NO GST exemption on works contract services to GHMC

In re Transmission Corporation of Telangana Limited (GST AAR Tealangana)

1. Eligibility to exemption from tax on the supply of works contract services by the applicant to Greater Hyderabad Municipal Corporation (GHMC).

Taxable @18%

2. Tax liability with respect to works contract services procured by the applicant from a 3rd party for supplying same services to GHMC.

Taxable @18%

3. Eligibility to exemption from tax on supply of works contract services by the applicant to I & CAD department.

Exempt to the extent of grants are received against supplies by applicant

4. Tax liability with respect to works contract services procured by the applicant from a 3rd party for supplying same services to I & CAD department.

Taxable @18%

5. Tax liability for supply of works contract service by the applicant to south central railway.

Taxable @18%

6. Tax liability for procuring works contract services by the applicant from a 3rd party in order to supply the same to south central railway.

Taxable @18%

Read AAAR Order : GST on supply of works contract service to South Central Railway

FULL TEXT OF AUTHORITY OF ADVANCE RULING, TELANGANA

ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 AND UNDER SECTION 98(4) OF THE TEALANGANA GOODS AND SERVICES TAX ACT,2017.

1. M/s. Transmission Corporation Of Telangana Limited 6-3-572 Vidyuth Soudha, Khairatabad, Hyderabad 500 082 Telangana. (GSTIN No. 36AAFCT0166J1Z9) 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. 5,000/- 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 applicant M/s. Transmission Corporation of Telangana Limited (TS TRANSCO) is State Transmission Utility (STU) notified by Government of Telangana under Section 39 of Electricity Act, 2009. The applicant claims that they erect transmission towers and installs electric transmission lines to meet the requirement of State Government, Local authorities and Industrial Consumers. Such transmission towers are shown in the books of the applicant as Deposit Contribution works or DC works. For the purpose of executing the DC works the applicant engages vendors on turnkey basis. Similarly they are also executing contracts for construction of transmission lines and sub-stations for extension of power supplies for lift irrigation projects in the State. Similarly they are also executing works for South Central Railways. They seek to ascertain the rate of tax on the various items of work, therefore they have applied for advance ruling on the same.

5. Questions raised:

Based on the facts mentioned hereinafter, the applicant sought Advance Ruling on the following issues:

1. The Classification of supplies made by TS TRANSCO in terms of HSN and applicable rate of tax;

2. The Classification of supplies procure by TS TRANSCO and eligibility to obtain services at reduced rate of 12% as per entry 3(iv) of Notification 11/2017 CTR dated 28 June 2017;

3. Eligibility of TS TRANSCO to avail input tax credit benefit on works contract services when viewed from the restrictions imposed under sub-section (5) of section 17 of the CGST Act, 2017.

6. Personal Hearing:

The Authorised representatives of the unit namely Smt. Radhika Verma Charter Accountant and Sri. Shankar Bala, Charter Accountant attended the personal hearing held on 07-10-2020. As the questions raised by the applicant are ambiguous, the authority suggested the applicant to seek clarification by filing a suitable questions based on their work Executed by the applicant. Hence the applicant filed a revised application in which the following clarifications were sought.:

1. Eligibility to exemption from tax on the supply of works contract services by the applicant to Greater Hyderabad Municipal Corporation (GHMC).

2. Tax liability with respect to works contract services procured by the applicant from a 3rd party for supplying same services to GHMC.

3. Eligibility to exemption from tax on supply of works contract services by the applicant to I & CAD department.

4. Tax liability with respect to works contract services procured by the applicant from a 3rd party for supplying same services to I & CAD department.

5. Tax liability for supply of works contract service by the applicant to south central railway.

6. Tax liability for procuring works contract services by the applicant from a 3rd party in order to supply the same to south central railway.

However, The Sate member retired on Superannuation on 31.01.2021. Further, Government of Telangana vide G.O. Rt. No. 216, Rev(CT-II) Dept, Dt.16.06.2021 have nominated Sri S.V. Kasi Visweswara Rao, Additional Commissioner (ST) as member to The Authority for Advance Ruling and hence the case was re-posted a fresh on 09.07.2021. Heard the case. The authorized representatives Sri. Shankar Bala, CA & AR Smt. Radhika Verma, CA & AR, Smt. J. Anuradha, DyCCA, TS TRANSCO Appeared before the AAR on 09.07.2021 and reiterated their averments in the application submitted and contended as follows:

The authorized representatives reiterated their averments in the application submitted and contended as follows:

1. That the government departments have requested for installation of transformers and laying of cables in specific locations identified by such government departments for example GHMC, Irrigation & CAD. That these departments have financed these works. These works are commonly known as Deposit Contribution works ( DC works ).

2. That they have employed works contractors for execution of these works and the applicant will be the sole owner of the completed works in form of immovable property.

3. That they would like to ascertain the exigibility of the supplies made to their consumers i.e., GHMC and I & CAD.

4. That they would like to ascertain the exigibility of the supplies made by the works contractors engaged by them in light of entry 3(vi) Notification 11/2017 dt: 28.06.2017.

