2021 (8) TMI 783 - AAR - GST

Classification of services - composite supply of work contract service - development and construction of sports complex at Maninagar, Ahmedabad for the Ahmedabad Urban Development Authority - merit classification at Sr. No. 3(vi)(a) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 or otherwise? - HELD THAT - The subject contract is for the construction of immovable property wherein transfer of property in goods is involved in the execution of subject contract. The subject supply is a composite supply of works contract service. The service recipient is AUDA. Its fund have not been notified by State Government Acts or Treasury Rules as local/municipal funds. There are no merit to term AUDA as local authority as per section 2(69) (c) CGST Act - AUDA is set up vide Section 22 of Gujarat Town Planning and Urban Development Act,1976 and entrusted, inter alia, with function of development plans and Town planning schemes, as per Article 243 W of our Constitution. We hold that AUDA is a Government Authority. The commercial uses of an already existing Sports complex at Bopal location as detailed in previous pages. We note the chargeable bookings and their rates, the non refundable nature of bookings too. With the plain reading of the inclusive definition of the word business in CGST Act as reproduced at paragraph 19.1 with the nature of commercial activities in which AUDA is involved as evidenced with the above illustration, with nothing to dissuade us from what is a glaring and clear illustration of activity of AUDA w.r.t. a sports facility already existing, We are of the strong opinion that subject proposed Sports Complex is not predominantly meant for use other than for commerce, industry, or any other business or profession - The Wording in a statute for business and at entry 3(vi)(a) of said Notification, when clear, plain and unambiguous and only one meaning can be inferred, we are bound to give effect to the said meaning.. We give due Regard to the clear meaning of words and matter should be governed wholly by the language of the notification. The explanation to said entry of the Notification wherein the term business shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities and does not cover Government Authority. We cannot allow any scope for intendment. Thus, the subject Supply does not merit to be entertained at subject Serial Number 3(vi)(a) of said NT (as amended from time to time).

Summary

Issues Involved:
1. Classification of the construction service.
2. Definition and status of AUDA as a "local authority" or "governmental authority".
3. Applicability of the tax rate under Notification No. 11/2017-CT (Rate) dated 28.06.2017.
4. Nature of the sports complex use (commercial or non-commercial).

Issue-wise Detailed Analysis:

1. Classification of the Construction Service:
The applicant, M/s. Tirupati Construction, entered into a contract with the Ahmedabad Urban Development Authority (AUDA) for the development and construction of a sports complex. The applicant contended that this activity constitutes a "supply of service" under Section 7(1)(a) of the CGST Act, 2017, and is an intra-state supply chargeable under Section 9 of the CGST Act, 2017. The construction involves civil work, plumbing, electrical work, etc., and is considered a "work contract" as per Section 2(119) of the CGST Act, 2017.

2. Definition and Status of AUDA:
The applicant argued that AUDA qualifies as a "local authority" under Section 2(69) of the CGST Act, 2017, and as a "governmental authority" under Notification No. 11/2017-CT (Rate). AUDA was established under the Gujarat Town Planning and Urban Development Act, 1976, and is tasked with urban development functions similar to those of a municipality under Article 243W of the Constitution. The applicant provided detailed submissions on AUDA's constitution, powers, and functions to support this claim.

3. Applicability of the Tax Rate:
The applicant sought classification of the service under Sr. No. 3(vi)(a) of Notification No. 11/2017-CT (Rate), which prescribes a 6% CGST rate for composite supply of works contract services provided to governmental authorities for non-commercial purposes. The applicant argued that since the sports complex is not for business or commercial use and AUDA is a governmental authority, the service should be taxed at this concessional rate.

4. Nature of the Sports Complex Use:
The applicant asserted that the sports complex is intended for public utility and not for commerce, industry, or any business. They emphasized that AUDA's activities are regulatory and sovereign, with no profit motive, and any income is used for public purposes. However, the Authority for Advance Ruling (AAR) examined AUDA's existing sports facilities and found that they are used commercially, with chargeable bookings and non-refundable fees, indicating a business activity.

Findings and Ruling:
1. Composite Supply of Works Contract: The AAR confirmed that the subject contract is a composite supply of works contract service involving the transfer of property in goods.

2. Status of AUDA: The AAR held that AUDA does not qualify as a "local authority" under Section 2(69) of the CGST Act but is a "governmental authority" as per Notification No. 11/2017-CT (Rate), being set up under a State Legislature Act and performing functions under Article 243W of the Constitution.

3. Tax Rate Applicability: The AAR noted that for the concessional tax rate to apply, the service must be predominantly for non-commercial use. Given the commercial nature of AUDA's existing sports facilities, the AAR concluded that the proposed sports complex would also be used for commercial purposes.

4. Nature of Use: The AAR found that AUDA's activities related to the sports complex involve business as defined under Section 2(17) of the CGST Act. The inclusive definition of "business" covers such activities, and the commercial use of the sports complex disqualifies it from the concessional tax rate under Sr. No. 3(vi)(a) of the Notification.

Conclusion:
The AAR ruled that the supply of works contract service for the construction of the sports complex does not merit classification under Sr. No. 3(vi)(a) of Notification No. 11/2017-CT (Rate). Consequently, the concessional tax rate of 6% CGST + 6% SGST does not apply.