2019 (10) TMI 800 - AAR - GST

Classification of services - rate of tax - Works contract services - services provided to Electricity Supply Companies (wholly owned Government of Karnataka undertakings) by way of construction, erection, commissioning, installation, completion, etc. - entry 3(vi)(a) to Notification No.8/2017 - Integrated Tax (Rate). HELD THAT - The Electricity Distribution Companies are involved in selling of electricity to the consumers and are collecting consideration and electrical energy is considered as goods . Hence the Electricity Distribution Companies are involved in the sale of goods or in general, supply of goods to the consumers for consideration. From the definition of business, it is clear that any activity of trade, commerce, manufacture, etc or any other similar activity is included in the definition of business and it is immaterial whether it is done for a pecuniary benefit, and any activity done in connection with or incidental or ancillary to such activity is also included in the scope of business . The Electricity Distribution Companies are involved in the supply of goods as already explained and hence they are involved in the business of supplying goods. They also receive consideration for the supply of electricity. The predominant activity of the Electricity Distribution Companies is to supply Electricity and the works executed by the applicant are used for this only predominant activity and hence are original works meant predominantly for use for commerce, industry, or any other business or profession - hence, the contracts in question do not satisfy the fourth condition required for them to be covered under the Entry No.3(vij(a) of Notification No.11/2017 - Central Tax (Rate) as amended from time to time.

Summary

Issues Involved:
1. Applicability of entry 3(vi)(a) to Notification No.8/2017 - Integrated Tax (Rate) for services provided to Electricity Supply Companies.
2. Classification of services under GST.
3. Determination of whether the services qualify as works contract.
4. Identification of the recipient entities as Government Entities.
5. Determination of whether the services are original works.
6. Applicability of reduced GST rate for works contract services provided to Government Entities.

Issue-wise Detailed Analysis:

1. Applicability of entry 3(vi)(a) to Notification No.8/2017 - Integrated Tax (Rate):
The applicant sought clarification on whether their services to Electricity Supply Companies (wholly owned Government of Karnataka undertakings) by way of construction, erection, commissioning, installation, completion, etc., fall under entry 3(vi)(a) of Notification No.8/2017 - Integrated Tax (Rate), which attracts a GST rate of 12%.

2. Classification of Services under GST:
The services provided by the applicant involve civil construction, mechanical structural work, erection of equipment, and electrical infrastructure, including substations. These services are classified under heading 9954 of the GST regime, which covers construction services.

3. Determination of Whether the Services Qualify as Works Contract:
The services provided by the applicant are considered works contracts as defined in Section 2(119) of the CGST Act, 2017. This is because they involve the transfer of property in goods during the execution of contracts for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of immovable property.

4. Identification of the Recipient Entities as Government Entities:
The Electricity Supply Companies (HESCOM, BESCOM, MESCOM) are identified as Government Entities because they are established by the Government with 90% or more participation by way of equity or control. They carry out functions entrusted by the Government, such as the supply of electricity to consumers.

5. Determination of Whether the Services are Original Works:
The contracts in question involve new constructions, additions, and installations, which qualify as "original works" as defined in Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017. These works include the erection, commissioning, or installation of plant, machinery, equipment, or structures.

6. Applicability of Reduced GST Rate for Works Contract Services Provided to Government Entities:
The services provided by the applicant do not qualify for the reduced GST rate of 12% under entry 3(vi)(a) of Notification No. 8/2017-Integrated Tax (Rate) because the predominant activity of the Electricity Distribution Companies is the supply of electricity, which is considered a business activity. The contracts are therefore subject to the standard GST rate of 18%.

Conclusion:
The ruling concluded that the services provided by the applicant to the Electricity Supply Companies are not covered under entry 3(vi)(a) of the Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017. Consequently, these services are not eligible for the reduced GST rate of 12% and are liable to be taxed at the standard rate of 18% GST.