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TMI Blog2019 (10) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... Distribution Companies are involved in the supply of goods as already explained and hence they are involved in the business of supplying goods. They also receive consideration for the supply of electricity. The predominant activity of the Electricity Distribution Companies is to supply Electricity and the works executed by the applicant are used for this only predominant activity and hence are original works meant predominantly for use for commerce, industry, or any other business or profession - hence, the contracts in question do not satisfy the fourth condition required for them to be covered under the Entry No.3(vij(a) of Notification No.11/2017 - Central Tax (Rate) as amended from time to time. - KAR ADRG 111/2019 - - - Dated:- 30-9-2019 - SRI. HARISH DHARNIA, AND DR. RAVI PRASAD M.P. MEMBER Represented by Sri. Ravi Raghavan, Advocate. ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 UNDER 98(4) OF THE KGST ACT, 2017 1. M/s. Manipal Energy and Infratech Limited., (called as the Applicant Company hereinafter), having GSTIN number 294AHCM0173A12ZT, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 Section 97 of the KGST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to regularized unauthorized IP sets by extending 11KV HT Lines, LT 3 phase 4 wire lines, erection of BEE 3 Star Rated 25/63KVA distribution transformers on total turnkey basis under rate contract for a period of one year in urban section of Shikanpura O M Sub-division vide letter number MESCOM/SEE(P)/EE9W) 2017-18/2823-33 dated 11.05.2017. c. Contract for Rural Electrification and System Strengthening works in Udupi District of MESCOM, Karnataka under Deen Dayal Upadhyaya Gram Jyothi Yojana (DDUGY) on turkey basis vide letter number SE (T)/EEE(APR)/DDUGY- RE/2017-18/CYS-11 dated 28.04.2017. Similarly, the applicant, upon participation in the tender, has been awarded the contract by BESCOM for the work of providing infrastructure to regularized unauthorized IP sets by extending 11KV HT Lines, erection of 25KVA 3 star rated distribution transformers and extension of LT line 3 phase 4 wire on Total Turnkey basis under rate contract for a period two year in Kolar division on percentage basis. Also, the applicant upon participating in the tender has been awarded the contract by HESCOM for strengthening works in 8 Nos. of towns in Belagavi circle of Belagavi District in HESCOM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineer in charge for the guidance of the contractors. All equipment/material to be supplied and under this contract shall be procured exclusively for this particular project only. 9.0 Engraving of IPDS should be done in materials viz, Poles, Transforms (all Rating), Cables. Energy Meter, etc. Procured for this works. 10.0 All Materials Released from the existing system/lines of the proposed project, has to be corresponding MESCOM Divisional Stores. The Payment in this regard will be admitted only after receipt of store acknowledgment. 4.1.2 A brief scope of work provided under this contract requires MEIL to undertake Inland transportation (specified equipment and material) to final destination at site, insurance, taking delivery, unloading, handling storing and supply including associated civil work, testing and commissioning of all equipment and materials supplied by the contractor and documentation of all items/material required to complete strengthening of distribution network in the towns of Udupi Circle viz., Udupi, Karkala, Saligrama, Kundapura towns . 4.2 Providing infrastructure to regularized un-authorized IP sets in urban and rural section of Shik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l-II, Price Schedule). The quantities indicated in the price schedule are only approximate and may increase or decrease and prices quoted by the bidder are deemed to be valid in spite of such variations in the quantities at the time of award of contract. 3.0 Any other items not specially mentioned but which are essentially required for satisfactory performance and completeness of work. Shall be deemed to be included in the scope of specifications and works and the same shall be executed/ carried out by the bidder at no extra cost to the MESCOM. 4.0 The works in each division are handled by concerned engineer in-charge of the O M Division/ Authorized assistants. The measurements of the works executed by the contractor should be certified by the Engineer In-charge. 5.0 Successful bidder has to carry out the works as per the directions of Engineer In-charge of concerned division duly following MESCOM norms and regular practice being adopted for construction of HT/LT Lines, Erection of Distribution Transformers. Re-Conductoring, Augmentation of Line/ Transformers and other proposed works using detailed approved estimate available in O M divisions of respective Blocks. