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TMI Blog2019 (3) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... eas O M payments received are subject to GST - Held that:- there is a free flow of ITC from EPC Contractor to the concessionaire and thereafter to NHAI. As a result, the GST of 12%leviable on the service of road construction provided by concessionaire to NHAI would be paid partly from the ITC available with him. Also, there is no hitch in providing the benefit of the Entry No. 23A ibid to the annuity payments i.e. road construction payments received after COD (during O M phase). But this benefit does not come free. It comes with a rider that only 50% ITC of the GST paid on the Input and Input service used in the construction phase is available to the Appellant because annuity (50% of the construction payments) is not taxable and the appellant is not having any other non-business and/or exempted supply. Grant of exemption to annuity paid by NHAl/State Highways Construction Authority to concessionaires for construction of roads - Held that:- Full ITC of the tax paid on the inputs and input services used in the O M phase is available to the Appellant if they are having no other outward supply during this phase. - RAJ./AAAR/06/2018-19 - - - Dated:- 12-2-2019 - SH. RAKESH KU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied percentage of the project cost during the O M period. 7. The Appellant had sought advance ruling as to whether they are eligible to: (a) claim full ITC pertaining to procurement of goods and services for construction of the project during the Construction Period, as the entire revenue received during the said period is subject to GST; and (b) claim ITC pertaining to procurement of goods and services during the O M period after reversal of ITC as per Section 17(2) of the Central Goods and Services Tax Act, 2017 read with Rule 42 of the Central Goods and Services Tax Rule, 2017 as Annuity Payment received during the said period is exempt whereas O M payments received are subject to GST. Findings of the Authority for Advance Ruling (AAR) 8. These supplies are in relation to construction of immovable property like roads and bridges and it can be termed as Works Contract in terms of Section 2(119) of CGST Act, 2017 which is as under: (119) Works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o forms of project execution - Toll and Annuity. The nature of concession is for the concessionaire to raise funds and invest in construction as well as maintenance of the State Highways under a Public-Private Partnership Annuity Project. 13. Ld. Rajasthan AAR has erred in applying the principles of composite supply under section 2(30) of the CGST Act. On a careful examination of Article 3, more particularly 3.1.2(b) of the Concession Agreement, it would be immediately evident that the principal supply cannot by any stretch of imagination be works contracts . In fact, the principal supply is clearly and unmistakably to finance and construct the Project . 14. Ld. Rajasthan AAR has proceeded to determine the principal supply involved in the composite supply in the said Concession Agreement de hors the framework under the Rajasthan State Highways Act, 2014 read with the Standard Conditions of Bid, wherein the Project Works remains the property of the Appellant until lapse of ten (10) years from COD. It is evident from the said framework that Project Works are not supplied by the Appellant to the Employer under the said Concession Agreement until lapse of ten (10) yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for transport is the accurate classification applicable to Concession arrangements and this is borne out in the minutes of the deliberations by the 22 nd GST Council dated October 6, 2017. NHAI referring to the amendment made with effect from 13.10.2017 specifically clarified that no GST is applicable on annuity payments made for construction of road. 20. Ld. Rajasthan AAR has grossly erred in ruling that input tax credit is fully available under O M and Annuity leg of the project as full exemption is available to Annuity by way of Heading 9967 - Supporting services in transport under Sl.no.23A under Exemption Notification ibid, wherein Services by way of access to a road or a bridge on payment of annuity are fully exempt from GST with effect from 13 Oct, 2017. 21. Adverting to obligation to manage, operate and maintain the Project, the Appellant is enjoined with this responsibility as the Concessionaire of the Project Works and not as a Supplier . 22. Section 19 of the said Act declares the ownership of the State Highways will be determined in terms of the said Concession Agreement. As such, the responsibility of the Appellant to manage, operate and maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June, 2017 G.S.R......(E).- In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding Entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding Entry in column (5) of the said Table, namely:- TABLE Sl. No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition 1 2 3 4 5 23A Heading 9967 Service by way of access to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the EPC contractor to the concessionaire. And the minutes of the meeting reads as under: Agenda item 13(iv): Issue of Annuity being given in Place of Toll Charges to Developers of Public Infrastructure - exemption thereon 61. Introducing this Agenda item, the Joint Secretary (TRU-II), CBEC stated that while toll is a payment made by the users of road to concessionaires for usage of roads, annuity is an amount paid by the National Highways Authority of India (NHAI) to concessionaires for construction of roads in order that the concessionaire did not charge toll for access to a road or a bridge. In other words, annuity is a consideration for the service provided by concessionaires to NHAI. He stated that construction of roads was now subject to tax at the rate of 12% and due to this, there was free flow of input tax credit from EPC (Engineering, Procurement and Construction) contractor to the concessionaires and thereafter to NHAI. He stated that as a result, tax at the rate of 12% leviable on the service of road construction provided by concessionaire to NHAI would be paid partly from the input tax credit available with them. He stated that the Council may take a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g nexus with annuity is classifiable under SAC 9967 and activity of the Appellant having nexus with the Construction payments during construction phase is Works Contract which is taxable under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 under SAC 9954. Hence we have no hitch in providing the benefit of the Entry No. 23A ibid to the annuity payments i.e. road construction payments received after COD (during O M phase). But this benefit does not come free. It comes with a rider that only 50% ITC of the GST paid on the Input and Input service used in the construction phase is available to the Appellant because annuity (50% of the construction payments) is not taxable and the appellant is not having any other non-business and/or exempted supply . 27. Coming to the second issue, we find that the Appellant is receiving two types of payments during O M phase : (1) O M related payments, and (2) Construction related Annuity payments. GST is payable on the O M payments and the appellant has also not disputed this While annuity payments are exempted from GST, as per discussion hereinabove, our mandate is to pronounce upon the eligibility of the ITC of GST paid on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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