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2022 (11) TMI 207 - AAR - GSTClassification of supply - rate of GST - Composite supply - works contract services related to modification/construction, renovation maintenance of roads highway projects and works connected with and incidental thereto - does the activity carried out by the applicant falls under Heading 9954 Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R) and liable to tax @ 12%? - HELD THAT - In the instant case, contract for construction of National Highway pertaining to Nadia District in the state of West Bengal has been awarded to M/s KCC Buildcon Private Limited on Engineering, Procurement, Construction (EPC) mode. The main contractor i.e., M/s KCC Buildcon Private Limited thereafter, has entered into a sub-contract with the applicant for shifting of electrical utilities in respect of the said project. The applicant, therefore, has been awarded a sub-contract from the main contractor for shifting of electrical utilities which requires removing of old materials from the project site along with erection of materials/lines. The applicant thus has been awarded to carry out a specific part of the work as specified in the agreement made between NHAI and M/s KCC Buildcon Private Limited. From the documents produced by the applicant, it is noticed that all the provisions of Articles 9.0 of EPC Agreement, Letter of Award dated 15th October, 2019 and relevant clauses of scope of work mentioned in the EPC Agreement shall apply on back to back basis to the applicant. In the said article, as it is found, that the contractor shall undertake the work of shifting of any utility (including electric lines, water pipes, gas pipelines and telephone cables) to an appropriate location or alignment and the cost of such shifting, as per estimates prepared by the entity owning the utility and approved by the Authority, shall be reimbursed by the Authority to the contractor. In the instant case, the applicant has entered into the agreement with M/s KCC Buildcon Pvt Ltd i.e., the main contractor for shifting of electrical utilities and for this work, the main contractor is liable to pay the consideration to the applicant. So, in terms of sub-clause (a) of clause 93 of section 2, there can be no dispute that the applicant is supplying the services to M/s KCC Buildcon Pvt Ltd and not to NHAI. Whether the work of such shifting of electrical utilities can be regarded as services provided by way of construction of road or not? - HELD THAT - Admittedly the Scope of Project in respect of the main contractor means and includes construction of Project Highway which demands shifting of obstructing utilities as and where required and for that purpose, such shifting work can be considered as an ancillary to the main work. However, when the sub-contractor, on being awarded, provides services of shifting of electrical utilities only, can it be said that the sub-contractor is supplying services by way of construction of road - in the instant case, the services provided by the applicant, for its very limited scope towards shifting of electrical utilities, cannot be regarded as supply by way of construction of road. The terms and condition of the agreement made between NHAI and the contractor stipulates that the cost of such shifting shall be reimbursed by the Authority to the Contractor which also indicates the independent nature of the work. In the case of Gaurish Sharma 2020 (5) TMI 412 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN , the Rajasthan AAR has observed that the proposed activity carried out by the applicant is of shifting/erection of 11 KV LT 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. The AAR also observed that since such cost of the aforesaid 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. The activities carried out by the applicant in the instant case is identical with the case of Gaurish Sharma before the Rajasthan AAR. Further, providing services of shifting of electrical utilities only cannot be regarded as services by way of construction of road - the work being undertaken by the applicant fails to get covered under serial number 3(iv)(a) of the Notification No. 11/2017-Central Tax (Rate) dated 28-6-2017, as amended.
Issues Involved:
1. Whether the activity carried out by the applicant falls under Heading 9954: Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R) and is liable to tax at 12%. Issue-wise Detailed Analysis: 1. Admissibility of Application: The applicant has made an application under Section 97(1) of the GST Act, seeking an advance ruling on whether their activity falls under Heading 9954: Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R). The application was admitted as it met the criteria under Section 97(2)(a) and (b) of the GST Act, and there were no objections from the revenue officer. 2. Applicant's Submission: The applicant is engaged in works contract services related to road and highway projects and has been subcontracted by M/s KCC Buildcon Private Limited for shifting electrical utilities for the NH-34 project. They argue that their work should be classified under Heading 9954: Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R), which pertains to construction services for roads, and should attract a GST rate of 12%. The applicant contends that: - NHAI, an agency of the Central Government, is responsible for the development of National Highways. - The applicant's work of shifting electrical utilities is directly connected to the highway construction. - The scope of work involves significant construction activities, making it a "works contract" under Section 2(119) of the GST Act. - Based on the GST Council's intent and relevant case laws, the concessional rate applicable to the main contractor should also apply to the sub-contractor. 3. Revenue's Submission: The revenue officer contends that the applicant's work of shifting electrical utilities does not fall under the concessional rate for works contracts related to road construction as specified in Notification No. 11/2017-CT(R). They reference an advance ruling from the Rajasthan Authority for Advance Ruling (RAJ/AAR/2019-20/34) to support their argument. 4. Observations and Findings: The authority examined the submissions and documents provided by both parties. They noted that: - The applicant has been subcontracted by M/s KCC Buildcon Private Limited for shifting electrical utilities, which is a specific part of the main contract for highway construction. - The work of shifting utilities is ancillary to the main project but does not itself constitute road construction. - The recipient of the applicant's services is M/s KCC Buildcon Pvt Ltd, not NHAI, as per Section 2(93) of the GST Act. - The authority referred to the Rajasthan AAR ruling, which held that shifting/erection of electrical lines does not qualify as road construction services under Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R). 5. Ruling: The authority ruled that the applicant's activities of shifting electrical utilities for the NH-34 project do not qualify as composite supply of works contract by way of construction of road under Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R). Therefore, the concessional GST rate of 12% does not apply to the applicant's services.
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