2019 (11) TMI 1323 - AAR - GST

Classification of services - Rate of GST - construction of office building at Vijayawada for Andhra Pradesh State Financial Corporation - Government Entity or otherwise - HELD THAT - The activities of M/s. APSFC are business activities and not otherwise. The applicant informed that the said building is for use as office by M/s. APSFC and therefore, it appears that the said construction is for office use for conducting business activities of M/s. APSFC. Moreover, the applicant did not provide any information or documentary proof evidencing that the construction/ building is for use other than for commerce, industry, or any other business or profession to be eligible for concessional rate of 12% (6% CGST 6% SGST) available under Notification No.24/2017 - CT (Rate) dated 21.09.2017. In this case, the contract entered by the applicant is classifiable under SAC heading No. 9954 under construction services, and it falls under entry no (ii) of serial No. 3 of notification no. 11/2017 Central Tax (Rate) dated 28.06.2017 i.e., Composite Supply of Works Contract as defined in clause 119 of Section 2 of Central Goods and Services Act, 2017 and the applicable rate of tax is 18% (9% under Central tax and 9% State tax).

Summary

Issues:
1. Classification of Andhra Pradesh State Financial Corporation as a Government Entity for GST purposes.
2. Determination of the applicable rate of tax under GST for the construction of an office building for Andhra Pradesh State Financial Corporation.

Analysis:
1. Classification of Andhra Pradesh State Financial Corporation (APSFC):
The applicant contended that APSFC qualifies as a Government Entity under the GST Act. The Authority examined the definitions of "Governmental Authority" and "Governmental Entity" as per relevant notifications. APSFC, established under the SFCs Act, 1951, by the Government of Andhra Pradesh with over 90% control, was deemed a Government Entity. This classification was crucial for determining the tax implications of the construction project.

2. Applicable Rate of Tax for Construction Services:
The applicant argued for a 12% GST rate based on the nature of the construction project. However, the Authority analyzed the purpose of the building and APSFC's activities. It was noted that APSFC primarily engaged in business activities, receiving income from various sources. As the building was intended for office use related to business activities, it did not qualify for the concessional rate of 12%. Consequently, the construction services were classified under SAC heading No. 9954, attracting an 18% tax rate (9% CGST + 9% SGST).

In conclusion, the Authority ruled that the construction project for APSFC constituted a Composite Supply of Works Contract under the GST Act. APSFC was classified as a Government Entity, impacting the tax treatment. Due to the commercial nature of APSFC's activities and the intended office use of the building, the concessional rate of 12% was deemed inapplicable. The construction services were classified under SAC heading No. 9954, attracting an 18% tax rate.