7. Discussion & Findings:

We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by the AR during the personal hearing. We also considered the issues involved on which advance ruling is sought by the applicant and relevant facts. At the outset, we would like to state 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 such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the TGST Act.

Now different works contract services are classified under the GST Act in the original notification i.e., Notification 11/2017 dt: 28.06.2017

In this notification the all works contracts are classified into (3) categories:

Clause i: Construction of complex or a building.

Clause ii: Supply of composite works contract as defined in clause (119) of section 2 of CGST Act, 2017.

Clause iii: All other construction services.

Works Contract Services under Notification 11/2017 dt: 28.06.2017

This notification was further qualified to give exemptions and reduce the rate of tax to the specific works undertaken.

1. Notification no. 12/2017 dt: 28.06.2017 – Pure services provided to State and Central Government or a local authority was made exempt from tax if such works were undertaken in respect of any function enumerated in Article 243G and 243W of the Constitution of India. This notification excluded works contract services or other composite supplies involving supply of goods from this exemption.

2. Notification no. 17/2018 dt: 26.07.2018 – The following items were made eligible to be taxed at a reduced rate of 6% for CGST & SGST respectively, if the service is provided to State Government, Central Government or Local authority. This concession is made available even to supplies made to a Government entity if such entity performs works for Central/State Governments or Local authorities.

a. Civil Structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

b. (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 Central Goods and Services Tax Act, 2017.

Further the annexure to this notification classifies clause (ii) to entry 3 gives a detailed list of services under head 9954 of which the head 995423 and 995424 are relevant to the present discussion.

Annexure: Scheme of Classification of Services

As seen from the annexure to the notification, the works done by the applicant fall under service tariff code 995423 & 995424.

It is seen from the submissions made by the applicant that they are making supplies of works contract services under service head 995423 and 995424 i.e., General construction services. It is employing private turnkey contractors on back to back arrangements for the purpose of executing these contracts. The applicant seeks clarification on the rate of tax applicable to the supplies made by it to the principal contractee on one hand and on the other, the rate of tax applicable to the supplies made by the private turnkey contractor to it.

1. It is contended by the applicant that they are effecting supply of pure services to GHMC by way of shifting poles and lines wherever certain road projects are taken up by the municipal corporation. They further contend that these are pure services enumerated under entry 3 to Notification 12/2017 CT (R) dated 28 June 2017. In this connection it is observed that entry 3 of Notification 12/2017 CT (R) dated 28 June 2017 referred above relates to pure services other than works contracts service or composite supplies involving supply of goods.

It is seen from the material papers submitted that the applicant made supply of services to GHMC, west zone for shifting of 132 kV line between Jubilee hills -Chandrayangutta DC and 132kV Erragadda – Shivarampally. The abstract of estimate at page no 6 of material papers has breakup of inputs going in to the supply which are follows:

As seen from the above estimate of contract, there is a significant involvement of goods in the composite supply of works contract. Therefore this is not a pure service as averred by the applicant and hence not eligible for exemption.

Further, it is evident from the entry 3 of Notification 12/2017 CT (R) dated 28 June 2017 that only pure services which do not involve any works contract involving supply of goods or other composite supply involving supply of goods are exempted from tax under CGST/SGST. As seen from the above abstract of estimate of supply to GHMC, the applicant has executed works contract services for GHMC involving supply of goods. As the applicant has not made supply of pure services but has made supply of works contract services they are covered by exception to the exemption given under entry (3) of the above notification.

Further, the nature of works contract services supplied is covered by service head 995423 of General construction services as the work involves laying of electric power lines. Therefore this supply of works contract service is covered by Entry (vii) of Serial No. (3) of the said notification as inserted by way of substitution vide notification no. 24/2017 dt: 21.09.2017. The same entry was later retained as Entry (xi) of Serial No. 3 to notification 11/2017 vide a substituted notification no. 3/2019 dt: 29.03.2019. Therefore this supply of works contract services involving goods to GHMC is taxable at the rate of 9% under both CGST & SGST Acts respectively.

2. It is contended by the applicant that they engage a private contractor on back to back arrangement for executing works for GHMC. That in their view the supply of works contract falls under entry 3 (vi) of notification 11/2017 modified by notification no. 24/2017 dt: 21.09.2017. They claim that such works provided to a Government entity is liable to tax at a reduced rate of 12%.

In this connection, it is observed that the above entry 3(vi) of the Notification covers service code 9954. By specific entry, only following works of construction erection, commissioning, etc., are covered for claiming lower rate of tax.

i. Civil structures or any other any original works meant predominantly for use other than for Commerce, industry, or any other business or professions.

ii. Structures meant for education, clinics, art or cultural establishments.

iii. Specified Residential complexes

It is evident that the above entry is specific entry covering only certain construction services. This entry does not cover other works contract services under service head 9954 which include long-distance underground/overland/submarine pipe lines, communication and electric power lines (cables); pumping stations and related works; transformer stations and related works i.e., General construction services. However there is a residual entry at 3(vii) of the above Notification covering all other construction services not mentioned in the preceding entries.

