruling concluded that the applicant is not eligible for the concessional GST rate of 12% and that the applicable tax rate stands at 18%. Additionally, the value of materials recovered by APSPDCL from RA bills must be included in the taxable value of supply.