Case Law Details

Case Name : In re Sealwel Corporation Private Limited (GST AAR Telangana)
Appeal Number : Advance Ruling No. TSAAR Order No. 08/2020
Date of Judgement/Order : 04/08/2020
Related Assessment Year :

In re Sealwel Corporation Private Limited (GST AAR Telangana)

We notice from the schedule concerning ‘Shareholding of Promoter’ of the annual accounts of M/s TSSPDCL that 100% shares of the company were held by the Hon’ble Governor of Telangana. This clear indicates that the Government of Telangana have 100 percent control over TSSPDCL and thus TSSPDCL is evidently covered under the definition of ‘Government Entity’.

The next issue to be decided in this regard is whether the impugned services supplied by the applicant are for the works which are used for other than commerce, industry, or any other business or profession. As per the details furnished by the applicant in the Annexure -II enclosed to the application, the works undertaken are for execution/implementation of various projects for (i) Capacitor Bank Works in Nalgonda etc.; (ii) HVDS-High Voltage Distribution Systems in Suryapet used for agricultural feeders. The applicant further stated that the Government of Telangana is reimbursing the money to M/s TSSPDCL on behalf of the customers for agricultural services rendered. Thus, M/s TSSPDCL is not rendering any non-commercial services in as much as they are getting reimbursed for their activity on behalf of their customers. Therefore, this activity cannot be termed as other than commercial/business purposes.

We therefore opine that the impugned works undertaken are for business/commercial purposes and therefore, the benefit of Concessional Rate of 12% (6% CGST + 6% SGST) is not applicable to the services supplied by the applicant. Further, we notice that the services supplied by the applicant are subjected to 18% (9%CGST + 9%SGST) in terms of SI. No. 3(xii) of Not. No. 11/2017-CT (R) dated 28.06.2017 (as amended).

FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, TELANGANA

 (Under Section 100(1) of the CGST/TGST Act, 2017, any person aggrieved by this order can prefer an appeal before the Telangana State Appellate Authority for Advance Ruling, Hyderabad, within 30 days from the date of receipt of this Order)

1. M/s. Sealwel Corporation Private Limited, 345/SRT-S. R Nagar- Hyderabad -500 038, Telangana, (GSTIN No. 36AAOCS4141F1ZB) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules.

2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST 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 TGST Act. Further, for the purposes of this Advance Ruling, the expression ‘GST Act’ would be a common reference to both CGST Act and TGST Act.

3. It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- for SGST and Rs. 5000/- for CGST towards the fee for Advance Ruling. The concerned jurisdictional officer also raised no objection to the admission of the application. The application is therefore, admitted

4. Brief facts of the case:

The facts, in brief, that were reported by the tax payer in their application are as follows:-

a. The applicant is a Company registered under the Indian Companies Act, 1956. It is engaged is the business of execution of “works contracts’ as defined under sec. 2(119) of the GST Acts, 2017. It is a registered taxable person under the Act. It is executing such works contracts inter-alia include to TSSPDCL

b. Presently they are undertaking works related to,-

(i) System improvement project for conversion of existing LT network into High voltage Distribution system (HVDS) for Agriculture feeders in Nalgonda district on selected Agricultural Feeders under JICA funding with the Contractee i.e., Southern Power Distribution Company Limited State of Telangana;

(ii) They deal with supply of llkvlMVAR & 2MVAR Capacitor banks with associated (outdoor type) equipments, erection, testing & commissioning of same at various sites with the contractee. i.e., Southern Power distribution Company Limited State of Telangana.

c. Further, the applicant revealed that for all the works the bills are being raised on the Account officer, Pay & Accounts of respective TSSPDCL and the Bill passing authorities are (D.E, A.D.E & A.E) Officers subordinate to them.

d. The applicant brought to the notice of this Authority that the Questions raised in the instant application were decided by the Authority for Advance Ruling, Andhra Pradesh under the provisions of GST Act. A copy of the order was filed for perusal at the time of personal hearing.

