Installation services for illumination of roads cannot be construed as “Construction Services”

[CA Bimal Jain]

The AAR, Chhattisgarh in the matter of IN RE: M/S. HPL ELECTRIC, AND POWER LIMITED - 2023 (1) TMI 330 - AUTHORITY FOR ADVANCE RULING, CHHATTISGARH has ruled that installation services for highway lighting systems cannot be considered as “Construction services” under SI. No. 3(iv)(a) of Notification No. 11/2017 – Central Tax (Rate) dated June 28, 2017 (“the Services Rate Notification”) thus, ineligible to the benefit of 12% GST.

Facts:

M/s HPL Electric and Power Ltd. (“the Applicant”) is engaged in the business of manufacture, sale and installation of electrical equipments. The Applicant has entered into an agreement with M/s. Adani Infra India Ltd. (“AIIL”) to provide services for design, engineering, supply, installation etc. of Highway Lighting System, which is a part of the project of development and maintenance of a 53km 4-laned highway in Chhattisgarh.

The Applicant had contended that the work carried out is essential for completion of road and hence is classified under SI. No. 3(iv)(a) of the Services Rate Notification and therefore should attract GST rate of 12%. It was contended that the work carried out by the Applicant was a works contract as defined under Section 2(119) of the Central Goods and Services Act, 2017 (“the CGST Act”). The Applicant had further contended that the installation of lighting is a part of the construction of highways as a highway cannot be operational without lighting system.

Issue:

Whether the supply to be made by the Applicant to AIIL can be classified under SI. No. 3(iv)(a) of the Services Rate Notification and the benefit of GST of 12% can be availed in respect of said supply by the Applicant to AIIL?

Held:

The AAR, Chhattisgarh in IN RE: M/S. HPL ELECTRIC, AND POWER LIMITED - 2023 (1) TMI 330 - AUTHORITY FOR ADVANCE RULING, CHHATTISGARH held as under:

• Analysed Sl. No. 3(iv)(a) of the Services Rate Notification and noted that, the service should be "Construction services", the supply should be a 'Composite Supply’, the work undertaken should be “works contract” and the work should be 'by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a road, bridge, tunnel, or terminal for road transportation for use by general public.
• Noted that, the scope of work awarded to the Applicant covers only the activities involved in the lighting works at various locations. Further, Sl. No. 3(iv)(a) of the Services Rate Notification is not applicable on electrical installation services of illumination for roads.
• Opined that, the work carried out by the Applicant is not “construction services”, rather it is “installation services” being electrical installation services including electrical wiring and fitting services, fire alarm installation services, burglar alarm system installation services.
• Stated that, the work done by the Applicant is a natural bundle of supply of goods and services as they are supplied in conjunction with each other in the natural course of business. Hence, it is a composite supply.
• Observed that, the work involves transfer of property in goods as the Applicant is supplying the goods as well as installing the same. Hence, it is sufficient enough to conclude that it is a works contract as defined in Section 2(119) of the CGST Act.
• Held that, the supply made by the Applicant is classified as “Installation Services” being electrical installation of illumination on roads, and as the basic requirement for eligibility under Sl. No. 3(iv)(a) of the Services Rate Notification stand unfulfilled, the Applicant is ineligible to the benefit 12% GST.

Relevant Provisions:

SI. No.  3(iv) of the Services Rate Notification effective from July 1, 2017 till July 17, 2022:

“Sl. No.	Chapter, Section  or  Heading	Description of Service	Rate (per cent.)	Condition
3	Heading 9954 (Construction services)	(iv) 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, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,- (a)  a road, bridge, tunnel, or terminal for road transportation for use by general public; (b)  a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;	6”

Section 2(119) of the CGST Act:

“works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;”

(Author can be reached at [email protected])