2021 (1) TMI 801 - AAAR - GST

Supply of Works Contract - contract entered into with AVVNL as per two work orders combine of supply, erection, testing and commissioning of materials/ equipments for providing rural electricity infrastructure - whether such supply, erection, testing and commissioning of materials/equipments for providing rural electricity infrastructure made to AVVNL would be taxable at the rate of 12% in terms of Sr. no 3 (vi)of Notification N/N. 11/2017- C.T.(Rate) as amended w.e.f. 25.01.2018? - challenge to AAR decision. HELD THAT - There is no dispute regarding the ruling of RAJAAR that the supplies rendered by them to AVVNL are in nature of Composite Supply of Works Contract. The only dispute to be decided is whether the said composite supply of works contract is covered under Entry No. 3 (vi)(a) of Notification No. 11/2017-Central Tax(Rate) dated 28.06.2017(as amended) or not. The RAJAAR has concluded that all the conditions prescribed implicitly by Entry No. 3 (vi)(a) of the Notification No.11/ 2017- Central Tax (Rate) dated 28.06.2017, as amended, are satisfied by the applicant except one, viz. that the activity is meant predominantly to be used other than commerce, industry, or any other business or profession - RAJAAR has disallowed the benefit of concessional rate of GST under Entry No. 3 (vi)(a) of Notification No. 11/2017-Central Tax(Rate) dated 28.06.2017(as amended) on the premise that M/s AVVNL is involved in the business of supplying goods hence the work undertaken by the appellant cannot be said to have been used predominantly for use other than for commerce, industry, or any other business or profession. Hence the only dispute remains to be decided before us is whether the work undertaken by the appellant have been used predominantly for use other than for commerce, industry, or any other business or profession. The work order under the discussion is for providing rural electricity infrastructure under Rajiv Gandhi Grameen Vidhyutikaran Yojana, hence before reaching any conclusion, it would be better to have a look at the objective and scope of RGGVY. From the perusal of Guidelines for Preparation of DPRs under XII Plan of RGGVY submitted by the appellant along with written submission during PH and Evaluation Report on RGGVY(PEO Report No. 224 published in May, 2014) prepared by Planning Commission (now Niti Aayog), both available in public domain, we find that RGGVY was launched with the principal objective of 100% rural village electrification and eventually providing electricity to all households in next five years. Broadly the scheme, at introduction, intended to accelerate rural development, generate employment and eliminate poverty through development in areas of irrigation, small scale industries, KVI industries, cold chains, health care, education and IT and other services. Rural Electrification Corporation Ltd (REC), was the Nodal agency for implementing Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). Under this Yojana, 90% grant is provided by Government of India and 10% as loan by Rural Electrification Corporation (REC) to the State Governments. The RGGVY was launched during 10th five year plan vide Ministry of Power order of 18th March 2005 and continued in 11th plan vide Ministry of Power order of Feb 2008.Under XII plan, only those villages habitations having population 100 and above are eligible to be covered - the scheme is aimed at electrifying all villages and habitation as per revised definition; providing access to electricity to all rural households; providing electricity connection to Below Poverty Line (BPL) households free of cost of service connection with single light point. However, from the Evaluation Report on RGGVY of Planning Commission, we note that only the connection was free and the consumption of the electricity by the beneficiaries of the Yojna was chargeable. Though the beneficiaries of RGGVY are getting free electricity connection but they will have to pay for the consumption of electricity to AVVNL. In other terms, the work being undertaken by the Appellant will ultimately increase the consumer base of AVVNL resulting in more revenue to AVVNL. We find force in the contention of the RAJAAR that M/s AVVNL is involved in supply of electricity to the consumers and are collecting consideration in lieu of the said supply. The Electricity as per GST is classified under the category of goods and thus M/s AVVNL is supplying goods to consumers and is receiving consideration against the same, hence they are involved in the business of supplying goods. They also receive consideration for the supply of electricity. The predominant activity of M/s. AVVNL is to supply electricity and the civil structure or original work being under taken by the Appellant shall be used for transmission of electricity which is predominant activity of AVVNL and is chargeable - the work undertaken by the applicant in the instant case is an original work which is incidental or meant predominantly for use for commerce, industry, or any other business or profession. The AVVNL, though a Government Entity, is engaged in the business activity i.e. purchase and sale of electricity. As per the Memorandum of Association of the AVVNL, one of the main objective of formation of AVVNL is to carry on the business of purchasing, selling, importing, exporting, wheeling, system operation, trading of power, including formulation of tariff, billing and collection thereof - thus, the work being undertaken by the Appellant is predominantly used for or incidental to the main activity of AVVNL i.e. transmission (sale) of electricity. Appeal dismissed.