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by extending 11KV HT lines, erection of 25KVA 3 star rated Distribution Transformers and extension of LT line, 3 phase, 4 wire, on total turnkey basis under rate contract for a period of two years in Kolar division. 6. Contracts with HESCOM 6.1 Strengthening works in 8 Nos, of towns in Belagavi Circle of Belagavi District in HESCOM of Karnataka State under integrated power development scheme (IPDS) 6.1.1 In terms of para 8 and para 6 of the Detailed Work Award for supply and erection portion the scope of work has been defined in Section-VII of Volume-I of the tender document. The relevant parts of the scope of work as per the tender document is given below: 1. Supply, Erection, Testing Commissioning of all materials as per tender document. 2. Execution of all other works as per tender document, All Steel structure shall be hot dip galvanized as per relevant Indian Standard. 3. The Distribution Transformers must be BIS certified in line with Electrical Transformers (Quality Control order, 2015 (along with its latest amendments). 4. A set of drawings are enclosed with this bid document. These are tender drawing and are to be approved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which they are engaged as public authorities. 12% Provided that where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority, as the case may 9, In the alternative, entry 3{ii) to the Notification, provides applicable rate of GST @ 18% on works contract service. The relevant entry reads as follows: SL. No. Heading Description of Services Rate Condition No. (1) (2) (3) (4) (5) 3 Heading 9954 (ii) Composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017 18% - 10. In the above factual matrix, the applicant seeks a ruling on whether service provided to various Electricity Supply Companies (wholly owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding electrical wiring fitting services, fire alarm installation services burglar alarm installation services, which includes installation services of heavy electrical equipment; and other electrical installation services not elsewhere classified. A.3. In the facts of the present case, the Applicant undertakes the following work for various electricity distribution companies: Strengthening of Distributions Networks which includes site survey, planning, design, engineering, assembly manufacturing, testing, supply, loading, transportation, unloading, insurance, delivery at site, handling, storage, installation, testing, commissioning: Providing infrastructure to regularized unauthorized IP sets by extending 11KV HT, involving the works like Drawing Commissioning of Electrical Lines, Installing Commissioning of 25/63 KVA DTCs, Drawing Commissioning of LT 3 phase lines, LT 3 phase 4 wire lines, erection of BEE 3 Star Rated 25/63 KVA distribution transformers; Rural Electrification and System Strengthening works includes construction of HT/LT Lines, Erection of Distribution Transformers, RE-Conductoring, Augmentation of Line / Transformers, etc. A.4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no definition to the term immovable property under GST legislations. Hence, we need to understand the expression immovable property to the context of taxation laws. B.5. In this regard reference is made to Section 3(26) of the General Clauses Act, 897, which provides definition of immovable property. It reads: Section 3(260; immovable property shall include land, benefits to arise of land, and things attached to the earth, or permanently fastened to anything attached to the earth. B.6. Section 3(26) of the General Clauses Act includes within the definition of the term immovable property things attached to the earth or permanently fastened to anything attached to the earth. The term attached to the earth has not been defined in the General Clauses Act, 1897. Section 3 of the Transfer of Property Act, however, gives the following meaning to the expression attached to the earth as: a. Rooted in the earth, as in the case of trees and shrubs; b. imbedded in the earth, as in the case of walls and buildings; and c. attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. B.7. In the instant cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th only for the purpose of ensuring vibration free movement). (e) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and wall, therefore, not be excisable goods. B.10. In T.T.G. Industries Ltd., v. Collector of /Central Excise, Raipur [2001 (167) E.L.T. 501 (S.C.)] = 2004 (5) TMI 77 - SUPREME COURT Hon ble Supreme Court noted that the machinery was erected at the site by the assessee on a specially made concrete platform at level of 25 feet height. Considering the weight and volume of the machine and the processes involved in its erection and installation, the Court held that the same was immovable property which could not be shifted without dismantling the same. B.11. English law imparts higher importance on the aspect of annexation