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2020 (5) TMI 412 - AAR - GSTClassification of services - rate of tax - works contract or not - sub-contract - NHAI has executed an agreement with a Contractor for the development of a four-lane highway - applicability of Entry (iv) of Heading 9954 of the Rate Notification - HELD THAT - The applicant is proposing to submit a bid for shifting / erection of electrical lines only to M/s Sadbhav Jodhpur Ring Road Pvt. Ltd who is the main Contractor of NHAI. Thus the activity to be carried out by the applicant is restricted to shifting / erection of electrical lines only - Further, the details mentioned in the Article XI of the agreement as well 05.12.2019, as description of work mentioned in said letter dated specifically indicates the independent nature of work to be carried out by the applicant for which such cost will be borne by the authority or by the owning entity of the respective utility. As per the details mentioned in the Article XI of the agreement and description of work mentioned in the letter dated 05.12.2019, the supply made by the applicant is regarding Electrical utility shifting / erection of 11 KV lines and is of independent nature. Further, such cost will be borne separately by the Authority or the utility owning entity. Hence, the payment of the above said work which will be made to the concessionaire (Main Contractor) is not part of the/main contract (concession agreement) which also indicates the work is of independent nature. The entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017allows concessional rate in case of works contract is for construction of road, bridge, tunnel or terminal for road transportation for use by general public - in the present case the proposed activity carried out by the applicant is of shifting /erection of 11 KV lines only and the same cannot be categorised as construction of road as classified under Entry number 3 (iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 (as amended). Since such cost of the above said activity will be borne by the Authority or by the entity owning such utility therefore such payment of above mentioned activity is not the part of the main contract i.e. construction of road as awarded to main contractor by NHAI. Thus, there establish no nexus between the main contract awarded for construction of road by the NHAI and the work proposed to be undertaken by the applicant. Therefore, the question of covering the activity under entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 does not arises - activity proposed to be undertaken by the applicant does not fall under entry no. (iv)(a) of the Notification No. 11/2017- CT(R) dated 28.6.2017. Whether the activity carried out by the applicant fall under entry no. (ix) of N/N.11/2017-CIYR? - HELD THAT - The proposed activity carried out by the applicant is of shifting /erection of 11 KV lines only as already discussed above. We further, observe that the cost of the above said activity will be borne by the Authority or by the entity owning such utility as such payment of above mentioned activity is not the part of the main contract which is evident from the lines The cost of such shifting shall be borne by the Authority or by the entity owning such utility written in the Article XI of the main contract (concession agreement) awarded to main contractor by NHAI. Thus, there establish no nexus between the main contract awarded for construction of road by the NHAI and the work proposed to be undertaken by the applicant - the activity to be undertaken by the applicant cannot be treated as a part of main contract of NHAI thus the applicant who is supposed to execute an independent work cannot be treated as sub-contractor of the main contractor. The activity proposed to be undertaken by the applicant does not fall under entry no. (ix) of the Notification No. 11/2017-CT(R) dated 28.6.2017.
Issues Involved:
1. Classification of the services provided by the applicant. 2. Applicability of specific GST notifications to the services provided by the applicant. Detailed Analysis: Issue 1: Classification of the Services Provided by the Applicant The applicant, a proprietorship concern engaged in construction, is proposing to submit a bid to a contractor for shifting and erection of electrical lines as part of a highway development project. The applicant seeks to determine whether their services fall under Entry (iv) of Heading 9954 of Notification No. 11/2017-CT (Rate) dated 28.06.2017, which specifies a concessional GST rate for works contracts related to the construction of roads, bridges, tunnels, or terminals for road transportation for use by the general public. The applicant argues that their work qualifies as a 'works contract' under Section 2(119) of the CGST Act, involving the transfer of goods along with construction services resulting in immovable property. They cite the definition of 'immovable property' from the General Clauses Act, 1897, and the Transfer of Property Act, 1882, to support their claim. The applicant also references the scope of the project, which includes the construction of various facilities essential for the highway, such as toll plazas, pedestrian facilities, street lighting, and more. The applicant contends that their subcontracted work is an integral part of the main contractor's obligations under the agreement with NHAI and should be classified under Entry (iv) of Heading 9954, attracting a GST rate of 12% (6% CGST + 6% SGST). They argue that the GST Council's intent is to extend the same concessional rate to subcontractors as that applicable to the main contractor, as reflected in the recommendations from the 25th GST Council Meeting and supported by case law from the Maharashtra AAR and AAAR. Issue 2: Applicability of Entry (ix) of Notification No. 11/2017-CT (Rate) Alternatively, the applicant seeks to determine if their services fall under Entry (ix) of Heading 9954, which pertains to works contracts provided by subcontractors to main contractors supplying services to government entities. The applicant asserts that their work qualifies as a works contract, and since the main contract is with NHAI, a government entity, their services should be covered under Entry (ix), attracting a GST rate of 12%. Personal Hearing and Additional Submissions: During the personal hearing, the applicant reiterated their submissions and provided additional documents, including the concession agreement between NHAI and the main contractor and a letter detailing the scope of work. Comments of the Jurisdictional Officer: The jurisdictional officer contended that the applicant's work of shifting and erecting electrical lines does not fall under Entry (iv)(a) of Notification No. 11/2017-CT (Rate) as it does not constitute the construction of a road, bridge, tunnel, or terminal. The officer also argued that the applicant's work is independent and not part of the main contract, thus not qualifying under Entry (ix). Findings, Analysis, and Conclusion: The Authority for Advance Ruling (AAR) observed that the applicant's work is restricted to shifting and erecting electrical lines, which is independent of the main contract for road construction. The cost of this work is borne separately by the authority or the utility-owning entity, indicating its independent nature. The AAR noted that Entry (iv)(a) of Notification No. 11/2017-CT (Rate) applies to works contracts for the construction of roads, bridges, tunnels, or terminals for road transportation. Since the applicant's work does not constitute road construction, it does not fall under this entry. Similarly, the AAR concluded that the applicant's work does not qualify under Entry (ix) of Notification No. 11/2017-CT (Rate) as it is not part of the main contract and does not meet the conditions specified for subcontractors. Ruling: a. The activity proposed to be undertaken by the applicant does not fall under Entry No. (iv)(a) of Notification No. 11/2017-CT (Rate) dated 28.06.2017. b. The activity proposed to be undertaken by the applicant does not fall under Entry No. (ix) of Notification No. 11/2017-CT (Rate) dated 28.06.2017.
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