2018 (11) TMI 1895 - AAAR - GST

Classification of services - rate of GST - works contract - execution of project i.e. implementation of IPDS Scheme of Government of India - supply of goods and services fall within the scope and limits of Notification no. 24/2017 Central Tax (Rate) Dated 21 Sep 2017 or not - HELD THAT - A bare reading of this Notification suggests that prime condition to avail the concessional rate of tax, is that services provided to the Central Government, State Government, Union Territory, a local authority or a governmental authority should predominantly for use other than for commerce, industry-', or any other business or profession. The Advance Ruling Authority in their decision have elaborated at length that the Case of Appellant does not fulfill the conditions laid down in Clause (a)of the said notification for availing concessional rate of tax. The Appellant in his application stated that AAR has grossly erred in passing their order on the sole ground that the services provided by the CSPDCL are commercial in nature as per their MoA. However, the rate of tax needs to be determined looking at the actual use of structure. They further stressed that the objective of the work done under question is to be looked into and not the objectives of the entity undertaking the work. It is well settled position of law that statue or notification relating to concessional rate of tax should be strictly interpreted i.e. literal rule of interpretation should be followed. In notification no. 24/2017-Central Tax (Rate), dated 21st September, 2017 in clause (a), emphasis has been given on the words meant for use other than for commerce, industry, or any other business . The infrastructure intended to be provided by the Appellant under contract to CSPDCL will ultimately be used for distribution of electricity' and it is undeniable fact that CSPDCL collects charges as per the tariff decided for distribution of electricity which undisputedly falls within the ambit of 'Commerce' or 'business'. Therefore appellant's argument that nobody is bearing the cost of IPDS scheme does not hold water as there is no stipulation to this effect in the notification - It is also no body's case that the cost of IPDS will not be considered while fixing the tariff of electricity to be supplied in future.

Summary

Issues Involved:
1. Determination of the applicable tax rate for services provided by the appellant to CSPDCL under the IPDS Scheme.
2. Interpretation of the term "commercial in nature" in the context of the services provided.
3. Applicability of Notification No. 24/2017-Central Tax (Rate) for concessional tax rates.

Detailed Analysis:

1. Determination of the applicable tax rate for services provided by the appellant to CSPDCL under the IPDS Scheme:
The appellant, M/s A2Z Infra Engineering Ltd., engaged in providing maintenance and engineering services, was awarded a contract by CSPDCL for the implementation of the Integrated Power Development Scheme (IPDS). The appellant sought clarification on the applicable tax rate, contending that their services should attract a concessional rate of 6% CGST and 6% CGGST as per Notification No. 11/2017 dated 28.06.2017, as amended by Notification No. 24/2017 dated 21.09.2017. However, the Authority for Advance Ruling (AAR) ruled that the applicable tax rate should be 9% CGST and 9% CGGST. Aggrieved by this decision, the appellant filed an appeal under Section 100(1) of the CGST Act 2017.

2. Interpretation of the term "commercial in nature" in the context of the services provided:
The appellant argued that the activities undertaken by CSPDCL under the IPDS Scheme were non-commercial in nature, intended for the public good rather than for commerce, industry, or any other business or profession. The AAR, however, held that CSPDCL's Memorandum of Association (MOA) indicated commercial objectives, and thus, the services provided were commercial in nature. The appellant contended that the AAR failed to consider the primary objective of the IPDS Scheme, which was to improve the power distribution infrastructure in urban and semi-urban areas, benefiting the community as a whole without any profit motive.

3. Applicability of Notification No. 24/2017-Central Tax (Rate) for concessional tax rates:
The central issue was whether the services provided by the appellant to CSPDCL fell within the scope of Notification No. 24/2017-Central Tax (Rate), which allows for a concessional tax rate for services provided to governmental authorities for use other than for commerce, industry, or any other business or profession. The notification stipulates that services must be predominantly for non-commercial use to qualify for the reduced tax rate. The appellant argued that the IPDS Scheme's objective was non-commercial and aimed at public welfare, thus qualifying for the concessional rate.

Discussions and Findings:
The appellate authority examined the appellant's arguments and the AAR's ruling. It emphasized the need for a strict interpretation of notifications related to concessional tax rates. The authority noted that the infrastructure provided under the IPDS Scheme would ultimately be used for the distribution of electricity, for which CSPDCL charges tariffs. This activity falls within the ambit of "commerce" or "business," and thus, the services cannot be considered non-commercial. The authority found no error in the AAR's decision that the services provided by the appellant were commercial in nature.

Order:
The appellate authority upheld the AAR's order, affirming that the applicable tax rate for the services provided by the appellant to CSPDCL under the IPDS Scheme is 9% CGST and 9% CGGST.