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2019 (10) TMI 523 - AAR - GSTClassification of services - rate of tax - sub-contract - Construction of residential complex - composite supply - Whether the activity undertaken by the applicant is covered under section 2(119) of the CGST Act, 2018 read with point 6 Schedule II of the CGST Act, 2017 read with the Karnataka GST Act, 2017 and the IGST Act, 2017? - Government authority or not - transaction covered under point 3(ii) or point 3(ix) of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended? - HELD THAT - Bengaluru Development Authority has issued work orders to main contractor - the control over the entity rests with the Government of Karnataka and hence the Bangalore Development Authority satisfies both the conditions and hence is considered as a Government Entity. The projects of the applicant are involving the supply of both goods and services and is in relation to an immovable property and hence is a works contract within the meaning of section 2(119) of CGST Act. This works contract is for a construction of a civil structure and since it is a residential real estate project, the works is predominantly for use other than commerce, industry or any other business or profession and hence it is covered under clause (a) of the entry 3(vi) of the Notification, subject to the conditions. Applicability of clauses (a), (b) or (c) of the entry no.3(vi) of the said Notification - HELD THAT - The applicant is constructing a Housing Project at two places in around Bangalore on subcontract basis rewarded from M/s. Gowri Infra Engineers Private Limited. The Bangalore Development Authority in its tender has stated that it has taken up construction of housing in and around Bangalore City as designed by the Government of Karnataka. Since this is a residential project for general public, the same is not covered under clause (b) or (c) - The projects of the applicant are involving the supply of both goods and services and is in relation to an immovable property and hence is a works contract within the meaning of section 2(119) of CGST Act. This works contract is for a construction of a civil structure and since it is a residential real estate project, the works is predominantly for use other than commerce, industry or any other business or profession and hence it is covered under clause (a) of the entry 3(vi) of the Notification, subject to the conditions. Whether the recipient has procured the said services in relation to a work entrusted to it by the State Government? - HELD THAT - It is observed that the Bangalore Development Authority Act, which is passed by the State Legislature, has entrusted the activity of development of the City of Bangalore and areas adjacent thereto and for matters connected therewith to the BDA and the Authority has to obtain the sanction of the Government of Karnataka for every scheme they propose to implement. Hence, the condition is also satisfied - thus, the services provided by M/s. Gowri Infra Engineers Private Limited to Bangalore Development Authority in relation to the construction of housing complexes are covered under clause (a) of entry no.3(vi) of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended from time to time. Bengaluru Development Authority is a Government Authority and the main contractor is providing services specified in item (vi) of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 and hence the sub-contract work of works contract provided by the applicant as a sub-contractor to the main contractor is covered under item (ix) of entry 3 of the said Notification as amended by Notification No. 1/2018 - Central Tax (Rate) dated 25.01.2018 and is taxable at 6% under CGST Act, 2017 w.e.f. 25.01.2018. For the period from 01.07.2017 to 24.01.2018, the same is taxable at 9% CGST.
Issues Involved:
1. Whether the activity undertaken by the applicant is covered under section 2(119) of the CGST Act, 2017. 2. Whether Bangalore Development Authority is a Government Authority as per the provisions of GST Law. 3. Whether the transaction is covered under point 3(ii) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017. 4. Whether the transaction is covered under point 3(ix) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017. Issue-Wise Detailed Analysis: 1. Coverage under Section 2(119) of the CGST Act, 2017: The applicant, engaged in civil construction and works contract services, sought clarity on whether their activities fall under the definition of "works contract" as per section 2(119) of the CGST Act, 2017. The applicant argued that their activities, involving the construction of residential complexes and houses for the Bangalore Development Authority (BDA), qualify as works contract services. The Authority confirmed that the activities are indeed covered under section 2(119) of the CGST Act, 2017, as they involve both goods and services related to immovable property. 2. Status of Bangalore Development Authority (BDA) as a Government Authority: The applicant contended that BDA is a Government Authority established under the Bangalore Development Authority Act, 1976, which is controlled by the Government of Karnataka. The Authority examined the composition and control of BDA, noting that it consists of members appointed by the government and functions under the authority of the State Government. Consequently, the Authority affirmed that BDA qualifies as a Government Authority under the GST Law. 3. Applicability of Point 3(ii) of Notification No. 11/2017 - Central Tax (Rate): The applicant argued that their activities are not covered under point 3(ii) of the said Notification, which pertains to composite supply of works contract services provided to any person. The Authority agreed with the applicant's submission, confirming that the transactions are not covered under this entry. 4. Applicability of Point 3(ix) of Notification No. 11/2017 - Central Tax (Rate): The applicant sought clarity on whether their subcontracting activities fall under point 3(ix) of the Notification, which covers works contract services provided by a subcontractor to the main contractor, who in turn provides services to a Government Authority. The Authority analyzed the conditions under entry 3(vi) and confirmed that the main contractor's services to BDA are covered under this entry. Since the applicant is a subcontractor to the main contractor, their services are covered under point 3(ix) of the Notification. The Authority ruled that the applicable GST rate for the applicant's services is 6% CGST and 6% SGST from 25.01.2018, and 9% CGST and 9% SGST for the period before 25.01.2018. Ruling: 1. The activity undertaken by the applicant is covered under section 2(119) of the CGST Act, 2017, as works contract services. 2. Bangalore Development Authority is a Government Authority as per the provisions of the GST Law. 3. The transaction is covered under entry no. 3(ix) of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 1/2018 - Central Tax (Rate) dated 25.01.2018, and liable to tax at 6% CGST and 6% SGST from 25.01.2018. For the period before 25.01.2018, the transaction is covered under entry no. 3(ii) and liable to tax at 9% CGST and 9% SGST.
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