In re Concrete Udyog Limited (GST AAR Uttar Pradesh)
Whether composite works contract services supplied to Uttar Pradesh Jal Nigam (UPJN) involving construction & design of prestressed concrete cylinder pipelines (PCCP) and pumping plant for the purpose of supplying water to the Khurja Sewerage Treatment Plant Project from the Mundakhera Reservoir to the pond of Khurja STPP along with all ancillary works such as development of roads/paths, drain septic Tanks, sewer line, water supply system, external electrification, service connection to building, etc would be covered under Entry 3(iii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 ?
in order to qualify as a governmental authority, such authority must be set up by an act of Parliament/State Legislature, should have 90% or more stake of government, and should carry out any function entrusted to a Municipality under article 243 W of the Constitution of India.
As already discussed, the UPJN is a body corporate formed by the State legislature under UPWSS Act enacted by the UP State Legislature. As such, the first requirement of a governmental authority stands fulfilled in the present case. Further, as per Section 3 of the UPWSS Act, UPJN is a body corporate established by the Government of U.P., as such, the second requirement of governmental authority has also been fulfilled in the present case. Moreover, the UPJN is constituted for the development and regulation of water supply and sewerage services in the State of U.P. Under the Section 14 of UPWSS Act, UPJN is inter alia entrusted with the function to operate, run, and maintain any waterworks and sewerage system. As per Article 243W read with Twelfth Schedule of the Constitution of India, water supply for domestic, industrial and commercial purposes and public health, sanitation conservancy and solid waste management is a function of municipality. In view of the above, the requirement that the authority must be established to carry out any function entrusted to a Municipality under article 243 W of the Constitution has also been fulfilled in the present case. Thus, the UPJN is a governmental authority in our view.
The Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 was amended vide Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021, wherein, in Entry 3(iii), the words “Union territory, a local authority, a Governmental Authority or a Government Entity” were substituted with “Union territory or a local authority”
. As such, by way of Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021, the lower rate of tax of 12% provided by Entry 3(iii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, was restricted to works contract supplied to Central Government, State Government, Union territory and a local authority only. As the UPJN does not qualify as a ‘local authority’ and it qualifies as a governmental authority, tax rate of 18% is applicable on the works contract services provided to UPJN by way of Entry 3(xii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING,UTTAR PRADESH
1. M/s Concrete Udyog Limited, Plot No 4,5,6 And 7, INDUSTRIAL AREA, BIJOLI, JHANSI, Jhansi, Uttar Pradesh, 284001 (here in after referred to as the applicant) is a registered assessee under GST having GSTN: 09AACCC3505D1Z6.
2. The Applicant has submitted application for Advance Ruling dated 02-05-2022 enclosing duly filled Form ARA-01 (the application form for Advance Ruling) along with certain annexure.
3. The Applicant in his application sought Advance Ruling as follows:-
Whether composite works contract services supplied to Uttar Pradesh Jal Nigam involving construction & design of prestressed concrete cylinder pipelines (PCCP) and pumping plant for the purpose of supplying water to the Khurja Sewerage Treatment Plant Project from the Mundakhera Reservoir to the pond of Khurja STPP along with all ancillary works such as development of roads/paths, drain septic Tanks, sewer line, water supply system, external electrification, service connection to building, etc would be covered under Entry 3(iii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.
4. As per the declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending in any proceedings nor decided in any proceedings in the applicant’s case under any of the provisions of the CGST Act, 201 7/UPGST Act, 2017.
5. The applicant has submitted that-
(1) The Applicant is engaged in execution of projects involving laying of cement concrete pipes.
(2) The Applicant has been sanctioned a tender by Uttar Pradesh Jal Nigam (for short ‘UPJN’) vide letter dated 7.10.2021 for execution of works involving construction & design of pumping plant containing prestressed concrete cylinder pipelines (PCCP).
(3) The work to be undertaken by the Applicant is intended to supply water to the Khurja Sewerage Treatment Plant Project from the Mundakhera Reservoir.
(4) The Applicant would also undertake all ancillary works such as development of roads/paths, drain septic Tanks, sewer line, water supply system, external electrification, service connection to building, etc.
(5) The infrastructure would ultimately pass on from UPJN to Tehri Hydro Development Corporation Limited (‘THDC’), an undertaking owned by the National Thermal Power Corporation Limited, Ministry of Power, Government of India.
(6) in terms of the Agreement, the responsibility of the Applicant is to supply and laying down of concrete pipes; construction of the pumping plant involving the construction of pumping house, boundary wall, deep tube well etc, along with all external activities such as development of roads/paths, drain septic Tanks, sewer line, water supply system, external electrification, service connection to buildings, etc.
