In re Naachimaar Engineering Constructions (GST AAR Tamilnadu)
Introduction In recent times, the GST rate applied to works contracts has garnered attention, especially in the context of smart city projects. One such case is the application of GST to the works contract provided to Tirunelveli Smart City Limited, as discussed in the “Naachimaar Engineering Constructions” GST AAR Tamilnadu.
Detailed Analysis
1. Background of the Case The case revolves around determining the GST rate for the works contract services provided to both Tamil Nadu Urban Habitat Development Board and Tirunelveli Smart City Limited, especially after the amendment of Notification No. 11/2017 C.T (Rate) dated 28.06.2017 by Notification No. 15/2021 C.T.(Rate) effective from 01.01.2022.
2. The Question at Hand The central query is the applicable tax rate for services provided by the applicant to the aforementioned entities, specifically from 01.01.2022.
3. Advance Ruling Application While the applicant initially withdrew the application for an advance ruling, they pursued queries specifically related to Tirunelveli Smart City Limited. This meant questions related to Tamil Nadu Urban Habitat Development Board were left unanswered.
4. Informational Gap Despite attempts to gather further documents from Tirunelveli Smart City Limited and the applicant, no response was provided.
5. Role of Tirunelveli Smart City Limited Documents revealed that Tirunelveli Smart City Limited procured works contract services directly from the applicant, rather than serving as an intermediary.
6. Understanding the Smart Cities Mission The mission, initiated by the Ministry of Urban Development, aims to advance cities providing core infrastructure and sustainable environments for citizens. Key to the mission is the creation of Special Purpose Vehicles (SPVs) that oversee the development of smart city projects.
7. Definition of ‘Governmental Authority’ Tirunelveli Smart City Limited aligns with the definition of a ‘Governmental Authority’, as noted in Notification No. 11/2017 C.T (Rate). This classification plays a vital role in determining the GST rate applicable.
Conclusion: Tirunelveli Smart City Limited is a ‘Governmental Authority’ as per the definitions provided in Notification No. 11/2017 C.T (Rate) dated 28.06.2017. This brings the services provided to it by the applicant under the purview of serial number 3 (xii) of the aforementioned notification, leading to a levy of both CGST and SGST at 9% each, effective from 01.01.2022. While it qualifies as a ‘Governmental Authority’, it is important to note that it doesn’t have the status of a ‘Local Authority’ under the GST law. This distinction is due to Tirunelveli Smart City Limited’s specific purpose and function, which doesn’t include the management or control of municipal or local funds as defined in S.No.2(69)(c) of the CGST Act, 2017.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
The applicant M/s Sri Naachimaar Engineering Constructions, having registered premises at No. 7/3, Pudumarappanur, Mohanur, Ariyur Post, Namakkal District, PIN – 637015 (hereinafter referred to as Applicant) is registered under the GST Act 2017 vide GSTIN 33ABHFS4082Q1ZL. The Applicant has sought Advance Ruling on the following questions:-
1. The GST rate @ 12% or 18%, which rate of tax applicable on composite supply of works contract to Tamil Nadu Urban Habitat Development Board, known formerly as Tamil Nadu Slum Clearance Board works;
2. The GST rate @ 12% or 18%, which rate of tax applicable on composite supply of works contract to Tirunelveli Smart City Limited under the control of Tirunelveli City Municipal Corporation works;
3. Whether they are Government Authority or not?
1.2 The applicant 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 desires to ascertain the rate of GST with effect from 01.01.2022 for Composite supply of Works Contract Services provided to Tamil Nadu Urban Habitat Development Board and Tirunelveli Smart City Limited after amendment of Notification No. 11/2017 C.T (Rate) dated 28.06.2017 vide Notification No. 15/2021 C.T.(Rate) dated 18.11.2021.
2.2 The applicant submitted a copy of Agreement dated 18.01.2021 between Managing Director, Tirunelveli Smart City Limited and the Applicant for construction of commercial mall at corporation land near Palai Bus Stand – Phase I in Tirunelveli Corporation for the contract price of Rs. 14,89,71,625/-. The following documents viz (i) Tender document including Contractor’s Bid Documents and other documents submitted as part of the Bid, (ii) Conditions of contract, (iii) Specifications, (iv) Drawings, (v) Bill of Quantities and (vi) Letter of Acceptance, shall be read and treated as part and parcel of the said Agreement.
3.1 The applicant, after consent, was given an opportunity to be virtually heard on 12.01.2023. The applicant through authorized representative (AR) Sri P. Murugesan vide email dated 10.01.2023 withdrawn the advance ruling application by referring to Notification No.3/2022 C.T (Rate) dated 13.07.2022 on the subject matter of the application. However, the AR appeared for personal hearing before the authority with a request to pursue the advance ruling application so as to ascertain the rate of GST applicable to services provided to Tirunelveli Smart City Limited during the period from 01.01.2022 to 18.07.2022 and also made additional submissions. A mail requesting to admit their application was received on 12.01.2023 from the Applicant with request for Advancer Ruling on Tax rate for the period from 01.01.2022 to 18.07.2022 to Tirunelveli Smart City Ltd. under the control of Tirunelveli City Municipal Corporation works.
3.2 After personal hearing, the applicant submitted copies of Work Orders for various construction work issued by M/s Tirunelveli Smart City Limited, copy of Memorandum of Association of M/s Tirunelveli Smart City Limited along with written submissions.
3.3 The details of Work Order with nature of service is listed below;
