GST ON WORKS CONTRACT SERVICE OF CONSTRUCTING WAREHOUSE AND COLD STORAGE GODOWN

[Mr. M. GOVINDARAJAN]

IN RE: M/S. SHREE CONSTRUCTIONS - 2022 (12) TMI 514 - AUTHORITY FOR ADVANCE RULING, TELANGANA, decided on 08.12.2022, the applicant is doing business of works contracts.  The applicant is also executing some works on the land provided by the Telangana State Tourism Development Corporation Limited which is wholly owned by the Government of Telangana. 

The applicant filed this application before the Authority for Advance Ruling seeking advance ruling on the question – “The rate applicable for the works contract service provided to the Telangana State Tourism Development Corporation Limited by way of construction of building on their land. Whether it is 12% as the Telangana State Tourism Development Corporation Limited is wholly owned by the Government of Telangana or 18% as the Telangana State Tourism Development Corporation Limited is a business entity and collecting fee from its customers.”

The applicant submitted that the Telangana State Tourism Development Corporation Limited is wholly owned by the Government of Telangana and therefore the supply of works contract service to them constitutes a supply to a Government entity.  The applicant further submitted that an advance ruling already pronounced by the AAR of similar business it was declared that the service provider has to collect GST@ 18% from the service receiver.

Personal hearing was given to the applicant by the Authority for Advance Ruling.  The Authority for Advance Ruling considered the submissions made by the applicant.  The Authority for Advance Ruling observed that the applicant received four orders from Telangana State Tourism Development Corporation Limited as detailed below-

• Work order no. TSTDC/Engg/E3/Pedda Chervu-MBNR/2020-21, dated 06.03.2021 - Bund beautification of Pedda chervu at Mahaboobnagar Municipality, Mahaboobnagar District.
• Work order no. TSTDC/Engg/E1/Suspension bridge-MBNR/2022-23, dated 27.06.2022 - Construction of suspension wood bridge at pedda chervu in Mahaboobnagar town, Mahaboobnagar District.
• Work Order No. TSTDC/Engg/E3/Shilparamam-MBNR/2020-21, dated 18.12.2020 - Establishing mini shilparamam at Tank bund area in Mahaboobnagar Municipality, Mahaboobnagar District.
• Work order No. TSTDC/Engg/E3/Neera café & Plant/2020-21, dated 04.11.2020 - Construction of Neera café and food court (with double deek structure) and supply & installation of plant & machinery for Neera processing and packaging unit at Necklace Road, Hyderabad.

The Authority for Advance Ruling observed that the first (2) contracts are in the nature of activities engaged as public authorities.   The Authority for Advance Ruling further observed in two contracts described later is generating income by way of commercial activities.

The first two contracts fall under at Serial No. 3(vi) of Notification No. 11/2017.  The said clause provides that Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, [other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if)] above provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

• a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
• a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or
• a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.

Where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority, as the case may be.

The Authority for Advance Ruling also analyzed the definitions of ‘Governmental Authority’ and ‘Governmental Entity’ under Notification No. 31/2017-Central Tax (Rate), dated 13.10.2017 and under Notification No. 11/2017-Central Tax (Rate).

The Authority for Advance Ruling held that Telangana State Tourism development corporation limited is a Government entity and the first (2) contracts listed above fall under the Entry at Sl.No. 3(vi) of Notification No. 11/2017 and therefore attract a concessional rate of tax in the capacity of contracts made to Government entity @ 6% CGST and 6% SGST up to 31.12.2021 as this entry was amended to exclude Government Entity & Government authority vide Notification No. 15/2021 dated 18.11.2021 so that now the rate of tax for works executed from 01.01.2022 is 9% CGST and 9% SGST.

The Authority for Advance Ruling further held that the contract No. 3 and 4 since related to business these contracts are not qualified for concessional rate of tax made to Government Entity and the rate of tax applicable on supply of these contract services is 9% CGST and 9% SGST from the inception of the contracts.