Summary

Issues Involved:
1. Whether the contract entered into with AVVNL qualifies as a supply for work contract under Section 2(119) of the CGST Act.
2. Whether such supply, erection, testing, and commissioning of materials/equipment for providing rural electricity infrastructure made to AVVNL would be taxable at the rate of 12% in terms of Sr. no 3 (vi) of Notification No. 11/2017-C.T.(Rate) as amended w.e.f. 25.01.2018.

Issue-wise Detailed Analysis:

Issue 1: Supply for Work Contract under Section 2(119) of the CGST Act

The appellant, engaged in the supply of material and services related to electric infrastructure, entered into contracts with AVVNL for rural electricity infrastructure development. The appellant sought clarification on whether these contracts qualify as a composite supply of work contract under Section 2(119) of the CGST Act. The Rajasthan Authority for Advance Ruling (AAR) confirmed that the contracts indeed qualify as a composite supply of work contract. The appellant agreed with this ruling.

Issue 2: Taxability at the Rate of 12%

The appellant contested the AAR's decision that their supply does not qualify for the concessional tax rate of 12% under Entry No. 3 (vi)(a) of Notification No. 11/2017-Central Tax (Rate) as amended. The AAR concluded that the work undertaken by the appellant does not predominantly serve purposes other than commerce, industry, or any other business or profession. The appellant argued that AVVNL is a government entity involved in providing rural electricity infrastructure under the Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY), a government-sponsored program aimed at rural electrification and public welfare, not business.

The AAR, however, noted that AVVNL is involved in the supply of electricity, classified as goods under GST, and collects consideration for the same. Therefore, AVVNL's activities are commercial. The AAR emphasized that the predominant activity of AVVNL is the supply of electricity, meaning the appellant's work supports a commercial activity.

Grounds of Appeal:

The appellant raised several grounds, including the arbitrary nature of the AAR's order, non-adherence to the principles of natural justice due to the COVID-19 lockdown, and the substantive merit of their case. They argued that AVVNL, being a government entity, should qualify for the concessional rate as the work is for public welfare and rural infrastructure, not business.

Personal Hearing:

During the personal hearing, the appellant reiterated their grounds of appeal and submitted relevant documents, including work orders and guidelines for RGGVY. They argued that the work order is a government-sponsored program for rural electrification, a responsibility of local authorities under the Constitution of India, and hence should not be considered a business activity.

Discussion & Findings:

The appellate authority reviewed the objectives of RGGVY, noting that while the scheme aims at rural electrification, the beneficiaries must still pay for electricity consumption. Thus, the work increases AVVNL's consumer base and revenue, supporting the AAR's view that AVVNL's activities are commercial.

The appellant cited a case (M/s ITD Cementation Limited) where a similar supply was considered non-commercial. However, the appellate authority distinguished this case, noting that AVVNL's activities involve the business of purchasing and selling electricity, unlike the cited case where the work was for infrastructural development without commercial intent.

Order:

The appellate authority upheld the AAR's decision, rejecting the appellant's appeal on the grounds that the work undertaken supports AVVNL's commercial activities, and thus, does not qualify for the concessional tax rate of 12%. The appeal was dismissed.