In re PSK Engineering Construction & Co. (GST AAR Tamilnadu)
1. What is the rate of GST to be charged on providing works contract services to TANGEDCO for carrying out retrofitting work for strengthening the NPKRR Maaligai against seismic and wind effect and modification of elevation in TNEB headquarters building at Chennai?
The rate of GST to be charged on the services provided by the applicant to TANGEDCO for carrying out retrofitting work for strengthening the NPKRR Maaligai against seismic and wind effect and modification of elevation in TNEB headquarters building at Chennai is 18% ((9%CGST + 9% SGST) as per SL.No.3(xii) of Notification no.11/2017-Central Tax (Rate) dated 28.06.2017 as amended .
2. Whether the entry in Sl.No.3 item (vi) of the Notification no.11/2017-Central Tax (Rate) dated 28.06.2017 as amended is applicable to the applicant in instant case?
The entry in SI.No.3 item (vi) of the Notification no.11/2017-Central Tax (Rate) dated 28.06.2017as amended is not applicable to the applicant in the instant case for the reasons discussed in Para 8 above.
Read AAAR Order : 18% GST payable on works contract services to TANGEDCO for retrofitting work
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, TAMILNADU
Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
PSK Engineering Construction & Co, 2/72, Kollihills, Naducombai, Namakkal-637404 (hereinafter called the ‘Applicant’) is registered under the GST Vide GSTIN 33AAGFP2483E1ZF. The applicant is engaged in construction activities including retro fitting, restoration etc. of civil structures predominantly for Government, Public Sector Undertakings and Government entities. They have sought Advance Ruling on the following questions:-
1. What is the rate of GST to be charged on providing works contract services to TANGEDCO for carrying out retrofitting work for strengthening the NPKRR Maaligai against seismic and wind effect and modification of elevation in TNEB headquarters building at Chennai.
2. Whether the entry in SI.No.3 item (vi) of the Notification no.11/2017-Central Tax (Rate) dated 28.06.2017 as amended is applicable to the applicant in instant case.
The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.
2.1 The Applicant has stated that they have been awarded the contract to carry out Retrofitting works for strengthening the NPKRR Maaligai against Seismic & wind effect and Modification of Elevation of the said building in TNEB Headquarters complex, Chennai-600002vide Lump Sum Agreement No. SE/Civil/Dist/No. 08/2017-18. They have also submitted the letter of Tamilnadu Generation and Distribution Corporation Limited (Accounts Branch) Lr. No. CFC/GL/FC/ACCTS/DFC/AO/TAX/F.GST/D.No.22/2019 dt.25.04.2019 regarding the clarification received form Government of Tamilnadu and the guidelines issued to avail concession on new works contract. Vide the cited letter it has been informed that TANGEDO qualifies to be treated as “Government Entity” in view of the control exercised by Government of Tamilnadu through TNEB Ltd and that the applicable rate of tax is 12% GST as per entry SI. No. 3(vi) of Notification no.11/2017-Central Tax (Rate) dated 28.06.2017 as amended
2.2 The applicant has stated that they provide works contract services to Tamilnadu Generation and Distribution Company Ltd (TANGEDCO), a Government entity; that TANGEDCO is a public utility service provider to the people in state of Tamilnadu and is a wholly owned subsidiary of Tamilnadu Electricity Board (TNEB) limited, a company wholly owned by Government of Tamilnadu; that the Electricity Act 2003 mandates unbundling of State Electricity Boards under Section 131; that the Government of Tamilnadu had accorded in principal approval in G.O Ms.No. 114 Energy (B2) Department dated 08.10.2008 for the reorganisation of TNEB by the establishment of a holding company, by the name TNEB Ltd and two subsidiary companies, namely Tamilnadu Transmission Corporation Limited (TANTRANSCO) and Tamilnadu Generation and Distribution Corporation Limited (TANGEDCO) with the stipulation that the aforementioned companies shall be fully owned by Government; that TANGEDCO operates under the guidelines of Government of Tamilnadu by providing power supply to the entire state.
2.3 The applicant has stated that the Notification no.11/2017-Central Tax (Rate) dated 28.06.2017 applies when works contract services provided to Government entities by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of.-
a) a civil structure or any other original works meant predominantly for use other that for commerce, industry, or any other business or profession;
and to attract the said rate of 6% the following two conditions, have to be met:-
1. The service recipient must be a Government entity
2. The works contract service provided must be towards a civil structure or any other original works meant predominantly for use other than for commerce, industry or any other business or profession.
