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TMI Blog2019 (8) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of input tax credit can only be decided after ensuring that the further supply of works contract service is made by the applicant on a case to case basis. Classification of supply - amount recovered from contractors on account of breach of conditions specified in the contract - Liability to to collect GST - HELD THAT:- Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides the following activity be treated a supply of services - the transaction shall be treated as supply of services. Moreover, as violation charges are payable by the contractors, the same are required to be treated as consideration. Therefore, this transaction is liable to GST. Classification of supply - amount recovered from contractors on account of not achieving milestone - Liability to to collect GST - HELD THAT:- Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides the following activity be treated a supply of services - the transaction shall be treated as supply of services. Moreover, liquidated damages are payable by the contractors, therefore, the same are to be treated as consideration. Therefore, this transaction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Western Dedicated Freight Corridor (DFC). As a new city by 2030, Dholera will cater to a population of 2 million and an employment base of over 8,50,000. This project is considered as dream project of our Prime Minister Shri Narendra bhai Modi. Government of Gujarat has been proactive in creating suitable legislative framework for formation of a Special Investment Region Act 2009. Under the act, a Regional Development Authority for DSIR has been established in the year 2010. The Dholera Special Investment Region Development Authority (DSIRDA) has the responsibility of planning and development of DSIR and will encompass function of administering government land within DSIR. Dholera Industrial City Development Limited (DICDL) For the development of Dholera SIR, the Government of India (through DMIC Trust) and the Government of Gujarat (through DSIRDA) formed a Special Purpose Vehicle (SPV) called Dholera Industrial City Development Ltd. (DICDL) on Jan 28, 2016. The SPV is made up of a 51% stake of the Government of Gujarat through DSIRDA and a 49% stake of Government of India through DMIC Trust. Dholera Industrial City Development Limited ( DICDL or Company ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Larsen Toubro Ltd 1,734.04 Cr 3 Stup Consultants Private 14.37 Cr 4 Larsen Toubro Ltd 53.91 Cr 4 Vyas Giannetti Creative 1.64 Cr 5 SPML Infra Limited 90.00 Cr 5 Multi Media Consultants 2.40 Cr 6 HCP Design, Planning 1.99 Cr TOTAL 1964.45 TOTAL 45.83 Applicant has interpreted the questions raised in the application as per annexure B of application as follows : As stated in ARA-01, of their submission in respect of the questions raised by applicant in point no.14 and the additional submission dated 12.07.2018, is discussed by applicant below : ❖ Part-A: Applicant i s covered within the definition of Government Identity General rate of GST on taxable services is 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. Applicant s view and understanding: Hence, in applicant s considered view, applicant is very well covered under the definition of Government Entity and it is eligible for benefits that are available to Government Entity under notification no 11/2017-CTR dated 28-06-2017. ❖ Part-B: Applicant can very well avail the Input Tax Credit (ITC) of the Tax paid on the aforesaid contracts: Summary of GST rate applicable on EPC contracts awarded by the applicant: EPC CONTRACTS Sr.No. Name of the Contractor Value of Contract Applicable rate of GST 1 Cube Construction Engineering Ltd. ABCD 72.31 Cr 12% 2 Larsen Toubro Ltd. STP 53.91 Cr 12% 3 SPML Infra Limited WTP 90.00 Cr 12% 4 Larsen Toubro Ltd. R B 1,734.04 Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , rents and all types of revenues, cess, user development fee (including internal as well as external development charges), accept receivables towards dues, investments, returns, servicing/ repayments of debts or capital etc. and to carry out any other project development and implantation activities as may be necessary, and incidental for implementation of the Project. And for these purposes to procure, implement, operate and maintain schemes, project(s), programmes, concessions and other contractual arrangements on a commercial format, in public private sector partnership mode or otherwise, for the provision and development of projects related to power generation, transmission and distribution, water treatment and supply, waste management, sewage treatment, sanitation, roads, transportation, logistics parks, exhibition cum convention centers, street lighting, city gas supply along with supporting amenities that will essentially include residential clusters, educational clusters, research, commercial, recreation, offices administration uses and to further the aforementioned objectives. Also to carry out all kinds of business of developers, promoters, consultants, designers, manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e developed. Further, Dholera being a industrial city, major Sewage Treatment Plant and Water treatment plant are also basic necessity for smooth operations of entire city. Various contracts awarded to the contractor is for developing infrastructure facilities in the entire city and as per MoU, applicant is getting these infrastructure facilities developed so that further development of commercial and residential complex can be undertaken by the applicant. Hence, it is can be said that the services received by applicant from above mentioned contractor is for further development of the Dholera City and such development will be undertaken by applicant in future after the basic infrastructure facilities are in place. Therefore, it is submitted that applicant can very well avail the ITC of Tax paid on composite works contract service availed from contractors stated in Part B. Applicant is entered with Cube Construction Engineering Limited is for Design and Construction of Administration and Business Center of Dholera for design and construction of Administration and Business Centre of Dholera (ABCD) Building, maintenance of project and fulfillment of other obligation. Administ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s into sea. Hence, for development and safety of township water flow of river must required to be controlled. River bunding project is necessary input for the expansion of Dholera project and according to that we are eligible to avail the ITC of works contract service received from Jugalkishor Ramkishan Agrawal Infra. Pvt Ltd. Applicant s view on taxability on amount collected from contractors on account of violation charges, liquidation damages and interest on liquidation damages are as follows : As per the agreement with various contractors, applicant aims to build an image of the best safety conscious practice in DSIR construction and operation undertaken by contractors. An unsafe act or conduct in the construction