which is dependent on the circumstances of each case. One important of considerations is on the fact whether the articles that are attached to earth or structure, that may be removed without structural damage and even articles merely resting on their own weight are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State of Maharashtra, in the case of Giriraj Renewables Private Limited [2018-Vll 20-AAR] = 2018 (5) TMI 854 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA , wherein on the issue of supply under a turnkey Engineering, Procurement and Construction [ 'EPC ] contract for construction of solar power plant, Authority inter alia held that supply of solar power plant qualifies to be a works contract services as the plant results in emergence of an immovable property in terms of Section 2(119) of CGST Act, 2017. The contract involved supply of various goods such as modules, structures, inverter, transformer etc. as well as supply of service such as designing, engineering, transportation, unloading, storage and site handling, installation, commissioning, construction , etc, The Authority interalia held that the following criteria were taken into consideration to determine whether solar power project is immovable: Big project has a permanent location and such plant would, therefore, have an inherent element of permanency. It would not be feasible to shift base from time to time or locate the plant elsewhere at frequent intervals . Government projects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holing more than 5% shares in the Company. In terms of the said details, the Hon'ble Governor of State of Karnataka holds 121.11 Crores of shares in HESCOM, which constitutes 99.99% of total equity shares of total shares of ₹ 10 each fully paid equity shares as at 31.3.2018. C.6 It is also submitted that in the Annual Report for the year 2016-17 of MESCOM, Note IV of the said annual report provides the details of shareholder holing more than 5% shares in the Company. In terms of the said details the Hon'ble Governor of State of Karnataka holds 26.64 Crores of shares in MESCOM, which constitutes 99.99% of total equity shares of total shares of ₹ 10 each fully paid equity shares as at 41.03.2017. C.7 In view of the above submissions, it is clear that the State Government holds more than 90 per cent, shares by way of equity in all the three entities, BESCOM, HESCOM and MESCOM. C.8 It is also submitted that the Karnataka Electricity Regulatory Commission (KERC) was established in 1999 as per the provisions of the Karnataka Electricity Reforms Act, 1999 and began functioning from 15.11.1999, KERC has granted License for Distribution and retail supply of ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to refer any dispute for arbitration; g) Levy fee for the purposes of the Electricity Act; h) Specify State Grid Code consistent with the Grid Code specified under clause (h) of sub section (1) of section 79; i) Specify or enforce standards with respect to quality, continuity and reliability of service by licensees; j) Fix the trading margin in the intra-State trading of electricity, if considered necessary; and k) Discharge such other functions as may be assigned to it under this Act. C.12 Considering the above functions to be entrusted upon the State Electricity Regulatory Commissions under the Electricity Act, 2003, it is submitted that all the electricity distribution companies viz; BESCOM, MESCOM and HESCOM are formed by the Government of Karnataka for carrying out the business of distribution of electricity. These licenses were granted under the Karnataka Electricity Reforms Act, 1999. Consequent to the enactment of the Electricity Act, 2003, the KERC continued to function under the provisions of the Central Act. C.13 In this regard, the Applicant places reliance on the recent GST Advance Ruling given by Authority in the State of Uttarakha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as approved with prior approval of the State Government. Section 72 of the Act provides that the State Government shall exercise superintendence and control over the Board and its officers, The aforesaid provisions of the Act clearly show that the Board is a governmental authority, as it is fully under the control of the State Governments. [Emphasis supplied] C.15 In this regard, the Applicant also places reliance on the recent GST Advance Ruling by Authority in the State of Maharashtra, in the case of Leena Power Tech Engineers Pvt. Ltd. [2019) (20) G.S.T.L 309 (A.A.R.-GST] = 2018 (12) TMI 591 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA, where it was held that City and Industrial Development Corporation of Maharashtra Limited (CIDCO) is constituted and established by the State Government of Maharashtra with 100% participation by way of equity or control to carry out the function of development of new township of New Bombay and therefore CIDCO is clearly covered under the definition of * Government Entity . C.16 The Applicant also refers on the recent GST Advance Ruling given by Authority in the State of Rajasthan, in the case of Tate Projects Ltd., [2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .