2021 (3) TMI 198 - AAR - GST

Works Contract - supply of services - supply to Government Government Agency or Government Entity in terms of the Notification No.20 dated 22.08.2017 Notification No. 32 dated 13.10.2017 or not - norms to decide a contractee is Government/ Government Agency/Entity? - Contractee gets funds/grants from Central or State Government for given work - non-commercial or not - contractees shall basically be Government/Agencies/ Entity or is there any possibility in a particular work it can be said that a contractee is of this kind? - reimbursement of money for agriculture service - Whether TSSPDCL falls under the definition of Government Authority/ Government Entity as defined in Notification No. 31/13-10-2017 Central Tax (Rate) and other connected Notifications? - applicable rate of tax. HELD THAT - A reference is to be made to entry No. 3 (vi) of the Notification No. 11/2017 CGST dt. 28-06-2017 amended by Not. Nos. 20/2017-CT(R) dated 22.08.2017 24/2017-CT (R) dated 21.09.2017 and Not. No. 31/2017-CT (R) dated 13.10.2017 etc. which prescribes rate of tax in respect of specified construction services supplied to the Central Government State Government Governmental Authority Government entity etc. - Sl.No. 3 (vi) (a) is the relevant entry to the present issue which prescribes GST rate of 12% (6% CGST 6% SGST)in r/o services provided to the Central Government State Government Union Territory a local authority a Governmental Authority or a Government Entity by way of construction erection commissioning installation completion fitting out repair maintenance renovation or alteration of civil structure or any other original works meant predominantly for use other than for commerce industry or any other business or profession. Thus to attract rate of tax @12% under Sl. No. 3(vi)(a) the specified service should primarily be provided to the Central Government/State Government/Union Territory/Local authority/Government Authority/ Government Entity and must be used for other than commercial industrial or any other business or professional activity. Whether the Contractee in the instant case i.e. M/s. TSSPDCL falls under the specified categories of recipients viz. Central Government/State Government/Union Territory/local authority/Government Authority /Government Entity or not? - HELD THAT - It is noticed from the schedule concerning Shareholding of Promoter of the annual accounts of M/s TSSPDCL that 100% shares of the company were held by the Hon ble Governor of Telangana. This clear indicates that the Government of Telangana have 100 percent control over TSSPDCL and thus TSSPDCL is evidently covered under the definition of Government Entity . Whether the impugned services supplied by the applicant are for the works which are used for other than commerce industry or any other business or profession? - HELD THAT - As per the details furnished by the applicant in the Annexure II enclosed to the application the works undertaken are for execution/implementation of various projects for (i) Capacitor Bank Works in Nalgonda etc.; (ii) HVDS-High Voltage Distribution Systems in Suryapet used for agricultural feeders. The applicant further stated that the Government of Telangana is reimbursing the money to M/s TSSPDCL on behalf of the customers for agricultural services rendered. Thus M/s TSSPDCL is not rendering any non-commercial services in as much as they are getting reimbursed for their activity on behalf of their customers. Therefore this activity cannot be termed as other than commercial/business purposes. Thus the impugned works undertaken are for business/commercial purposes and therefore the benefit of Concessional Rate of 12% is not applicable to the services supplied by the applicant. Further it is noticed that the services supplied by the applicant are subjected to 18% in terms of Sl. No. 3(xii) of Not. No. 11/2017-CT (R) dated 28.06.2017 (as amended).

Summary

Issues Involved:

1. Determination of whether the supply of services to the contractee amounts to a supply to Government, Government Agency, or Government Entity.
2. Norms to decide if a contractee is a Government/Government Agency/Entity.
3. Classification of work done with funds from the Government as non-commercial.
4. Whether the supply to TSSPDCL amounts to a supply to Government/Government Agency/Entity.
5. Classification of TSSPDCL as a Government Authority/Government Entity.
6. Applicable rate of tax on works executed for TSSPDCL.

Issue-wise Detailed Analysis:

1. Determination of Supply to Government/Government Agency/Entity:

The applicant sought clarification on whether the services provided under specific contracts to TSSPDCL qualify as a supply to a Government, Government Agency, or Government Entity under Notification No. 20 dated 22.08.2017 and Notification No. 32 dated 13.10.2017. The Authority concluded that the services must be provided to entities defined under the GST Act as Government, Government Agency, or Government Entity and used for non-commercial purposes to qualify for concessional tax rates.

2. Norms to Decide a Contractee as Government/Government Agency/Entity:

The Authority referred to Notification No. 11/2017-CT (R) and its amendments, which define a "Government Entity" as an authority or body set up by an Act of Parliament or State Legislature or established by any Government with 90% or more participation by way of equity or control. The Authority verified the shareholding of TSSPDCL and confirmed that it is 100% owned by the Government of Telangana, thereby qualifying as a Government Entity.

3. Classification of Work Done with Government Funds as Non-Commercial:

The applicant contended that works funded by the Government should be considered non-commercial. However, the Authority emphasized that the nature of the work itself must be non-commercial. In this case, TSSPDCL receives reimbursement from the Government for agricultural services, indicating the services are commercial in nature.

4. Supply to TSSPDCL as Supply to Government/Government Agency/Entity:

The Authority examined whether the supply to TSSPDCL qualifies as a supply to a Government Entity. Given that TSSPDCL is 100% owned by the Government of Telangana, it qualifies as a Government Entity. However, the nature of the services provided (commercial activities) disqualifies it from concessional tax rates.

5. Classification of TSSPDCL as Government Authority/Government Entity:

The Authority confirmed that TSSPDCL is a Government Entity as per the definition provided in Notification No. 11/2017-CT (R) due to its complete ownership by the Government of Telangana.

6. Applicable Rate of Tax on Works Executed for TSSPDCL:

The Authority concluded that the works executed for TSSPDCL are commercial in nature. Therefore, the concessional rate of 12% GST is not applicable. The applicable rate of tax for the services provided by the applicant is 18% (9% CGST + 9% SGST) as per Sl. No. 3(xii) of Notification No. 11/2017-CT (R).

Ruling:

The applicant is not entitled to the concessional rate of GST at 12% for the works mentioned. The applicable rate of tax is 18% (9% CGST + 9% SGST) for the services provided. The classification of a particular entity as a Governmental authority or Governmental Entity must be determined based on the definitions provided in the relevant notifications and the specific facts of each case. The works executed are for commercial purposes and thus taxable under GST at the standard rate.