5. Questions raised:

The applicant seeks Advance Ruling in respect of the following issues;

1. (a) Whether in the terms and conditions of the following contracts that the applicant entered into with the contractee therein, the ‘supply of service’ involved therein would amounts to a supply to Government, Government Agency or Government Entity in terms of the Notification No.20 dated:22.08.2017, Notification No. 32, dated: 13.10.2017?

(b) What would be the norms to decide a contractee is Government/ Government Agency/Entity?

Description of the contracts being done to Telangana Power Distribution Corporations (DISCOMS),-

(i) HVDS- High Voltage Distribution Systems in Suryapet

(ii) Capacitor Bank Works in Nalgonda etc.

2. When the Contractee gets funds/grants from Central or State Government for given work, can it be called as work being done to a Government/ Government Agency/Entity? In this situation can the work be called as non-commercial?

3. Whether all these contractees shall basically be Government/Agencies/ Entity or is there any possibility in a particular work it can be said that a contractee is of this kind?

4. In respect of HVDS to Agriculture Section, the State Government reimburses the money for agriculture service (i.e.. reimbursement to TSSPDCL (Electricity Consumption)-In this situation, whether the supply by the applicant would amount to a supply to Govt/Govt. Agency/Entity?

5. Whether TSSPDCL falls under the definition of Government Authority/ Government Entity as defined in Notification No. 31/13-10-2017 Central Tax (Rate) and other connected Notifications?

6. What is the applicable rate of tax on the works executed to TSSPDCL mentioned in above?

On Verification of basic information of the applicant, it is observed that the applicant falls under State Jurisdiction, i.e. Deputy Commissioner (State Tax)- STU-1, Hyderabad Rural Division. Accordingly, the application has been forwarded to the jurisdictional officer to offer their remarks as per the Section 98(1) of TSGST Act,2017.The opinion of the jurisdictional authority is as under:

“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 90per 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 concessional Rate of 6% CGST provided in Notification no. 11/2017-CT (R) does not appear to be applicable in this case as the activity elucidated by the applicant (Electrical related works contract done to the Government Corporations like TSSPDCL and TSNPDCL) does not fall under the categories specified under notifications, 20/2017, 24/2017, 31/2017 & 32/2017.
  • Though Entity involved is Government supplies, as it’s not in the specific category, levy shall be at 9+9(18%) only. What the Applicant adopted 18% GST Rate as of now is correct.
  • The applicant is getting relief/reimbursement to all the taxes paid for such supplies / Works. Double relief may not be recommended.

6. Contention of the tax payer:

a. It was contended by the applicant that at present they are adopting 18% GST on the works contracts that are being executed in the State of Telangana. It is their view that any works contract done to the Government Corporation like TSSPDCL, TSNDPDCL and alike are all Government/Government Agency/ Government Entity and hence the rate of tax to be adopted is 12% GST only.

b. It is their view that though a contractee is basically not a Government, Government Agency or Entity, when a given work is being done by the funds of the Government/ Government Agency or Entity, then the benefit of 12% GST can be availed.

c. To decide the contract is in relation to non-commercial activity or otherwise, all the contracts/activities of a Government, Government Agency or Entity as a whole need not be non-commercial in nature. Such non-commerciality can be ascertained from a particular work if that particular work is being carried out by such Government/ Agency/Entity on non-commercial basis.

7. Personal Hearing:

The Authorised representative of the unit namely Sri. D. Dastagiri, Accountant, attended the personal hearing held on 20-01-2019. However due to administrative exigencies, the Orders were not released. Further Government G.o. Rt.No.312, Revenue (CT.II) Department, Dt. 05.11.2019 have appointed Sri B. Raghu Kiran, IRS, Joint Commissioner(Central Tax) as member in place of Sri V. Srinivas, IRS, Additional Commissioner(Central Tax). Hence another notice was issued to the applicant to appear for Personnel Hearing on 20.01.2020. Authorised representative Sri. D. Dastagiri, Accountant appeared and reiterated the submissions already made in the application.

