9911796707
TMI Blog2022 (1) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority for Advance Ruling Regulations, 2018. 1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression 'GST Act' would mean the CGST Act and the WBGST Act both. 1.2 The applicant is stated to be engaged in the business of design, construction and operation and maintenance of water distribution networks for municipal bodies across India. 1.3 The applicant entered into a performance based contract for water loss management with Kolkata Municipal Corporation (KMC, for short) which includes construction of water distribution networks and operation & maintenance in the Cossipore area in the city of Kolkata. The contract was awarded by KMC vide letter of acceptance dated 4th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and Operation & Maintenance ('O&M') by KMC. As per the tender, the bidder was required to submit a single bid for the construction (DB) as well as O&M of water distribution networks (i.e. bidder did not have any option under tender terms to either bid for DB or O&M as it was a single scope contract i.e. construction and O&M of water distribution network). 2.2 The applicant furnishes a copy of "Invitation for Bids" dated 25.02.2016 and submits that the works and the principal quantities involved, but not limited to, are: SI.No Description of Items Unit Quantity(Approx.) 1 Establishment of District Meter Areas in ward no 1 to 6 LS 1 2 Providing D.I. K-9 grade pipes with internal cement mortar lining of assorted diameters between 100 mm dia to 700 mm dia KM 140 3 Providing and supplying Polyethelence Pipes of assorted diameters KM 13 4 Supply and Installation of various types of Valves of assorted diameters Nos 222 5 Supply and Installation of Domestic water and bulk meters of assorted diameters Nos 25000 6 Water loss reduction(NRW) and management services and Operation and Maintenance for a period of 3 years Years 3 2.3 The applicant was awarded the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Providing house service connections with specified (MDPE/GI) type of pipe on DI and HDPE pipe. * Providing and installing butterfly, sluice Valves, bulk flow meter, PRV valves; * Finding invisible leaks in pipeline network, carrying out repairs and allied works * SCADA system for distribution system management. B. During Operation and Maintenance Period from Initial Take over date [Clause 6.2.2 of the Bidding document] * Operation and maintenance of infrastructure within the DMA's established under this Project including major and minor repairs. * Operation & Maintenance of the distribution network for distributing water efficiently, equitably and minimizing water loss and maintaining infrastructure on DMA basis. * Providing continuous (24 x 7) pressurized water supply to the connected consumers and maintaining the infrastructure. * Collection of water and sending the same to Laboratory for testing of water quality & ensure it meets Potable Water Specifications. * Detecting and monitoring non-revenue connections and consumption and inform about such connections to KMC and install meters to measure consumption. * Provide consumer service connections on approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased after completion of O&M phase and 50% when all defects notified by engineer are corrected. 2.10 The applicant also submits that Article B of the agreement stipulates that, in consideration of the payment to be made by the customer (KMC) to the contractor, the contractor covenants with the employer to execute the work, to operate and maintain the work at its rated capacity, including maintaining the plant and equipment in good operating condition, normal wear and tear excepted, and remedying any defects therein in conformity in all respects with the provisions of the contract. A consolidated price is stipulated as the total contract price combining the contract prices of the inter related phases i.e. DB and O&M under single tender. 2.11 According to the applicant, following provisions of the GST Act is pertinent in the matter of taxability on instant supply: Section 8 of the Central Goods and Services Tax Act, 2017 speaks that tax liability on a composite or a mixed supply shall be determined in the following manner, namely: - (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alteration or commissioning is for immovable property only, then it will classify as works contract. Hence it means that aforesaid activities if they are undertaken for a movable property then it will not be works contract service. * Notification No. 20/2017-Central Tax (Rate) dated 22nd August, 2017 provides that Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal shall would fall under Entry 3(iii) with HSN Code 99544 attracting GST @ 12%. 2.13 The applicant contends further that if the O&M contract is held to be independent of DB supply, the former shall be considered as a pure service extended to a government entity and hence would be considered as an exempt supply under Entry 3 of Notification no. 12/2017-Central Tax (Rate) dated 28.06.2017. Sl.No. Chapter, Section, Heading, Group or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entrusted with the work of operation and maintenance of the water distribution networks, the applicant -contractor has also been entrusted with the task of erection and installation of the networks. The functions relating to the rendering services of erection, installation and maintenance of the networks are integrally connected and are inter-dependent and therefore tender did not allow to bid separately for DB and O&M scope. 2.16 The Client being KMC is aware of such interdependence of the two contracts. Although awarded under the same LOA and two separate contract agreements signed for execution, clauses under both of them make it abundantly clear that notwithstanding the break-up of the contract price, the contract shall, at all times, be construed as a single source responsibility contract and the applicant shall remain responsible to ensure execution of both the contracts to achieve successful completion and handing over of the facilities. 2.17 Composite nature of the contract is further clear from the clause that defines satisfactory performance of the First Contract (DB) upon completion of operation and maintenance phase in Second Contract. The client has not contracted fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The applicant has further argued that since this supply is made to a Municipal Corporation viz. KMC, hence the rate of tax applicable on given service (as it is a works contract service) shall fall under Entry 3(iii) with HSN Code 99544 and would attract CGST and SGST @ 6% each. 4.5 In order to analyze the issue involved in the instant case, we find it relevant to reproduce following clauses from the "General Conditions of Contract" (GCC, for short): In clause 1.1 of GCC: * "Contract" is the Contract between the Employer and the Contractor to execute, complete and maintain the Works and Services. It consists of the documents listed in GCC Clause 3. * "Completion Date" is the date of completion of the Works and Services as certified by the Engineer in accordance with GCC Sub-Clause 32. In clause 7 of GCC: * 7.1 Unless otherwise expressly limited in Section 6, Employer's Requirements, the Contractor's obligation cover the design, execution and maintained of all Works, provision of all equipment and materials and the performance of all Services required to reduce water losses, provide continuous pressurized potable quality water supply and provide support services to Employer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the work is complete, the Engineer shall thereafter issue a Certificate of Sectional Completion to the Contractor. * 32.2 Initial Take Over date: If Certificate of sectional completion is issued by Engineer to any construction works or part of it including DMA establishment works or Sub DMA establishment works as per clause 32.1 above, before the completion of Design & Construction Period as specified in PCC. Contractor shall take over the O&M of such DMAs or Construction works and eligible for payment as per O&M period till completion of Construction period or Final take over date, whichever is earlier. 4.6 It appears that the scope of work includes inter alia supply, laying, installation and commissioning of distribution network with HDPE pipe (noted in para 2.6) along with operation and maintenance. We find that the contract has been divided into two phases i.e., (i) Design & Construction Phase and (ii) O&M Phase. However, completion of first phase of the contract i.e., Design & Construction Phase shall entitle the contractor to apply for certificate of sectional completion only as referred to in clause 32.1 of the GCC. We also find that para 33.1 of GCC speaks about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) canal, dam or other irrigation works; (c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. 6 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 be, 4.10 The applicant has made the instant composite supply of works contract to Kolkata Municipal Corporation which is a local authority in terms of definition under clause (69) of section 2 of the GST Act. Further, the works contract, as it appears from the scope of work, involves installation and maintenance of pipeline for water supply. We therefore find that the instant composite supply of works contract gets covered under entry serial number 3(iii) of the Notification No. 20/2017- Central Tax (Rate) dated 22.08.2017 and therefore shall attract tax @ 12% (Central Tax @ 6% + State Tax @ 6%). 4.11 The applicant has contended that if the O&M contract is held to be independent of DB supply, the former shall be considered as a pure service extended to a government enti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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