(7) the Applicant was responsible for providing the necessary goods, which are, pipes; valves; pumps; tube wells, septic tanks, sewer lines, and providing the necessary labour to undertake the commissioning of the pumping plant.
(8) In terms of Section 2(119) of the CGST Act, the Applicant has been treating its supplies as works contract services.
(9) an activity will qualify as a works contract if it satisfies the following conditions:-
i. There should be a contract involving an activity such as building, construction, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning.
ii. The contract should be in respect of an immovable property; and iii. The execution of such contract should involve transfer of property in goods (whether as goods or in some other form).
(10) the contract of the applicant with UPJN involves erection and commissioning of the pumping plant involving PCCP pipes for supplying water to the Khurja STPP from the Mundakhera Reservoir. Alongwith, the Applicant would also undertake appurtenant works such as development of road/ paths, drain septic tanks, sewer lines, external electrification, etc. The said infrastructure required to be constructed, supplied, erected and commissioned by the Applicant would be permanently embedded into the earth as a part of one single network for water supply from the reservoir to the specified pond of Khurja STPP. This infrastructure would, therefore, attain the nature of an immovable property.
(11) In this regard, reference is made to the decisions of the Hon’ble Supreme Court in the cases of Municipal Corporation of Greater Bombay & Ors. Vs. Indian Oil Corporation Ltd AIR 1991 SC 686b and Triveni Engineering & Industries Limited vs CCE, 2000 (120) E.L.T. 273 (S.C.), which hold that any infrastructure which is permanently attached to the earth, and which cannot be removed without disrupting or causing damage to the system would be treated as an immovable property. A similar finding has been given by the CESTAT, Mumbai in the case of Alfa Laval (India) Ltd. Vs. CCE, Pune, 1998 (99) E.L.T. 649 (Tribunal) wherein it was held that a contract for supply, installation and commissioning of Neutralisation-Washing-cum-Degumming Equipment for Vanaspati Plant would result in existence of an immovable property as it would be permanently attached to earth and the activity did not bring into existence any marketable, movable or excisable goods. On the basis of these judgments and the clarification issued by the CBIC in Circular No. F. No. 154/26/99-CX.4 dated 15.1.20021 , the Applicant has been treating the contract for erection and commissioning of pipelines to be in relation to immovable property.
(12) Further, as mentioned above, the contract involves supply of both, goods (concrete pipes; valves; tanks, goods for electrification, etc) and services (labour and manpower), wherein the property in goods, which is the water supply infrastructure, would ultimately pass to UPJN. Hence, in terms of Section 2(119) of the CGST Act, the Applicant has been classifying its supply as works contract services and would continue to supply these services in the coming years.
6. The applicant has submitted their interpretation of law as under-
(1) the Applicant satisfies all the criteria for filing the application for advance ruling, particularly under sub-clause (b) of Section 97(2) of the CGST Act.
(2) e, the Applicant is engaged in composite supply of the works contract service to C&DS,UPJN, who is the recipient of supplies, which qualifies as a ‘local authority’, and therefore, supplies by the Applicant would be covered under Entry 3(iii) of Notification No. 11/2017- C.T. (Rate). These supplies would thereby attract GST @ 12% (CGST 6% and SGST 6%).
(3) the Applicant is making composite supplies to C&DS,UPJN in the nature of works contract service involving supply and laying down of concrete pipes; construction of the pumping plant involving the construction of pumping house, boundary wall, deep tube well etc, along with all external activities such as development of roads/paths, drain septic Tanks, sewer line, water supply system, external electrification, service connection to buildings, etc. In terms of Section 7(1 A) of the CGST Act read with Clause 6(a) of Schedule II of the CGST Act, such composite supplies qualify as a supply of service.
(4) the Applicant is making composite supplies to C&DS,UPJN in the nature of works contract service involving supply and laying down of concrete pipes; construction of the pumping plant involving the construction of pumping house, boundary wall, deep tube well etc, along with all external activities such as development of roads/paths, drain septic Tanks, sewer line, water supply system, external electrification, service connection to buildings, etc. In terms of Section 7(1 A) of the CGST Act read with Clause 6(a) of Schedule II of the CGST Act, such composite supplies qualify as a supply of service.
(5) Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 provides for the applicable rate of CGST that shall be levied on intra-State supply of services, the description of which is specified in the corresponding entry in column (3) of the Table under the Notification, falling under the Chapter, Section or Heading of the scheme of classification of services as specified in the corresponding entry in column (2) of the said Table.
(6) The relevant entry under the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017) reads as under:
