2020 (7) TMI 803 - AAAR - GST

Input Tax Credit - GST paid on goods and services used as inputs in execution of Works Contracts - execution of Road work contracts to Government Engineering Departments - on which type of goods/ services the ITC is not eligible? - blocked credit under Section 17 (5) (c) or Section17(5)(d) of the CGST Act, 2017 - HELD THAT - As described in the agreement copy submitted by the applicant, it is evident that the applicant is engaged in the activity of construction (reconstruction) of roads for the Engineering Department, GoAP in which the following predominant goods and services are incorporated in execution of the works - it is evident that the nature of activity undertaken by the applicant is a composite supply involving both goods and services used for construction /reconstruction of roads, which is an immovable property and therefore satisfies the definition of Works Contract Service as defined under Section 2 (119) of the CGST Act, 2017. The service of Works Contract Service (WCS) provided for the construction of a road is liable to GST 12% (6 /o CGST 6 /o SGST) as per SI. No. 3 (iv) (a) of Notification No.11/2017-CT(Rate) dated 28-6-2017 as amended. There is no restriction on availment of ITC in the said Notification. Eligibility of the applicant to claim input tax credit in respect of the supply of Works Contract Service - HELD THAT - It is evident that the inputs and input services of the applicant arc used in the course or furtherance of business i.e., works contract business and the said works contract service is a taxable service under GST and liable to tax at the rate of 12%. At this juncture it is made clear that compliance with the provisions of Section 16 (2) is a matter of fact and procedure and the applicant is to comply with the same to be finally eligible for ITC. This procedural compliance is not being challenged here and hence not commented upon by this Authority. Having said that, it is noted that the applicant is a Registered Taxpayer under the GST law, he is engaged in the provision of a taxable service (works contract service) in the course of business. As such, the applicant satisfies the basic requirements of Section 16 and is entitled to Input Tax credit (ITC) in general, of course subject to the compliance with the other procedural requirements mentioned. Whether the ITC sought to be availed by the applicant is Blocked under Section 17 (5) (c) or Section17(5)(d) of the CGST Act, 2017? - HELD THAT - It is clearly evident that what is blocked Under Section 17 (5) (c) is the ITC of tax paid on the Works Contract service when sought to be availed by the Principal (i.e., Engineering Departments). This is not the case in this appeal. The applicant in this appeal seeks a ruling on whether he can avail credit on goods and services used to provide Works Contract Service to the Principal - there is no bar under Section 17 (5) (C) to prevent the applicant from availing ITC on goods and services used in supplying Works Contract Service. The applicant, a registered person under the GST law, engaged in the business of Works Contract Service, liable to GST at the rate of 12% vide Notification No.11/2017-CT(Rate) dated 28-6-2017 as amended, and where no restriction on availment of ITC is prescribed therein, is also not affected by the restriction under Section 17 (5) (C) and Section 17 (5) (d) of the CGST Act, 2017 and is therefore entitled to credit on the inputs i.e, goods and services used for providing the output service of Works contract service for construction of roads for the State Government Departments - the original order of the AAR is upheld.

Summary

Issues Involved:
1. Eligibility for Input Tax Credit (ITC) on goods and services used in execution of "Works Contracts" specifically for road work contracts to Government Engineering Departments.
2. Interpretation of Section 17(5)(c) and Section 17(5)(d) of the CGST Act, 2017 regarding ITC restrictions.

Detailed Analysis:

1. Eligibility for Input Tax Credit (ITC) on Goods and Services Used in Execution of "Works Contracts":
The appellant, the Superintendent of Central Tax, filed an appeal against the ruling passed by the Authority for Advance Ruling (AAR), Andhra Pradesh, which stated that the applicant, M/s. Vinayaka Constructions, is eligible for ITC on goods and services used as inputs in execution of "Works Contracts". The appellant contended that the ruling should be reconsidered to provide an opportunity for personal hearing and submission of views by the Department.

Appellant's Argument:
The appellant argued that as per Section 17(5)(c) of the CGST Act, 2017, ITC is not available for works contract services when supplied for construction of an immovable property (other than plant and machinery) unless it is an input service for further supply of works contract service. They cited the case of Hero Motocorp Limited vs. CST, Delhi to emphasize strict construction of legislative provisions.

Respondent's Argument:
M/s. Vinayaka Constructions argued that they are engaged in works contract business, particularly government works, and use various goods and services as inputs for their output service. They contended that Section 16 of the CGST Act governs the eligibility and conditions for claiming ITC, while Section 17 deals with apportionment and blocking of ITC. They emphasized that Section 17(5)(c) restricts ITC only when input goods or services are used for construction of an immovable property for one's own account, not for further supply of works contract service.

Appellate Authority's Findings:
The Appellate Authority examined the nature of the activity undertaken by M/s. Vinayaka Constructions, which involves construction/reconstruction of roads for the Engineering Department of Andhra Pradesh. They concluded that the activity is a composite supply involving both goods and services used for construction of roads, qualifying as "Works Contract Service" under Section 2(119) of the CGST Act, 2017. The service is liable to GST at 12% as per Notification No. 11/2017-CT(Rate) dated 28-6-2017, with no restriction on availment of ITC.

2. Interpretation of Section 17(5)(c) and Section 17(5)(d) of the CGST Act, 2017:
The appellant argued that Section 17(5)(c) restricts ITC for works contract services when supplied for construction of an immovable property unless it is an input service for further supply of works contract service. They cited various case laws and interpretations to support their argument.

Respondent's Counter-Argument:
M/s. Vinayaka Constructions argued that Section 17(5)(c) and (d) should be interpreted in the context of the entire statute, emphasizing the legislative intent to allow ITC for further supply of works contract service. They provided examples to illustrate that ITC should be allowed for inputs and input services used in the course of furtherance of business, not for construction of immovable property for one's own account.

Appellate Authority's Conclusions:
The Appellate Authority concluded that Section 17(5)(c) does not bar the applicant from availing ITC on goods and services used in supplying works contract service. They referred to the explanation given by CBIC in its e-flyers, which clarified that ITC for works contract can be availed by one who is in the same line of business and using such services for further supply of works contract service. The Authority also concluded that Section 17(5)(d) does not apply in this case as the applicant is not undertaking the activity on his own account but providing works contract service to the APPR Department.

Order:
The Appellate Authority upheld the original order of the AAR, Andhra Pradesh, confirming that M/s. Vinayaka Constructions is entitled to ITC on goods and services used for providing works contract service for construction of roads for the State Government Departments.