site may result into an illness, injury, property damage or worst, loss of life. The contractor is expected to take safety very seriously and shall keep the construction site safe at all the times. The Employer shall practice zero tolerance towards unsafe behavior by any parties on the construction site. There is table provided in the agreement indicates the safety, health and environment violation (unsafe act / unsafe condition) and charges to be recovered f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out, execution of an act, provision of a facility etc. Where applicant receives the violation charges from contractors there is no activity done by both the parties. Means there is no activity undertaken by contractor while paying violation charges and hence first condition has not fulfilled. Further, there is no quid pro quo i.e. something in return received by contractors. The payment made by contractor doesn t fall within the definition of consideration and hence second condition has also not fulfilled. As per Sec: 15 of CGST Act, 2017, interest or late fee or penalty for delayed payment of any consideration for any supply received shall be included in the transaction value of supply. However, the said violation charges are not in the form of penalty for delayed payment and hence need not to include in the value of supply of services provided by contractors. In nutshell, the aforesaid transaction undertaken between applicant and contractors is not covered under definition of supply and hence no GST shall be leviable on the amount received by applicant from various contractors in relation to violation charges related to safety and health of workers. Applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, say, the contractor could not complete 10% of work till 31st March 2018 and contractor could manage to finish 10% of work on 10th April 2018. Delaying the project by 10 days. In this Scenario, although damages of ₹ 5,00,000/- per day is required to be paid by contractor to the applicant [₹ 100 Crore * 0.05% = ₹ 5,00,000/-]. Contractor will be liable to pay ₹ 50,00,000/- [₹ 5,00,000/- * 10 Days] (b) Now, the contractor was able to accelerate and finish 20% of work till 30th June 2018. Hence, 20% of work was completed within given milestone. According to the contractual terms, applicant will have to refund back the amount of ₹ 50,00,000/- . There is one more clause in para no 10.3.2, the agreement with regards to the damages which is reproduced as under: For the avoidance of doubt, it is agreed that recovery of Damages under this clause 10.3.2 shall be without prejudice to the rights of the Employer under this Agreement including the right of Termination thereof. As per the above clause, the applicant reserves the right to terminate the right to recover the damages from contractors. It is further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me period. In case the contractor fails to achieve successful completion of Trial operation within specified time period as pe the project completion schedule due to delay in his part, then the owner shall levy liquidated damages. 2. If the contractor fails to achieve the trial operation of the unit within the time period specified in the project completion schedule due to reasons attributable to him then the owner shall levy liquidated damages on the contractor @ 1.2% of the contract price for erection, testing and commissioning along with applicable price variation per week of delay or part subject to maximum 10% of contract value. It is submitted that there is difference in facts of the case of applicant as compared with the fact of the case stated in the Maharashtra Authority for Advance Ruling and the case of applicant. As per the illustration discussed above, the applicant is contractually obligated to refund the amount of damages collected in event of the contractor achieving the milestone subsequently. The applicant has been entered with the clause of liquidated damages for delayed completion of contracts by various contractors. The contractors shall con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest amount in the value of supply. So it is very well clear that as the charges for late achieving milestone is not an supply, interest on such supply is also not an supply. On other hand interest income is clearly exempted from the GST law. According to notification no 12/2017 Central Tax (Rate) Services by way of- (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services); interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised; Above arrangement entered by an applicant is just like advance credit given to the contractors and for that amount applicant is charging interest thereon. It is just an amount which is receivable by applicant for the period starting from 1st milestone to the end of next milestone but the applicant is not receiving the amount from contractors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government of India (51% stake of the State Government and 49% stake of the Government of India). Government Entity has been defined in Notification No.31/2017-Central Tax (Rate) dated 13.11.2017, which reads as:- Government Entity means an authority or a board or any other body including a society, trust, corporation, i) set up by an Act of Parliament or State Legislature; or ii) established by any Government, with 90 per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority. . From the Government of Gujarat, Industries Mines Department s letter dated 02.12.2015 (attached as Annexure-C of the application), it is clear that the State Government has formed a Company under the name Dholera Industrial Township Development Limited as a wholly owned government Company with (51%) equity contribution of Government of Gujarat in the form of land and (49%) Central Government through Delhi-Mumbai Industrial Corridor (DMIC) Project Implementation Trust Fund as a Project Development Agency for Dholera Special Investment Region. From the above definition, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished by any Government, with 90 per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority. Since the applicant is constituted by the participation share of 51% of State Government and 49% of Central Government, hence being, fully constituted by the share of Government, the applicant is covered under the definition of Government Entity (ii) Whether applicant is eligible to claim ITC of GST charged by contractors?: Clause (c) of Section 17(5) of CGST Act, 2017 provides the eligibility of input tax credit in case of works contract service where it is an input service for further supply of works contract service. Considering the extent of business of construction erection, maintenance, repair to be conducted by the applicant, the eligibility of input tax credit can only be decided after ensuring that the further supply of works contract service is made by the applicant on a case to case basis. (iii) Whether applicant is liable to collect GST on amount recovered from contractors on account of breach of conditions specified in the contract ? : We ..... 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