2019 (10) TMI 752 - AAR - GST

Classification of goods/services - rate of GST - activity of sub-contract for earthwork in relation to construction of access controlled Nagpur-Mumbai Super Communication Expressway (Maharashtra Samruddhi Mahamarg) - HELD THAT - Earthwork involves the removal of topsoil, along with any vegetation, before scraping and grading the area to the finished 'formation level'. This is usually done using a tractor shovel, grader or bulldozer. Below the formation level, the soil is known as the 'subgrade'. Most earthworks are formed by cut-andfill, and the type of 'fill' material must be considered, not only in terms of its physical properties, but on the conditions in which it is to be used, and the methods of compaction - Thus the activity to be carried out by the applicant is restricted to Earth Work only. The supply made by the applicant is a supply of construction service for Earth Work and related work and is of independent nature, and cannot be categorised as construction of road as classified under Entry number 3(iv) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 (as amended). The activity carried out by the applicant does not involve supply of goods whatsoever in any manner and it's supply of services for Earth Work and other related works. Thus the said activity does not fall under either Composite Supply or Mixed Supply - as there is no involvement of transfer of property in goods in the above said activity; it cannot be classified under Works Contract Services also. The rate of GST on the work of earthwork will be 18%.

Summary

Issues:
Classification of goods and services, determination of tax liability on goods or services.

Analysis:
The Advance Ruling Authority in Rajasthan addressed the issue raised by an applicant regarding the rate of GST on a sub-contract for earthwork related to the construction of a specific expressway project. The applicant, a registered person, sought clarification on whether the transaction constitutes a supply of service as a composite supply of works contract under the CGST Act, taxable at 12%. The applicant's submission detailed their engagement in earthwork for a designated highway section under a sub-contract. The Authority examined the nature of the work, emphasizing the independent responsibilities and liabilities outlined in the agreement between the parties involved.

The jurisdictional officer highlighted the technical aspects of earthwork, emphasizing the composite nature of services involved in road construction. The Authority considered the agreement between the applicant and the contracting parties, focusing on the scope of work defined, which primarily involved earthwork activities such as excavation, embankment, and sub-grade preparation. The Authority concluded that the applicant's activities were limited to earthwork and related services, distinct from the broader classification of road construction as per the relevant notification.

Regarding the classification of the supply, the Authority delved into the definitions of composite supply, works contract, and principal supply under the GST Act. It was established that the applicant's activities did not involve the supply of goods, thereby ruling out categorization as a composite or mixed supply. The Authority further clarified that since there was no transfer of property in goods, the activity did not fall under works contract services either.

Based on the analysis of the applicant's services and the relevant provisions of the GST Act, the Authority determined that the activity constituted a construction service of site preparation falling under a specific heading. Referring to the relevant notification, the Authority classified the service under SAC 995432, attracting GST at 18% (CGST 9% + SGST 9%). The ruling was based on the nature of the services provided by the applicant, which primarily involved site preparation activities without the supply of goods.

In conclusion, the Advance Ruling Authority in Rajasthan ruled that the rate of GST applicable to the earthwork carried out by the applicant for the specified expressway project would be 18% (CGST 9% + SGST 9%). The detailed analysis considered the specific nature of the services provided, the contractual agreements, and the relevant provisions of the GST Act to arrive at the conclusive ruling.