FSTP Works Contract Taxable at 12% on 1 June 2022: Rajasthan AAR

In re MTS-EIEL (JV) (GST AAR Rajasthan)

Summary: M/s MTS-EIEL (JV), a GST registered joint venture, sought an advance ruling on the applicable GST rate for works contract services as on 01.06.2022 under Heading 9954, serial number 3(iii)(c), covering a pipeline, conduit or plant for water supply, water treatment, or sewerage treatment or disposal. It had been awarded the design, supply, construction, testing, trial run and commissioning of faecal sludge treatment plant infrastructure, together with five years of operation and maintenance, under a Rajasthan Urban Infrastructure Development Project package. The tender was invited on 24.04.2022 and its bid was submitted on 28.06.2022; the Letter of Acceptance followed on 30.09.2022 and the Notice to Proceed on 28.11.2022. The accepted contract amount was Rs. 46,34,57,750/-, including a provisional sum of Rs. 2,11,00,000/-. The applicant said it had priced its bid on a GST rate of 12% (6% CGST and 6% SGST), but paid 18% on work executed and billed after the rate change, creating an additional burden of six percentage points. The jurisdictional officer considered that the earlier rate appeared to be 12% and the later rate 18%, while contractual recovery of the increase was beyond the advance ruling mechanism.

The Authority examined the application, annexures, contract documents, rate notifications, officer’s comments and hearing submissions. It held that Section 97(2) of the GST Act does not permit it to decide whether the applicant can recover the extra six percentage points from the contracting party under the contract, so that issue was left unanswered. Examining entry 3(iii) of Notification No. 11/2017-Central Tax (Rate) before its omission by Notification No. 03/2022-Central Tax (Rate) with effect from 18.07.2022, it ruled that the applicable rate on the specified works contract services as at 01.06.2022 was 12%, comprising 6% CGST and 6% SGST. The ruling answers the stated historical rate question; it does not grant contractual reimbursement of the later tax increase.