Case Law Details
In re Vishal Infra Structure limited (GST AAR Karnataka)
The applicant is undertaking a contract of works contract of construction of a civil structure or any other original works for the Airport Authorities of India. The Department of Personnel and Training, Government of India has shown in the company profile that the shareholding of the Government of India in the Airport Authorities of India is 100% and hence the AAI is a Government Entity.
Further, the issue is whether the constructed works is a civil structure or any other original works. The runway and the apron etc are structures which bear the load of the aircraft and provide a stable surface for the aircraft to operate. These are, therefore, civil structures. As per the AAI letters submitted by the applicant it is clear that the applicant is engaged in the extension of the runway and construction of new aprons and allied areas. Extension of the runway requires a new construction to be carried out and so does the apron and other areas. Therefore the applicant is enaged in construction of new civil structures.
The applicant is, therefore, engaged in construction of new civil structures. The activities carried out by the applicant are covered under the relevant serial number of the Notification.
The next issue is whether these works are meant predominantly for use other than for commerce, industry, or any other business or profession? In this regard, the original works done by the applicant are for use by the Airports Authority of India for supplying services to the Airway operations and hence is in the course of business. The airlines that use the runway and the aprons etc constructed by the applicant work with a view to earn profits. They are engaged in commerce and ess. Entry at Serial number 3(vi)(a) specifically provides that works be ‘meant predominantly for use other than for commerce, industry, or any other business or profession’. As the works carried out by the applicant are used in the process of commerce and business, the applicant does not qualify for the works to be classified under Serial number 3(vi)(a). The Hence the works contract performed by the applicant cannot be considered as covered under Serial No. 3(vi) of the Notification No. 11/2017 – Central Tax dated 28.06.2017 liable to tax at 6%, but are more appropriately covered under Serial No.3(ii) of the of the Notification No. 11/2017 – Central Tax dated 28.06.2017 liable to tax at 9%.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
1. M/s Vishal Infrastructure Limited (herein after called “applicant”) No.52, R.V.Road, Opp. Vijaya College, Basavanagudi, Bengaluru-560052, having GSTIN number 29AABCM3918R1ZT, has filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 and Section 97 of the KGST Act, 2017 in form GST ARA-01 discharging the fee of Rs.5,000-00 each under the CGST Act and the KGST Act.
2. The Applicant is a Limited Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:
1. Applicable rate of tax on works allotted by the Airport Authority of India:
(i) Development of Airport by construction of Runway, Taxi track, Apron, Isolation bay, Perimeter Road including Earth work and other allied works.
(ii) Up gradation of Airport to make it suitable for operation of any type of aircraft by extension of Runway, Construction of New Apron, Taxi track, Isolation bay including Link taxi, GSE area, Perimeter road, and allied works (Civil & Electrical).
2. The applicant furnishes some facts relevant to the stated activity:
a. The applicant is engaged in works contract relating to execution of large-scale infrastructure projects, like Airports, Defence Industrial/Technical Buildings, Hospitals, Housing, Steel Structural, Highways, and Bridges.
b. The applicant has been awarded a new project on 16th August 2017 by the Airport Authority of India and the contract allotted is in the nature of works contract. The scope of the project is development and up-gradation of Airports by construction or extension of Runway, construction of new Taxi track, Apron, Isolation bay, Perimeter road and other allied works.
4. With reference to the above contract under question, the applicant states that work got allotted to them through a tender of Airport Authority of India for original works like construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of the airports.
4.1 The applicant states that the scope of work is basically a works contract as defined under section 2(119) of the Central Goods and Services Tax Act, 2017 (CGST Act) and the rate of tax for composite supply of works contract as defined in Section 2(119) of the CGST Act has been notified through Notification No.11/2017 – Central Tax (Rate) dated 28th June, 2017. As per the applicant, his scope of work was covered by the Notification under SI.No.3 (ii) of the said Notification and hence was taxable at the rate of 18%.
4.2 The applicant states that Notification No.24/2017 – Central Tax (Rate) dated 21st September, 2017 as amended by Notification No.31/2017 Central Tax (Rate) dated 13th October 2017 was issued which provided that composite supply of works contract as defined in section 2(119) of the CGST Act, 2017 provided to the Central Government, State Government, Union Territory, a local authority, a Government Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works which is predominantly meant for other than commerce, industry or any other business or profession use should be taxable at 12%. It is also provided that where these services are supplied to a Government Entity, the same should be entrusted to the Government Entity by the Central Government, State Government, Union Territory or local authority.
4.3 The works contract services provided by the applicant falls under the above Notification, as per the applicant, and therefore the services provided in the form of works contract should be taxable at 12%.
4.4 The applicant submits that, for better understanding of the nature of the work, it is important to analyse the expressions “Original Works” as defined under the CGST law:
“Original works” has been defined under the Central Goods and Services Tax Act, 2017 as,
All new constructions –
(i) All types of additions and alterations to abandoned or damaged structures on land that is required to make them workable;
(ii) Erection, commissioning or installation of plant, machinery or equipment or structures, whether pre fabricated or otherwise.”
4.5 The Airport Authority, which allots work to the applicant, is an organisation to be responsible for creating, upgrading, maintaining and managing civil aviation infrastructure both on the ground and air-space in the country. The Government of India constituted the Airport Authority of India (AAI) by merging the International Airports Authority of India (IAAI) ational Airports Authority (NAA) in April 1995 by an Act of Parliament, namely, the Airports Authority of India Act, 1994 and has been constituted as a Statutory Body.
