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2022 (10) TMI 858 - AAR - GSTExemption from GST - Works contract - composite supply - annuity amount received is exempted or not as it contains both construction and maintenance parts (which are inseparable) as per entry No. 23A of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 - eligibility for an early completion bonus as the construction is completed before the scheduled date - Whether this bonus will also be exempted as it is the part and parcel of the principal project? HELD THAT - As per the terms and conditions of the concession agreement, the applicant as the concessionaire is designing, constructing, operating and maintaining the roads under Phase 1 (A) of the KCRIP during the concession period and transferring it to the Government on completion of the concession period. The entire project is financed by the applicant and the cost of the construction, operation and maintenance is recovered by the applicant by way of bi-annual annuity payments as per the terms and conditions of the concession agreement for 15 years. On completion of the payment of the cost of construction and maintenance for 15 years through bi-annual annuity as fixed by the agreement, the road is transferred to the Government - it is evident that the services provided by the applicant as per the concession agreement are covered under the definition of works contract under Section 2 (119) of the CGST Act, 2019 and the bi-annual annuity received by the applicant as per the concession agreement can be considered as the consideration for the works contract services supplied by the applicant given the definition of consideration in Section 2 (31) of the CGST Act, 2017. The service rendered by the applicant as per the concession agreement is a continuous supply of works contract services and the annuity is in sum and substance the consideration for the works contract services rendered. Since the cost of construction is initially financed by the applicant the applicant is granted a concession to operate and maintain the roads for 15 years during which the entire consideration is paid to the applicant and on completion of the concession period the road is transferred to the Government. Therefore, the transfer of goods involved in the execution of the works contract happens at the time of transfer of the roads to the Government as per the concession agreement and accordingly the completion of the work contract service takes place on the date of transfer of the roads to the Government - the supply is deemed to have been made on each annuity payment date to the extent covered by the payment of annuity and the applicant is liable to raise tax invoice as per provisions of sub -section (5) of Section 31 and pay GST on the annuity received by them on each annuity payment date by the due date prescribed as per provisions of Section 39 of the CGST Act, 2017. Thus, the services rendered by the applicant as per the concession agreement are classifiable as works contract services falling under SAC 995421 and the annuity received by the applicant including the bonus for early completion of construction is the consideration for the works contract services rendered and the applicant is liable to pay GST at the rate of 12% on the annuity including bonus as per entry at S1 No. 3 (iv) of Notification No. 11/2017 - Central Tax Rate) dated 28.06.2017 as amended.
Issues Involved:
1. Whether the annuity amount received is exempted from GST as per entry No. 23A of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. 2. Whether the early completion bonus received is exempted from GST as it is part of the principal project. Issue-wise Detailed Analysis: 1. Annuity Amount Exemption: The applicant, a Special Purpose Vehicle (SPV) formed for the Kozhikode City Road Improvement Project (KCRIP), sought an advance ruling on whether the annuity amount received for the project is exempt from GST under entry No. 23A of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. The annuity includes both construction and maintenance components, which are inseparable. The jurisdictional officer contended that GST is exempted only on services falling under Heading 9967 by way of access to a road or bridge on payment of annuity, and the applicant's services do not fall under this heading. The officer referenced CBIC Circular No. 150/06/2021 GST dated 17.06.2021, which clarified that GST is not exempt on annuity payments for road construction. Upon detailed examination, it was determined that the applicant provides a composite supply of works contract services as defined under Section 2(119) of the CGST Act, 2017, which includes construction, operation, and maintenance of roads under a Design, Build, Finance, Operate, Maintain and Transfer (DBFOT) basis. The bi-annual annuity payments received post-construction are considered consideration for the works contract services rendered. The classification of services was established under SAC 995421 (General construction services of highways, streets, roads, railways, and airfield runways, bridges, and tunnels). The time of supply of services was determined as per Section 13 of the CGST Act, 2017, which states that the supply is deemed to have been made on each annuity payment date to the extent covered by the payment of annuity. The applicable GST rate was identified as 12% (6% CGST and 6% SGST) under entry at Sl. No. 3 (iv) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, as amended. Ruling: The annuity amount received by the applicant is liable to GST at the rate of 12% [6% CGST and 6% SGST] as per entry at Sl. No. 3 (iv) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, as amended. 2. Early Completion Bonus Exemption: The applicant also sought a ruling on whether the early completion bonus received for completing the project ahead of schedule is exempt from GST. It was determined that the early completion bonus, as per the concession agreement, is an additional consideration for the works contract services rendered. The bonus is naturally bundled with the principal supply of services under the contract and is subject to the same GST rate. Ruling: The early completion bonus received by the applicant is liable to GST at the rate of 12% [6% CGST and 6% SGST] as per entry at Sl. No. 3 (iv) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, as amended. Conclusion: Both the annuity amount and the early completion bonus received by the applicant are subject to GST at the rate of 12% [6% CGST and 6% SGST] as per the relevant notifications and provisions discussed.
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