2022 (4) TMI 1342 - AAR - GST

Classification of supply - composite supply of works contract service - Construction of Fire Station And Staff Quarters for the Surat Municipal Corporation - whether activity merits classification at Serial Number 3(vi)(a) of Notification Number 11/2017 Central Tax(Rate) dated 28.06.2017 (hereinafter referred to as the said NT) , as amended from time to time and last amended by Notification Number 21/2012-Central Tax(Rate) dated 31.12.2021 w.e.f. 01.01.2022? - HELD THAT - For subject to find entry at 3(vi)(a) of said NT, the following criteria is to be satisfied a. Supply shall be Composite supply of Works Contract. b. Service Recipient shall be Central/State Government, the Union Territory, a local authority, a Government Authority or a Government Entity. c. The Civil Structure/ Original Works must be predominantly meant for use other than for commerce, industry or any other business or profession. The subject contract is for the construction of immovable property wherein transfer of property in goods is involved in the execution of subject contract. It is held that subject supply is works contract service. The supply comprises supply of the following A type Fire station; A type Admin building; B type building; C type officers quarters; site development works; VDS roads; compound wall; watchman and Pump room. The subject supply is a composite supply of works contract service. Thus, the service recipient is Surat Municipal Corporation, which is held is a local authority. As per explanation to Serial No 3(vi) of said NT, 'business' shall not include any activity or transaction undertaken by a local authority in which they are engaged as public authorities. We note that fire services is a matter listed in twelfth schedule of our Constitution and thereby a function of the Municipal Corporation. Thereby this activity undertaken by Surat Municipal Corporation out of the purview of business, as described at sr no 3(vi)(a) of Said NT. Also, supply of Staff Quarters is covered at 3(vi)(c) of said NT. A fire station will be used for fire services function as envisaged in schedule twelfth of our Constitution and cannot be considered a commercial building - The subject Supply merits entry at Sr No. 3(vi)(a) of said NT.

Summary

Issues:
Classification of works contract service for construction of Fire Station and Staff Quarters under CGST and SGST Acts.

Analysis:
The applicant, engaged in a works contract for construction, argued that it qualifies as a supply of service under CGST Act, 2017. They contended that CGST and SGST are applicable since it is an intra-state supply. The definition of 'Works Contract' under Section 2(119) of the CGST Act was highlighted. Notifications specifying rates for CGST and SGST on works contracts were referenced.

The applicant claimed that the construction project for a Fire Station and Staff Quarters for a local authority falls under the composite supply of works contract as defined in the CGST Act. The recipient, Surat Municipal Corporation, was identified as a local authority. The applicant argued that since the project is for public service and not for commercial purposes, it should be subject to a lower tax rate.

The Revenue department raised concerns about the end-use of the civil structure being for commercial purposes, which could impact the tax classification. However, the Authority for Advance Ruling found that the project primarily serves public interest, specifically fire services, aligning with the functions of a local authority. The ruling emphasized that the structure is not intended for commercial use, as clarified in the relevant notification.

After considering all submissions, the Authority concluded that the works contract service for constructing the Fire Station and Staff Quarters indeed falls under the specified entry in the notification. The ruling confirmed the classification of the project under the relevant tax provisions, providing clarity on the applicable tax rates for the service provided to the local authority.