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2019 (2) TMI 185 - AAR - GSTWorks contract or not? - EPC Contract for electrical cable supply and laying work - whether can be classified as contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract or can be classified as works contracts as per GST Law? - N/N. 11/2017-Central Tax (Rate) dated 28th June 2017 as amended by notification Tax (Rate) dated 25th Jan 2018. Held that - Works contract will be treated as service and tax would be charged accordingly. As per Section 2(119) of the CGST Act, 2017, unless the context otherwise requires, the term works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract Existence of immovable property or not which is transferred in the execution of the contract - Held that - The work of applicant involves supply, erection, testing and commissioning including transport, loading, unloading, insurance etc of transformer substations, HT & LT Overhead Line & Cable Through Underground. Their EPC contract for electrical cable supply and laying work can be classified as contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract - there are no hesitation in holding that the applicant is supplying Works Contract Services. It is also apparent that the nature of the works undertaken by the applicant are not in the nature of Original Works as per detailed discussions in the latter part of the findings. Works contract or not? - applicability of N/N. 11/2017-Central Tax (Rate) dated 28th June 2017 as amended by N/N. 01/2018-Central Tax (Rate) dated 25th Jan 2018 - Held that - In the subject case it is seen that the applicant is providing composite supply of Works Contract in respect of Metro but the reduced rate of tax is available only if the work is of the type of ORIGINAL WORKS. Original Works would mean ; all new constructions; all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; erection, commissioning or installation on of plant, machinery or equipment or structures, whether pre-fabricated or otherwise, etc. In the present case the work done by the applicant does not appear to be original works. The applicant themselves have stated that Here we would like to draw your attention to the fact that our scope of work does not include construction of entire project of Metro stations, railway line, power supply, civil structures etc. but scope include Shifting LT,HT Overhead lines crossing which are obstructing metro railway path and providing LT,HT underground cables for Nagpur Metro Rail Project. The work is not construction of metro rail project but this is shifting of existing utilities obstructing metro railway path and providing supplying and installation of new underground cable along with its accessories. Thus, in the present case, the contract is not related to any original work and is in the nature of composite supply of Works Contract - the activity of the applicant in the present case is nothing but a composite supply of Works Contract, not being original works and they will be covered under Sr.No. 3, item no. (ii) of Notification No. 11/2017 dated 28.06.2017 as amended by Notification No. 1/2018 dated 25.01.2018 and attract GST (9% each of CGST and SGST).
Issues Involved:
1. Classification of EPC Contract for electrical cable supply and laying work. 2. Applicability of Works Contract classification under GST Law and relevant notifications. Detailed Analysis: Issue 1: Classification of EPC Contract for Electrical Cable Supply and Laying Work The primary question was whether the EPC contract for electrical cable supply and laying work could be classified as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of immovable property involving the transfer of property in goods. The applicant, YOGIRAJ POWERTECH PRIVATE LIMITED, received an order from Nagpur Metro Rail Corporation (NMRCL) for shifting LT, HT overhead lines and providing underground cables for the Nagpur Metro Rail Project. The work involves supply, erection, testing, and commissioning of transformer substations, HT & LT overhead lines, and underground cables. The applicant argued that their work does not involve immovable property and should be classified as a composite supply with the principal supply being LT/HT cables. The Authority for Advance Rulings (AAR) observed that the work includes activities such as providing cement concrete foundations, installing Ring Main Units on provided foundations, and laying RCC Hume pipes underground for enclosing cables. These activities indicate that the work involves immovable property as defined under Section 3(26) of the General Clauses Act, 1897, which includes things attached to the earth or permanently fastened to anything attached to the earth. Therefore, the AAR concluded that the EPC contract for electrical cable supply and laying work can be classified as a contract for building, construction, etc., of immovable property. Issue 2: Applicability of Works Contract Classification under GST Law and Relevant Notifications The next issue was whether these contracts can be classified as works contracts as per GST Law and whether Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017, as amended by Notification No. 01/2018-Central Tax (Rate) dated 25th Jan 2018, is applicable to the present case. According to Section 2(119) of the CGST Act, 2017, a "works contract" means a contract for building, construction, etc., of any immovable property wherein the transfer of property in goods is involved. The AAR noted that the applicant's work involves immovable property and thus qualifies as a works contract. The relevant notification, as amended, specifies that the composite supply of works contracts, as defined in clause (119) of section 2 of the CGST Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to railways, including monorail and metro, attracts a GST rate of 12%. However, the AAR found that the applicant's work does not constitute "original works" as defined in the notification. Instead, it involves shifting existing utilities and installing new underground cables. Consequently, the AAR held that the applicant's activities are classified as composite supply of works contracts but not as original works. Therefore, the applicable GST rate is 18%, as per the amended Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017. Conclusion: 1. The EPC contract for electrical cable supply and laying work is classified as a contract for building, construction, etc., of immovable property. 2. These contracts are classified as works contracts under GST Law, and Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017, as amended, is applicable. However, the applicable GST rate is 18%, as the work does not constitute original works.
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