ADVANCE RULINGS ON WORKS CONTRACT

[Mr. M. GOVINDARAJAN]

Works Contract

Section 2(119) defines the expression ‘works contract’ as 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.

Works contract – supply of service?

Schedule II of the Act provides the list of activities or transactions to be treated as supply of goods or supply of services.  Entry 6(a) of Schedule II prescribes that the ‘works contract’ is a composite supply that shall be treated as supply of services.

Section 2(30) defines the expression ‘composite supply’ as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. 

Advance Rulings on Works contracts

Sub contracts

In Re.  ‘Mary Matha Construction Company’, - 2018 (10) TMI 600 - AAR, Kerala, the applicant is a contractor of Government projects. Many of the works are undertaken by way of sub contracts. The sub contractors have raised doubts regarding the applicable tax rate. Accordingly the applicant sought for advance ruling on GST rate for the following contracts:

• Construction of Hospital Block buildings in Government Medical College with civil structural, internal and external finishing. plumbing and sanitary arrangements, electrical, HVAC, lifts and fire fighting installations, including testing, commissioning and handover as turnkey work – by SE, PWD, SC-ST District Officer, Special Officer Govt. Medical College, Palakkad;
• Construction of Non science building for various departments at Central University of Kerala, Kasargod - Central University of Kerala represented by RITES Ltd.
• Construction of Biotech lab and administrative block at Life Science Park, Trivandrum. - HLL Infra Tech Services Ltd.

The Authority examined the issues in detail.  The Authority held that-

• As per the amendment to notification No. 8/2017 vide notification No.39/2017 dated 13.10.2017, composite supply of works contract as defined in clause (119) of section 2 of the GST Act, supplied to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Governmental Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration is taxable @12% GST;
• The work awarded by Government is subsequently given as sub-contract, by the principal contractor. The composite supply of works contract provided by a sub-contractor is also taxable @12% GST.
•  The Life Sciences Park, Trivandrum is a commercial venture of the KSIDC Ltd., a State Public Sector Undertaking and accordingly the works contract services in respect of construction of Biotech lab and administrative block at Life Science Park, Trivandrum is covered under SI No. 3 (xii) - Heading 9954 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 attracting GST at the rate of 18%.

Power distribution

In re. Madhya Pradesh Paschim Kshethra Vidyut Vitran Company Limit - 2018 (9) TMI 1645 - AAR, Madhya Pradesh, the applicant is engaged in power distribution.  For the said purpose the Applicant for the above purpose also carries supply and erection work.  The applicant raised the question for advance ruling on ‘whether clause (vi)(a) of Sr. No. 3 of table of Notification No. 11/2017-Central Tax (Rate) dated the 28th June, 2017’ is applicable on the works contract undertaken by it and determination of liability to pay Tax.

The Authority on examination of documents and arguments submitted before it, held that the Government of Madhya Pradesh is having full control over the applicant M/S M.P. Paschim Kshetra Vidyut Vitran Co. Ltd. and the applicant is covered under the definition of Government Entity.    The projects under DDUGY, IPDS, ADB, SSTD, Saubhagya Yojna, FSP and all other schemes of governments are carried out for business purpose and the benefit of Concessional Rate of 12% (6% under Central tax and 6% State tax) as per notification under is not available to the applicant on works pertaining to construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration, which are carried out in respect of projects under DDUGY, IPDS, ADB, SSTD, Saubhagya Yojna, FSP and all other schemes of governments as the same is undertaken for the business purpose.

In the instant case, the applicant had awarded work to the successful bidder tor Supply of Materials and Erection respectively. Therefore, the contract entered by the applicant is squarely falls under the works contract and falls under entry no. (ii) of S. No. 3 of the table of notification no. 11/2017 - Central Tax (Rate), Dated - 28th June 2017 as amended from time to time and corresponding notifications under and MPGST Act, 2017, the applicable rate of tax is 18% (9% under Central tax and 9% State tax).

Supply and installation of ‘car parking system

In re. ‘Precision Automation And Robotics India Limited’ - 2018 (9) TMI 1106 - AAR, Maharashta, the applicant sought for the advance ruling on the question – Whether supply and installation of ‘car parking system’ - Whether the activity of supply and installation of ‘car parking system’ would qualify as immovable property and thereby ‘works contract’ as defined in Section 2(119) of the CGST Act? 

