2019 (10) TMI 522 - AAR - GST

Classification of services - Rate of tax - Development of Airport by construction of Runway, Taxi track, Apron, Isolation bay, Perimeter Road including Earth work and other allied works - Up gradation of Airport to make it suitable for operation of any type of aircraft by extension of Runway, Construction of New Apron, Taxi track, Isolation bay including Link taxi, GSE area, Perimeter road, and allied works (Civil Electrical) - Government entity or not? Whether the transaction is covered under the Sl.No. 3(vi) of the Notification No. 11/2017 - Central Tax dated 28.06.2017? HELD THAT - The Composite supply of works contract as defined in section 2(119) of the CGST Act, 2017, provided to the 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 is liable to tax at the rate of 6% under the CGST Act. Similar notification also exists under the Karnataka Goods and Services Tax Act and also under the Integrated Goods and Services Tax Act (wherein the tax rate is 12% IGST). The applicant is undertaking a contract of works contract of construction of a civil structure or any other original works for the Airport Authorities of India. The Department of Personnel and Training, Government of India has shown in the company profile that the shareholding of the Government of India in the Airport Authorities of India is 100% and hence the AAI is a Government Entity. Whether the constructed works is a civil structure or any other original works? - HELD THAT - The applicant is engaged in construction of new civil structures. The activities carried out by the applicant are covered under the relevant serial number of the Notification. Whether the works are meant predominantly for use other than for commerce, industry, or any other business or profession? - HELD THAT - The airlines that use the runway and the aprons etc constructed by the applicant work with a view to earn profits. They are engaged in commerce and business. Entry at Serial number 3(vi)(a) specifically provides that works be meant predominantly for use other than for commerce, industry, or any other business or profession . As the works carried out by the applicant are used in the process of commerce and business, the applicant does not qualify for the works to be classified under Serial number 3(vi)(a) - the works contract performed by the applicant cannot be considered as covered under Serial No. 3(vi) of the Notification No. 11/2017 - Central Tax dated 28.06.2017 liable to tax at 6%, but are more appropriately covered under Serial No.3(ii) of the of the Notification No. 11/2017 - Central Tax dated 28.06.2017 liable to tax at 9%.

Issues Involved:
1. Applicable rate of tax on works allotted by the Airport Authority of India for the development and upgradation of airports.
2. Classification of the works contract under the relevant GST notifications.

Detailed Analysis:

1. Applicable Rate of Tax on Works Allotted by the Airport Authority of India:

The applicant, a limited company registered under the GST Act, sought an advance ruling on the applicable tax rate for works contracts related to airport development and upgradation. The works include the construction of runways, taxi tracks, aprons, isolation bays, and perimeter roads, among other allied works.

The applicant argued that these works fall under the definition of "works contract" as per Section 2(119) of the CGST Act, 2017, and should be taxed at 12% GST as per Notification No. 24/2017 - Central Tax (Rate) dated 21st September 2017, as amended by Notification No. 31/2017 - Central Tax (Rate) dated 13th October 2017. The applicant contended that the Airport Authority of India (AAI) qualifies as a "Government Entity" and that the works are "original works" predominantly meant for use other than commerce, industry, or any other business or profession.

2. Classification of the Works Contract under the Relevant GST Notifications:

The Authority for Advance Ruling examined whether the works contract provided by the applicant falls under Serial No. 3(vi) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, which taxes such contracts at 6% under the CGST Act (12% IGST). This entry covers composite supply of works contract provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority, or a Government Entity for 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 commerce, industry, or any other business or profession.

The Authority found that the AAI is indeed a Government Entity as it is set up by an Act of Parliament and is wholly owned by the Government of India. The works carried out by the applicant, such as the construction of runways and aprons, qualify as "civil structures" and "original works" as defined in Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017.

However, the Authority concluded that the works are used by the AAI in the course of business, as the runways and aprons are utilized by airlines engaged in commerce and business. Therefore, the works do not qualify for the concessional rate under Serial No. 3(vi)(a) of the Notification, which requires the works to be predominantly for use other than commerce, industry, or any other business or profession. Consequently, the works contract performed by the applicant is more appropriately covered under Serial No. 3(ii) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, which is taxable at 9% under the CGST Act and 9% under the KGST Act, or 18% under the IGST Act.

Ruling:

1. The rate of tax applicable to the composite supply of works contract undertaken by the applicant is to be charged at 9% under the CGST Act and 9% under the KGST Act, or at 18% under the IGST Act.
2. The amendments to Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 do not affect the taxability of the applicant's transactions, as they are covered under item no. (ii) of Serial No. 3 of the said Notification and not under item no. (vi).

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