In re Core Construction (Yatin Manoj Mora) (GST AAR Maharashtra)
What Tax Rate to be charged by the sub-contractor to main contractor on Work Contract Services on Construction of Roads?
In respect of Sub-Contract awarded to the applicant by M/s J. P. Enterprises (main contractor), to whom Aurangabad Municipal Corporation awarded the contract for Executing Work of construction of Concrete Roads in Aurangabad City Packages P-2, the rate to be charged is 6% SGST plus 6% CGST, total 12%,
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING,MAHARASHTRA
(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MOST Act” respectively] by M/s. Core Construction the applicant, seeking an advance ruling in respect of the following questions :
1. What Tax Rate to be charged by the sub-contractor to main contractor on Work Contract Services on Construction of Roads?
2. Whether to Charge GST tax of 12% or 18%?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.
2. FACTS AND CONTENTION — AS PER THE APPLICANT
The submissions made by M/s. Core Construction, the applicant are as under:-
2.1 Applicant is providing work contract service (WC’S) as a sub-contractor to the main contractor for construction of Roads to be used by the general public. As per Notification No 20/2017 C. T. (Rate) dated 22/08/2017 the rate of GST is 12% for Construction, erection, commissioning, installation, completion repair, maintenance renovation alteration of Roads to be used by the general Public. Also as per Sr No.12 in press release of 25th meeting of GST council held at New Delhi on 18/01/2018, proposed that the rate of GST applicable to main contractor should be levied by sub-contractor, although Notification No. 01/2018 C. T. (R) dated 25/01/2018 doesn’t specify the service provided by a sub-contractor to main contractor for construction of a Roads.
2.2 Applicant ,feels that they are a sub-contractor providing service to the main contractor for original contract work of constructing the Roads to he used by the General Public for which 12% “GST is applicable and not 18%, as applicable in other cases. Works conducted by applicant as a sub-contractor is identical to the works to be performed by the main contractor & nature of Transactions also remain the same so according to applicant, this transaction will be charged to GST @ 12%.
Applicant Submission dated 30.10.2021:-
2.3 Applicant is engaged in the business of construction, erection, commissioning and completion of roads and provides WCS as a sub-contractor to main contractor for original contract work pertaining to roads. Applicant has been awarded a Sub-Contract from M/s J. P. Enterprises vide Agreement dated 27th November 2018, for Executing Work of construction of Concrete Roads in Aurangabad City Packages P-2. The Contract was awarded to M/s J. P. Enterprises from Aurangabad Municipal Corporation vide Agreement dated 29th clay of December 2018. As a Sub-Contractor, applicant is obliged to provide the same services and do the same work as the Main Contractor is supposed to, under his Contract.
2.4 Further, as per the Letter of Acceptance, the GST rate on Original Works is specified as 12%, which is as provided in Notification No. 11/2017-C.T(R) read with Notification No 20/2017 C. T. (Rate) dated 22/08/2017. Applicant has been awarded total subcontract of Rs.20,53,14,6711- as per the agreement between MIs J. P Enterprise & the applicant.
2.5 As per entry (iv) of the said notification, CGST @ 6% and SGST @ 6% has been specified for supply by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of- (a) a road, bridge, tunnel, or terminal for road transportation for use by general public…
2.6 The aforesaid entry at serial no. 3(iv) does not specify that it should be made applicable only to a contractor and not a sub-contractor. In the absence of such specification, it should apply to the services provided by sub-contractor also. Attention is also invited to the entry at S.No. (iii) of the same notification, wherein the description of service mentions as “supplied to”, the benefit of reduced rate is applicable only in case of services provided to or supplied to specified contractee.
2.7 In Notification No. 11/2017 the entries ix & x to Sino.3 have been inserted to extend the benefit to sub-contractors, when the works are “that covered under SI. No. 3 WO, (vi) and (vii). However, in respect of entry covering the relevant work or project [entry iv] the requirement for the separate entry for Sub-Contractors does not arise.
As per the Press Release for Decisions relating to Services in the 25th meeting of GST Council held at New Delhi on 18.01.2018 it is specified in serial number (12) to reduce GST rate (from 18% to 12%) on the Works Contract Services (WCS) provided by sub-contractor to the main contractor providing WCS to Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity, which attract GST of 12%.
2.9 As stated earlier, the entry at 3(iv) do not specify the class of service provider to whom it applies. The entry is specific to the composite supply of works contract pertaining to roads. This view is fortified by the justification of the recommendation of the Fitment Committee to the 25th GST Council meeting after which the downward revision of the rate was effected.
2.10 The service provided by sub- contractor to main contractor for construction of roads original works contract services is not specified in Notification No-01/2018- Central Tax (Rate) dated 25-01-2018. No weightage has been assigned to the contractee. In other words, if the project fulfills the characteristics of a road contract, then the tax rate of 12% applies irrespective of the person from whom the contract has been received.
2.11 Even though applicant is a sub-contractor providing service to main contractor for original contract work pertaining to roads, it should charge 12% GST only and not 18% as applicable in other cases. This is because the entry is applicable, only if the following are satisfied:
(1) the service should be under the Heading 9954 (Construction Service)
(2) the supply should he a ‘Composite Supply’
(3) the work should be ‘ works contract’ as defined in Clause ( 119) of Section 2 of CGST Act and
(4) the work should be ‘by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alternation of original works’ pertaining to a road, bridge, tunnel or terminal for road transportation for use by general
2.12 Impugned services jail under the SAC 9954 as a composite supply (as defined in clause 30 of section 2 of CGST Act) of works contract by way of construction of roads. As per section 2(119), “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alternation or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. At the end of our contract of construction of roads, property of the immovable nature will he Government
Applicant relies on:
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