-GST)] = 2018 (12) TMI 591 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA , where in the work of development of power supply infrastructure distribution network including 33KV sub-station equipment s construction of 11/0.4 KV HT sub-stations are allied electrical works on UI we Node, Navi Mumbai was held to be original work . E. THE WORKS CONTRACT SERVICES PROUCURED BY THE ELECTRICITY DISTRIBUTION COMPANIES ARE IN RELATION TO WORK ENTRUSTED BY THE CENTRAL GOVERNMENT AND STATE GOVERNMENT E.1 It is submitted that the works contract services are procured by the electricity distribution companies in relation to work entrusted by the Central Government and Government of Karnataka, E.2 It submitted that MESCOM is undertaking project which are entrusted to the Government of India and Government of Karnataka. The relevant details of the project in brief, are as follows: a) Projects entrusted by Central Government: Strengthening of Distribution Networks in Udupi Circle of MESCOM, Karnataka under Integrated Power Development Scheme (IRDS) on turnkey basis. Karnataka under Deendayal Upadhyaya Gram Jyoti Yojana (DDUGY) on turnkey basis. b) Projects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme are as follows: i. Separation of agriculture and non-agriculture feeders facilitating judicious rostering of supply to agricultural and non-agricultural consumers in the rural area; and ii. Strengthening of augmentation of sub-transmission distribution infrastructure in Rural areas, including metering of distribution transformers / feeders /consumers. iii. Rural electrification, as per CCEA approval dated 01.08.2013 for completion of the targets laid down under RGGVY for 12 and 13% plans by carrying forward the approved outlaw for RGGVY to DDUGJY. E.8 The Monitoring Committee of Ministry of Power has approved the projects under DDUGJY for the State of Karnataka amounting to ₹ 1754.32 Crores. Out of this, the details of cost approved for the electricity viz, BESCOM, MESCOM and HESCOM are given hereunder: Sl.No. Name of ESCOM DDUGJY Sanctioned Cost (Amount in Rs. Crores) 1. BESCOM 235.36 2. MESCOM 395.67 3. HESCOM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaken otherwise falls within the ambit of Taxable Service. E.12. It is submitted that the electrically distribution companies viz: VESCOM, MESCOM and HESCOM are performing the statutory function entrusted to them under the Electricity Act, 2013. It is further submitted that the electricity distribution companies are formed and established by the State Government of Karnataka with 99.99% participation by way of equity or control to carry out function of distribution of electricity under the Electricity Act,20013. Therefore, the other works undertaken by MESCOM, BESCOM and HESCOM are entrusted by the Government of Karnataka. F. THE WORKS CONTRACT SERVICES PROVIDED TO ELECTRICITY COMPANIES BY MEIL ARE MEANT PREDOMINATLY FOR USE OTHER THAN FOR COMMERCE, INDUSTRY, OR ANY OTHER BUSINESS OR PROFESSION F.1 It is submitted that the works contract services provided to electricity distribution companies by MEIL are meant predominantly for use other than for commerce, industry or any other business or profession. The relevant definitions have been discussed infra to substantiate the submissions. F.2 The meaning of commerce as given by the Concise Oxford Dictionary is exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty, rights and liability connected with, and personnel involved in transmission of electricity, of such State Transmission Utility, to a company or companies to be incorporated under the Companies Act,1956 to function as transmission licensee through a transfer scheme to be effected in the manner specified under Part XIII and such company or companies shall be deemed to be transmission licensees under this Act. F.9 In terms of Section 39(2) of the Electricity Act, the functions of the State Transmission Utility shall be- a) to undertake transmission of electricity through intra-State transmission system; b) to discharge all functions of planning and co-ordination relating to intra- State transmission system with- i. Central Transmission Utility; ii. State Governments; iii, Generating companies; iv. Regional Power Committees; v. Authority; vi. Licensees; vii. Any other person notified by the State Government in this behalf; c) To ensure development of an efficient, co-ordinated and economical system of intra-State transmission lines for smooth flow of electricity from a generating station to the load centres; d) To pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson notified by the State Government in this behalf; c) To ensure development of an efficient, co-ordinated and economical system of intra-State transmission lines for smooth flow of electricity from a