4.6 The Government Entity is defined in the Notification No.33/2017 Integrated Tax (Rate) dated 13th October, 2017 and it reads as under-
“Government Entity” means an authority or 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 Territory or a local authority”
The applicant hence states that Airport Authority of India is a Government Entity as it is set up by an Act of Parliament and the shareholding of the Government of India in the AAI is 100%.
4.7 Further, the works are entrusted to the Airports Authority of India on the direction of the Central Government. On combined reading of the above provisions, the applicant claims that the works allotted to the applicant by the AAI which in turn is as per the directions of the Central Government are in the nature of original works and shall be taxed at the rate of 12% GST after fulfilling all the conditions specified. Otherwise the rate of tax shall be 18% GST.
5. Applicant has submitted copies of the letters issued by the Airport Authority of India.
PERSONAL HEARING: / PROCEEDINGS HELD ON 21.05.2018
6. Sri Sanjay M Dhariwal, Chartered Accountant and authorised representative of the applicant appeared for personal hearing proceedings held on 21.05.2018 86 reiterated the facts narrated in their application.
7. FINDINGS & DISCUSSION:
7.1 We have considered the submissions made by the applicant in their application for advance ruling as well as the additional submissions made by Sri. Sanjay M Dhariwal, Chartered Accountant during the personal hearing. We also considered the issues involved on which advance ruling is sought by the applicant and relevant facts.
7.2 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.
7.3 The applicant has been awarded the contract by the Government Entity, namely Airport Authority of India, Jabalpur, vide F.NO.AAI /Jabalpur/W-29/ Engg,(C)/ dated 19-02-2018 to execute composite works contract of large-scale infrastructure projects, like Airports to make it suitable for operation of any type of aircraft by extension of Runway, Construction of New Apron, Taxi track, Isolation bay including Link taxi, GSE area, Perimeter road, and allied works (Civil 86 Electrical).
7.4 The question before us is whether the transaction is covered under the Sl.No. 3(vi) of the Notification No. 11/2017 – Central Tax dated 28.06.2017.
7.5 Serial No.3(vi) of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as amended by the various notifications upto date, the entries read as under:
As per this entry, which is relied upon by the applicant, composite supply of works contract as defined in section 2(119) of the CGST Act, 2017, provided to the Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession is liable to tax at the rate of 6% under the CGST Act. Similar notification also exists under the Karnataka Goods and Services Tax Act and also under the Integrated Goods and Services Tax Act (wherein the tax rate is 12% IGST).
7.6 The applicant is undertaking a contract of works contract of construction of a civil structure or any other original works for the Airport Authorities of India. The Department of Personnel and Training, Government of India has shown in the company profile that the shareholding of the Government of India in the Airport Authorities of India is 100% and hence the AAI is a Government Entity.
7.7 Further, the issue is whether the constructed works is a civil structure or any other original works. The runway and the apron etc are structures which bear the load of the aircraft and provide a stable surface for the aircraft to operate. These are, therefore, civil structures. As per the AAI letters submitted by the applicant it is clear that the applicant is engaged in the extension of the runway and construction of new aprons and allied areas. Extension of the runway requires a new construction to be carried out and so does the apron and other areas. Therefore the applicant is enaged in construction of new civil structures. The term “original works” is not defined in the Act, but the definition is provided in the Notification No.12/2017 – Central Tax (Rate) dated 28.06.2017 where in the same reads as under:
“2. Definitions. – For the purposes of this notification, unless the context otherwise requires, –
(zs) “original works” means- all new constructions;
(1) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(ii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;”
The applicant is, therefore, engaged in construction of new civil structures. The activities carried out by the applicant are covered under the relevant serial number of the Notification.
7.8 The next issue is whether these works are meant predominantly for use other than for commerce, industry, or any other business or profession? In this regard, the original works done by the applicant are for use by the Airports Authority of India for supplying services to the Airway operations and hence is in the course of business. The airlines that use the runway and the aprons etc constructed by the applicant work with a view to earn profits. They are engaged in commerce and ess. Entry at Serial number 3(vi)(a) specifically provides that works be ‘meant predominantly for use other than for commerce, industry, or any other business or profession’. As the works carried out by the applicant are used in the process of commerce and business, the applicant does not qualify for the works to be classified under Serial number 3(vi)(a). The Hence the works contract performed by the applicant cannot be considered as covered under Serial No. 3(vi) of the Notification No. 11/2017 – Central Tax dated 28.06.2017 liable to tax at 6%, but are more appropriately covered under Serial No.3(ii) of the of the Notification No. 11/2017 – Central Tax dated 28.06.2017 liable to tax at 9%.
7.9 An explanation has been inserted to the above entry by Notification No.17/2018 – Central Tax (Rate) dated 26-07-2018 which reads as under:
“Explanation. – For the purposes of this item, the term ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities”
Even with this insertion, the activities or transactions undertaken by the Central Government, State Government and a Local Authority, in which they are engaged as public authorities alone are to be excluded from the scope of “business” for the purposes of this entry. This Explanation does not exclude a Government Entity and hence the situation remains unchanged even by the aforesaid insertion of explanation so far as the activity of the applicant is concerned.
8. In view of the foregoing, we pass the following
RULING
1. The rate of tax applicable to the composite supply of works contract as defined in clause (119) of Section 2 of the Central Goods and Services Tax Act undertaken by the applicant is to be charged at 9% under the CGST Act and 9% under the KGST Act or at 18% under the IGST Act.
2. The amendments to the Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017 has no effect on the taxability of the transactions of the applicant as the transactions of the applicant are covered under item no. (ii) of Serial No. 3 of the Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017 and are not covered under item no. (vi) of Serial No. 3 of the said Notification, as amended.
