2019 (11) TMI 1709 - AAR - GST

Classification of service - works contract service or not - composite supply or not - change in the rate of GST - supply of labour force/work without material by a sub-contractor to main contractor, who is engaged in supply of works contract service - whether reduced GST rate from 18% to 12% is applicable also to such sub-contractors supplying labour force/work without material to the main contractor who is engaged in supply of works contract service? - HELD THAT - The applicant is a person registered under the provisions of GST Act, 2017 and is engaged in supply of labour force/work to M/s MVR, who are engaged in supply of works contract service - the natures of works undertaken by the applicant are predominantly dumping of soil from one place to another place and in relation to excavation. The applicant is performing his task with help of his men and machines, and he is not supplying any material to the main contractor. The works contract is a composite supply and it is composition of activities of building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repairs, maintenance, renovation, alteration or commissioning carried out on an 'immovable property' and transfer of property (whether in form of goods or in some other form) must essentially take place with such activities. The supply of works contract is to be treated as supply of service but it is combination of supply of service and supply of goods. Transfer of property in goods (whether as goods or in some other form) is an essential component of supply to be treated as works contract service. Thus, there is no transfer of property from the applicant to the main contractor (M/ s MVR) while performing the work of dumping of soil from one place to other place or while activity of excavation. The applicant is merely performing labour work. Therefore, the activities carried out by the applicant cannot be treated as works contract .

Summary

Issues involved:
1. Classification of services under Section 97 (2) (a) & (g) of the GST Act.
2. Applicability of GST rates to sub-contractors providing labor services in works contracts.

Analysis:
1. Classification of services under GST Act:
The applicant sought an advance ruling regarding the classification of services provided to a main contractor engaged in works contract services. The applicant contended that the change in GST rates from 18% to 12% did not apply to their services of dumping soil and excavation. The applicant, supported by their tax consultant, maintained that they were not providing works contract services to the main contractor. The main contractor disagreed, leading to the applicant seeking an advance ruling.

2. Applicability of GST rates to sub-contractors in works contracts:
The Authority analyzed the nature of the applicant's services, predominantly involving labor work without the supply of materials to the main contractor. The Authority referred to the definition of "works contract" under the GST Act, emphasizing activities related to immovable property with the transfer of goods. The Authority highlighted that works contracts are composite supplies involving both services and goods, with a crucial component being the transfer of property in goods. In this case, the Authority found that the applicant's activities did not involve the transfer of property to the main contractor, indicating that their services did not qualify as works contract services.

3. Conclusion:
Based on the analysis, the Authority ruled that the supply of labor force/work without material by a sub-contractor to a main contractor engaged in works contract services does not fall under works contract services. Additionally, the reduction of GST rate from 18% to 12% was deemed not applicable to sub-contractors providing labor services without material to main contractors engaged in works contract services. The ruling was based on the absence of property transfer in the applicant's activities, leading to the exclusion of their services from the definition of works contract services.

This comprehensive analysis of the judgment addresses the issues raised by the applicant and provides a detailed examination of the legal provisions and conclusions reached by the Authority for Advance Ruling in this case.