generating station to the load centres; d) To provide non-discriminatory open access to its transmission system for use by- Government and therefore held that corporations to be State under Article 12 of the Constitution. B.17 Reliance is also placed on the decision of Hon ble Supreme Court in the case of Som Prakash Rekhi v. Union of India and Ors., MANU/SC/0582/1980 = 1980 (11) TMI 113 - SUPREME COURT , wherein the Court observed that, if only fundamental nights were forbidden access to corporations, companies, bureaus, institutes, councils and kindred bodies which act as agencies of the administration there may be breakdown of the rule of law and the constitutional order in a large sector of governmental activity carried on under the guise of jural persons and held that a public corporation (Bharat Petroleum Corporation) would fall under the definition of Article 12. F.18 Reliance is also placed on the decision of Hon'ble Himachal Pradesh Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city distribution companies are body owned, controlled and financed by Government of Karnataka and therefore, they squarely fall under the meaning of public authority as provided under the RTI Act. F.23 In this regard reliance is placed on the decision of the Central Information Commission in the case of Shri Nisar Ahmed Shaikh Ors. V. LIC Housing Finance Limited MANU/CI/0069/2009 = 2009 (10) TMI 969 - CENTRAL INFORMATION COMMISSION , wherein it was held that the LILC Housing Finance Limited and LIC Mutual Fund Asset Management Co, Ltd, would qualify as Public authorities under the RTI Act. It was held that LIC is a body established, constituted, owned and controlled by Central Government. LIC is a public authority having been constituted by an Act of Parliament, And ,since the Chairman and Managing Director for both LIC and LICHFL is the same, and since LIC has 40.497% of the LIC Housing Finance Limited and LIC Mutual Fund Asset Management Co. Ltd. would be regarded as a public authority for the purpose of the RTI Act. F.24 In view of the above, it is also submitted that the electricity distribution companies are State in which they are engaged as Public Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions made by the Applicant in their application for advance ruling as well as the submissions made by Sri Ravi Raghavan, Advocate and authorized representative, during personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts. 11.2 The issue for consideration is whether the five contracts in question are covered under entry no. 3(vi}(a) of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended from time to time liable to tax at 12% (CGST + SGST together) or not. 11.3 The entry no, 3(vi)(a) of the Notification No.11/2017- Central Tax (Rate) dated 28.06.2017 as amended reads as under: SL. No. Heading Description of Services Rate Condition No. (1) (2) (3) (4) (5) Heading 9954 (vi) Composite supply of works contract as defined in clause (119) if section 2 of the Central Goods and Services Tax Act, 2017, provided to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the said Notification, but it is defined in the context of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 which also can be used in the context of this Notification as both deals with taxation of services and the same reads as under: (zs) original works means all new constructions: (i) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (ii) erection, commissioning or installation of plant, machinery or equipment or Structures, whether pre-fabricated or otherwise; 11.4 The conditions to be satisfied are as under: (a) It must be a composite supply of works contract as defined in section 2(119) of the CGST Act, 2017 (b) It must be provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity (c) The contract should be by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works. (d) The civil structure or original works must be meant predominantly for use other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the works are meant predominantly for use other than for commerce, industry, or any other business or profession. The Electricity Distribution Companies are involved in selling of electricity to the consumers and are collecting consideration and electrical energy is considered as goods . Hence the Electricity Distribution Companies are involved in the sale of goods or in general, supply of goods to the consumers for consideration. The Explanation clause inserted which reads as under: For the purposes of this item, the term business shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities. does not apply as they are not activities undertaken by the Central Government or State Government or a local authority. 11.10 Further, the term business is defined in clause (17) of section 2 of the CGST Act and it reads as under: (17) business includes- (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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