The Authority held that the impugned car parking system, be it installed on a vacant plot of land or in a building, does not result into supply as chattel. In fact, before installation, there can be no goods as such which could be called a ‘car parking system’. The system requires substantial work to be done at the site to be called a ‘car parking system’. Once made operational the ‘car parking system’ obtains a state of permanency. It is not such as can be easily removed from the existing place and put into place at some other location. The definition of “works contract” under the GST Act is in relation to immovable property. 

Turnkey EPC project

In re. ‘RFE Solar Private Limited.’ - 2018 (9) TMI 693 - AAR, Rajasathan, the question for advance rulings in this case is - Whether contract for Erection, Procurement and Commissioning of Solar Power Plant shall be classifiable as Supply of Goods or Supply of Services under the provisions of the Central Goods and Services Tax Act 2017 and Rajasthan State Goods and Services Tax Act 2017? 

The Authority held that Turnkey EPC Contract are not getting covered under supply of 'Solar Power Generating System' under Entry 234 of Schedule I of the Notification no. 1/2017-Integrated Tax (Rate), Entry 234 of Schedule I of the Notification no. 1/2017 - Central Tax (Rate) both dated 28 June, 2017 and Entry 234 of Schedule I of the Notification no 1/2017 -State Tax (Rate) dated 29 June, 2017. EPC Contract for Solar Power plant comes under the purview of Works Contract as per Section 2(119) of GST Act. The contract for Erection, Procurement and Commissioning of Solar Power Plant falls under the ambit “Works Contract Services” (SAC 9954) of Notification no. 11/2017 Central Tax (Rate) dated 28 June, 2017 and attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.

Construction of pipeline network

In re. ‘R.B. Construction Company’, - 2018 (6) TMI 559 - AAR Gujarat, the Authority held that a contract for any immovable property wherein transfer of property in goods is involved in the execution of such contract fall within the definition of ‘works contract’.  The underground pipeline network created by joining the pipes either by lamination or welding cannot be dismantled without substantial damage and thus cannot be reassembled, therefore the pipeline network so created would be considered as immovable. As the applicant is engaged in the activity of construction of pipeline network which becomes immovable property wherein transfer of property in goods is involved, the said activity falls within the definition of “works contract” under the CGST Act, 2017 and the GGST Act, 2017.

Indivisible contract

In re. ‘SKILLTECH ENGINEERS AND CONTRACTORS PVT. LTD.’ - 2018 (6) TMI 111 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA, The applicant sought advance ruling on the following questions/issues that-

• Whether the contract, executed by them for KPTCL, is a divisible contract [Supply of goods & Supply of Services] or an indivisible contract [works contract]?
• Whether the tax rate of 12% [CGST-6% + SGST-6%] is applicable to the above contract, in pursuance of Notification No.24/2017-Central Tax (Rate) dated 21.09.2017?

The Authority held that the applicant, being the successful bidder, got the single composite contract, but with three connected agreements for Supply of Materials, Erection & Civil Works respectively. All the three agreements were awarded to the applicant in response to a single tender notification & the general terms and conditions are commonly applicable to all the three agreements. The applicant is supplying the material and providing the erection of towers service and also civil works service. Therefore the contract entered by the applicant is of the nature of ‘indivisible’ and squarely falls under the works contract, which is a service.

The regulatory bodies and other autonomous entities would not be regarded as the government or local authorities for the purposes of the GST Acts. Therefore M/s KPTCL cannot be a State Government.  Further M/s KPTCL, who awarded the contract to the applicant, are registered under Companies Act 1956 as a company and is a separate entity. Therefore it cannot be considered as the State Government or a State Government Authority. Hence the applicant is not entitled for the benefit of the concessional rate of GST @ 12%, in terms of N/N. 24/2017-Central Tax (Rate) dated 21.09.2017. 

Inclusion of freight in the value of supply

In re. ‘EMC Limited’ - 2018 (5) TMI 964 - AAR, West Bengal, the Applicant wants a Ruling on whether he is liable to pay tax on freight bills.  The Authority held that The applicant supplies works contract service, of which freight and transportation is merely a component and not a separate and independent identity, and GST is to be paid at 18% on the entire value of the composite supply, including supply of materials, freight and transportation, erection, commissioning etc.