8. Discussion & Findings:

We have examined the issues raised in the application. To answer the queries raised by the applicant, a reference is to be made to entry No. 3 (vi) of the Notification No. 11/2017 – CGST, dt. 28-06-2017 amended by Not. Nos. 20/2017-CT(R) dated 22.08.2017, 24/2017-CT (R) dated 21.09.2017 and Not. No. 31/2017-CT (R) dated 13.10.2017 etc. which prescribes rate of tax in respect of specified construction services supplied to the Central Government, State Government, Governmental Authority, Government entity etc. The extract of the said entry is reproduced below:

SI No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition
3 Heading 9954(Construc tion services) (vi) Services provided to the Central Government, State Government, Union Territory, a local authority or a governmental authority 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 than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Telangana Goods and Services Tax Act, 2017

6

As can be seen from the above, SI.No. 3 (vi) (a) is the relevant entry to the present issue which prescribes GST rate of 12% (6% CGST + 6% SGST) in r/o services provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession. Thus to attract rate of tax @12% under SI. No. 3(vi) (a), the specified service should primarily be provided to the Central Government/State Government/Union Territory/Local authority/Government Authority/ Government Entity and must be used for other than commercial, industrial, or any other business or professional activity.

We now examine the question whether the Contractee in the instant case i.e. M/s. TSSPDCL falls under the specified categories of recipients viz., Central Government/State Government/Union Territory/local authority/Government Authority /Government Entity or not. We notice that the phrase “Government Entity” is defined under the ‘explanation’ appended to Notification No. 11/2017-CT (R) dated 28.06.2017 as amended. The same is extracted hereunder:-

“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 percent 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.

We notice from the schedule concerning “Shareholding of Promoter” of the annual accounts of M/s TSSPDCL that 100% shares of the company were held by the Hon’ble Governor of Telangana. This clear indicates that the Government of Telangana have 100 percent control over TSSPDCL and thus TSSPDCL is evidently covered under the definition of “Government Entity”.

The next issue to be decided in this regard is whether the impugned services supplied by the applicant are for the works which are used for other than commerce, industry, or any other business or profession. As per the details furnished by the applicant in the Annexure -II enclosed to the application, the works undertaken are for execution/implementation of various projects for (i) Capacitor Bank Works in Nalgonda etc.; (ii) HVDS-High Voltage Distribution Systems in Suryapet used for agricultural feeders. The applicant further stated that the Government of Telangana is reimbursing the money to M/s TSSPDCL on behalf of the customers for agricultural services rendered. Thus, M/s TSSPDCL is not rendering any non-commercial services in as much as they are getting reimbursed for their activity on behalf of their customers. Therefore, this activity cannot be termed as other than commercial/business purposes.

We therefore opine that the impugned works undertaken are for business/commercial purposes and therefore, the benefit of Concessional Rate of 12% (6% CGST + 6% SGST) is not applicable to the services supplied by the applicant. Further, we notice that the services supplied by the applicant are subjected to 18% (9%CGST + 9%SGST) in terms of SI. No. 3(xii) of Not. No. 11/2017-CT (R) dated 28.06.2017 (as amended).

In view of the above, the ruling is given as under:

Ruling

The Applicant is not entitled for the benefit of concessional rate of GST @12 % (6% CGST + 6% SGST) in respect of the works quoted in his application in terms of Not. No. 11/2017-CT (R) dated 28.06.2017 amended by Not. Nos. 20/2017-CT(R) dated 22.08.2017, 24/2017-CT (R) dated 21.09.2017 and Not. No. 31/2017-CT (R) dated 13.10.2017 etc. or any other concessional rate.

Whether a particular person is a Governmental authority or a Governmental Entity is to be decided in terms of the definition adduced under Not. No. 11/2017-CT (R) dated 28.06.2017 (as amended) by applying the facts of each case.

The impugned works are used commercial/business activities in view of the facts and circumstances as discussed above and accordingly the same are taxable under GST.

The applicable rate of tax is 18% (9% CGST + 9% SGST) for the services referred to by the Applicant.

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