2019 (3) TMI 1567 - AAAR - GST

Works Contract Services (WCS) pertaining to railways - original works contract - Rate of tax - sub-contractor to main contractor - whether taxable at 12% GST or 18% GST? - N/N. 11/2017 dated 28.06.2017 as amended by the N/N. 1/2018 dated 25.01.2018 - Challenge to AAR decision. Held that - The plain reading of the item (v) of the Sr. 3 of the Notification, it is very much clear that any supply of works contract pertaining to the railways including monorail and metro is subject to concessional rate of 12% GST - In the instant case, though the respondent i.e. M/S. Shree Construction is providing works contract services to its main contractor who has entered into works contract agreement with railways, the composite supply of works contract being carried out by M/s. Shree Construction is ultimately going to the use of railways without being subjected to any change or modification, thus the said works contracts, though undertaken by the sub-contractor, is undoubtedly pertaining to the railways and no one else. Thus, the condition specified under item (v) of the Sr. 3 of the said notification is completely fulfilled and therefore the services provided by the sub- contractor would attract concessional rate of 12% GST. There is no specific mention of subcontractor providing services in Sr. (v) as provided in item (ix) and (x) which were incorporated into the Notification 11/2017-C.T. by the amending notification 1/2018 dated 25.01.2018, there was no need to include such sub-contractors in the item (v) of the Notification as there was no confusion whether the sub-contractor will be eligible to such concessional rate of GST, since the activities described under item (v) of Sr, 3 of the notification are services specific. The service provider and the service recipient are immaterial for the determination of beneficiary of this concessional rate of GST. That is, if the works contract services provided by the main contractor or sub-contractor are pertaining to the railways, the concessional rate of 12% GST is allowed to the person who carries out the such works contract pertaining to railways. The ruling pronounced by the Advance Ruling Authority upheld. - Decided against the revenue.

Summary

Issues Involved:
1. Determination of the correct GST rate for works contract services provided by a sub-contractor to the main contractor for original works pertaining to railways.
2. Applicability of Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 and Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018 to the services provided by the sub-contractor.

Issue-wise Detailed Analysis:

1. Determination of the correct GST rate for works contract services provided by a sub-contractor to the main contractor for original works pertaining to railways:

The core issue revolves around the correct GST rate applicable to works contract services provided by a sub-contractor to a main contractor for original works related to railways. The party contended that, based on Notification No. 20/2017-Central Tax (Rate) dated 22-08-2017 and the press release from the 25th GST Council meeting, the applicable GST rate should be 12%. This was supported by the Advance Ruling Authority, which ruled that the tax rate to be charged by the sub-contractor to the main contractor would be 6% CGST and 6% SGST, totaling 12%.

2. Applicability of Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 and Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018 to the services provided by the sub-contractor:

The appellant (Assistant Commissioner, Central Tax) argued that the Advance Ruling was not legally correct, asserting that Notification No. 20/2017 does not specifically include works contract services provided by a sub-contractor to a main contractor. They further argued that Notification No. 01/2018 specifies that the concessional rate of 12% GST is applicable only to certain services provided by sub-contractors to main contractors for specific government entities, and not for railway-related works contracts. Therefore, they contended that the services provided by the sub-contractor should attract an 18% GST rate under the general category of construction services.

Discussion and Findings:

Upon reviewing the submissions, it was noted that the primary issue was whether the works contract services provided by the sub-contractor (M/s. Shree Construction) were covered under item (v) of Sr. 3 of Notification No. 11/2017, as amended by Notification No. 1/2018. The Advance Ruling Authority had determined that these services were indeed covered under the concessional rate of 12% GST, as they pertained to original works related to railways.

The appellant's contention was that the sub-contractor's services should fall under the general category with an 18% GST rate, as there was no specific mention of sub-contractors in the relevant notifications. However, the respondent argued that the services were specific due to the clause "pertaining to" railways, making the provider or recipient of the services irrelevant.

The Appellate Authority found no merit in the appellant's argument, stating that the plain reading of item (v) of Sr. 3 of the Notification clearly indicated that any works contract pertaining to railways, including those provided by sub-contractors, was subject to a 12% GST rate. The condition specified was that the works contract should be a composite supply as defined in clause (119) of section 2 of the CGST Act, and should pertain to railways. These conditions were fulfilled in the case of M/s. Shree Construction, thereby justifying the concessional rate of 12% GST.

Order:

The Appellate Authority upheld the ruling of the Advance Ruling Authority, confirming that the works contract services provided by the sub-contractor to the main contractor for original works pertaining to railways were subject to a concessional GST rate of 12%.