It is well known rule of construction that General provisions should yield to specific provisions. This principle of interpretation was upheld by the Hon’ble Supreme Court of India in a Catena of Case law of which J K Cotton Spinning & Weaving Mills Company Ltd Vs State of UP AIR 1961 SC1170 is a land mark case. Applying this principle entry 3 (vi) excludes the electrical works. Therefore the claim of lower rate of tax claimed under this entry is not valid in view of this discussion.

The applicant also brings forth an alternative submission that the expression “other than” “business or commerce” in entry 3 (vi) of the notification should be given full effect. In this connection it is seen that this construction is with respect to specific items of works contracts enumerated in this entry. Once the works undertaken by the applicant’s contractor do not fall under the above entry for the reason discussed supra all other qualifications to the entry also becomes inapplicable for interpretation of the entry.

In view of the above discussion, the services supplied by the contractor to the applicant do not fall under entry 3 (vi) of notification 11/2017. This supply of works contract service is covered by Entry (vii) of Serial No. (3) of the said notification as inserted by way of substitution vide notification no. 24/2017 dt: 21.09.2017. The same entry was later retained as Entry (xi) of Serial No. 3 to notification 11/2017 vide a substituted notification no. 3/2019 dt: 29.03.2019. Therefore this supply of contractor to the applicant is taxable at the rate of 9% under both CGST & SGST Acts respectively.

3. The applicant has submitted that they have made construction of electricity transmission infrastructure to the pumping stations under various lift irrigation schemes. That the assets so constructed are retained by them in their books and amortised over a period of time. They further state that the State Government sanction grants to the applicant for this purpose. Therefore they contend that in light of entry 9(c) in Notification 32/2017 dt. 13.10.2017 they are eligible for exemption from GST.

In this connection it is observed that the entry 9(c) in Notification 32/2017 dt. 13.10.2017 reads as follows:

” Service by a Government Entity to Central Government, State Government, Union territory, local authority or any person specified by Central Government, State Government, Union territory or local authority against consideration received from Central Government, State Government, Union territory or local authority, in the form of grants”.

Evidently the applicant M/s. Transmissions Corporation of Telangana Limited is a Government entity. They are eligible for the exemption from tax under CGST / SGST vide entry 9(c) of Notification 32/2017 dt. 13.10.2017 if they are receiving grants to make supplies of services to the State Government, Central Government or Local authorities. This exemption is covered to the extent of supplies against which the grants are made.

4. The applicant submitted that they engaged a private turnkey contractor on back to back arrangement for the purpose of executing contracts to I & CAD discussed in the above paragraph. They submit that in their view the supply made to the applicant falls under Entry 3(vi) and therefore is eligible for a concessional rate of 12% on such supplies.

As discussed in the Para 2 above, the services supplied by the contractor to the applicant do not fall under entry 3 (vi) of notification 11/2017 as modified by notification no. 24/2017 dt: 21.09.2017. and Notification no. 17/2018 dt: 26.07.2018. Therefore this supply of works contract service is covered by Entry (vii) of Serial No. (3) of the said notification as inserted by way of substitution vide notification no. 24/2017 dt: 21.09.2017.. The same entry was later retained as Entry (xi) of Serial No. 3 to notification 11/2017 vide a substituted notification no. 3/2019 dt: 29.03.2019. Therefore this supply of works contract services to the applicant is taxable at the rate of 9% under both CGST & SGST Acts respectively.

5. The applicant submitted that they will be supplying works contract services to South Central Railways under General Construction service for long-distance underground/overland/ submarine pipe lines, communication and electric power lines (cables); pumping stations and related works; transformer stations and related works. That in their view supply of this service is taxable @18%.

As discussed in the Paragraphs above, it is observed that the supply of general construction services which enumerated at entry 3 (vii) of notification no. 24/2017 dt: 21.09.2017. which is retained as entry 12 vide notification no. 3/2019 dt: 29.03.2019 and are taxable @9% under CGST/SGST Acts.

6. It is submitted by the applicant that they engage a private turnkey contractor on a back to back arrangement to execute the electric contract discussed in Para 5 above for South Central Railway. That these services supplied by such private contractor are covered by entry 3 (vi) (a) of the Notification 11/2017 dt.28.06.2017.

The applicant itself has submitted in the earlier arguments at Para 5 that the works executed by them for South Central Railway are covered by entry 3 (vii) of the notification no. 24/2017 dt: 21.09.2017. which is retained as entry 12 vide notification no. 3/2019 dt: 29.03.2019 The findings of the undersigned authority in the earlier discussion make it clear that the works contract service supplied by the applicant are in nature of General Construction service for longdistance underground/overland/ submarine pipe lines, communication and electric power lines (cables); pumping stations and related works; transformer stations and related works. These works are taxable @9% under CGST & SGST Acts.

8. In view of the observations stated above, the following ruling is issued

Advance Ruling