2.4 They have stated that TANGEDCO is a Government entity; that as per the said notification “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 Territoiy or a local authority; that TANGEDCO was formed as a company by the Government of Tamilnadu wholly owned by the Government through its holding company TNEB limited to carry out functions entrusted by the State Government; that the board of Directors are also appointed by the Government of Tamilnadu thereby exercising total control over the entity; that hence it qualifies as a Government Entity. Further, they have stated that TANGEDCO is a public utility company operating without any commercial basis. The functions of TANGEDCO in general is duty of promoting the coordinated development of Generation and Distribution of electricity within the state in most efficient and economical manner.
2.5 The applicant has stated that Rural Electrification is one of the services provided by TANGEDCO and 100% Rural Electrification has been completed. They have also furnished the details of operating cost and realization in paise per unit. Further, regarding the determination of tariff, they have stated that Section 61 of the Electricity Act 2003 (EA 2003) stipulates the guiding principles for determination of tariff by the commission and mandates that the tariff should ‘progressively reflect cost of supply of electricity’, ‘reduce cross subsidy’ ‘safeguard consumer interest’ and ‘recover the cost of electricity in a reasonable manner’. Section 62(1) of EA 2003 states as follows: The Appropriate Commission shall determine the tariff in accordance with provisions of this Act for: a. supply of electricity by a generating company to a distribution licensee: b. transmission of electricity; c. wheeling of electricity; d. retail sale of electricity. The applicant has also stated that a perusal of the balance sheet, Profit and Loss account as available on the website will clearly reveal that TANGEDCO has been operating in public interest without any surplus being generated through its operations. They have stated that as on 31.03.2018 it had a deficit of Rs.70,99,188/- and had a deficit of Rs. 7,76,078/- for the year 2017-18 and Rs.4,34,876/- for the year 2016-17. They have also submitted a copy of balance sheet, Profit and loss account of TANGEDCO downloaded from its website. Hence, the applicant has stated that the above facts conclusively prove that TANGEDCO is not working on commercial lines and hence satisfies the condition stipulated in Notification no.11/2017-Central Tax (Rate) dated 28.06.2017 .
2.6 In view of the aforementioned facts, the applicant has viewed that the service provided by them satisfies both the conditions mentioned in Notification no.11/2017-Central Tax (Rate) dated 28.06.2017 and will attract 12 % GST.
3.1 Due to the prevailing PANDEMIC situation and in order not to delay the proceedings, the appellant was addressed through the Email Address mentioned in the application to seek their willingness to participate in a virtual Personal Hearing in Digital media vide e-mail dated 06.07.2020. The applicant consented and the hearing was held on 13.08.2020. The authorised representative participated in the hearing. He stated that the applicant seeks ruling with respect of the works contract undertaken for TANGEDCO. The applicant was asked to furnish a write up on entire activities of works contract with relevant supporting documents as in the bid/agreement documents. The central tax officer also appeared for the hearing and stated that they have furnished a written submission.
3.2 The applicant vide their letter dated 24.08.2020 received on 11.09.2020/ 15.09.2020, submitted the following documents:-
i. Letter Lr.No.CE/CD/SE/C/Distn/E2/Al/F.Retro/Acceptance No.28/D.48/2017 dated 28.02.2017 Award of work/acceptance- for carrying out Retrofitting works for Strengthening the NPKRR Maaligai against Seismic & Wind effect and Modification of Elevation of NPKRR Maaligai in TNEB Headquarters Complex, Chennai- 2 (only the first page).
(ii) Letter Lr.No.CE/CD/SE/C/Dist./EE2/Al/F.Retro/D.259/2019 dated 24.06.2019 amending the awarded rates consequent to the implementation of GST.
(iii) Letter Lr.No.CE/CD/SE/C/Dist./EE2/Al/F.Retro/D.371/2019 dated 10.10.2019 enhancing the Face Value of the contract.
3 .3 Further, the applicant, vide letter dated 19.11.2020 was asked to furnish the works contract undertaken with respect to TANGEDCO and the write up on entire activities of works contract with relevant documents in the Bid /agreement, which was asked to furnish in the hearing. The applicant submitted the following documents in response to the above cited letter :-
i. Work order -1 Lr.No.CE/CD/SE/C/Distn/E2/Al/F.Retro/ Acceptance No.28/D.48/2017 dated 28.02.2017
ii. Work order-2 Lr.No.CE/CD/SE/C/Dist./EE2/Al/F.Retro/D.259/2019 dated 24.06.2019
iii. Work order -3 Lr.No.CE/CD/SE/C/Dist./EE/Al/F.Retro/D.371/2019 dated 10.10.2019
iv. Contract agreement -Tender Specification No.SE/C/Distn,/16/2016-17 -Contract Document -Lump Sum Agreement No.SE/Civil/Dist/No.08/2017-18
4 . The central jurisdictional authority reported that there are no pending proceedings in the applicant’s case on the issues raised by the applicant in the ARA application in their jurisdiction. They submitted the following comments in respect of the issue raised by the applicant in their application.-
