In re Shree Hari Engineers & Contractors (GST AAR Gujarat)
Whether the Contract with Railtel Corporation of India ltd. will fall under the Notification 24/2017-Central Tax (Rate) Sr.No.3(iv)-Construction Service or Original Work to Government Authority, and the rate of tax applicable be 12%?
The applicant vide their application for Advance Ruling has submitted that they are engaged in the business of providing works contract services. They have been awarded a Tender by M/s. Railtel Corporation of India limited (A Government of India Undertaking, Ministry of Railways). The work to be performed is that of Excavation of trenches and laying of OFC (Optical Fiber Cable) through ducts, testing, commissioning of OFC.
The applicant submitted that the said work is an Original work, that the end use of the Optical Fibre Cable is for the purpose of connecting with the Gram Panchayat for socioeconomic development hence it is not for the purpose of Commerce, Industry or any other business or profession. They have also submitted that M/s. Railtel Corporation of India ltd. by whom they have been awarded the tender has 100% share holding by Union Government and is a Government of India Enterprise.
Held by AAR
Applicant in the course of providing work contract service to M/s. Railtel Corporation of India ltd. (on behalf of M/s. Bharat Broadband Network ltd.) is involved in the laying of trenches and laying optical fiber cables (goods) through which they are providing/supplying internet connectivity to the gram panchayats. However, it cannot be construed that the optical fiber cables laid underground are meant predominantly for use other than for commerce, industry, or any other business or profession as stated by the applicant. Thus, the resultant structure that has arisen under the ground in the form of optical fiber cables due to the work executed by the applicant can be used for commerce, industry, or any other business or profession. Hence the fourth condition mentioned at para-14 above is not satisfied. Therefore, we are of the view that the contract in question does not satisfy the conditions envisaged in 3(vi) of Notification No.24/2017-Central Tax (Rate) dated 21.09.2017.
16. In view of the above facts, we come to the conclusion that the work done by the applicant under the contract with M/s. Railtel Corporation of India ltd. does not fall under the Notification No.24/2017-Central Tax (Rate) Sr. No.3(vi)-Construction Service of Original Work to Government Authority.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING,GUJARAT
BRIEF FACTS
The applicant vide their application for Advance Ruling has submitted that they are engaged in the business of providing works contract services. They have been awarded a Tender by M/s. Railtel Corporation of India limited (A Government of India Undertaking, Ministry of Railways). The work to be performed is that of Excavation of trenches and laying of OFC (Optical Fiber Cable) through ducts, testing, commissioning of OFC.
2. The applicant submitted that the said work is an Original work, that the end use of the Optical Fibre Cable is for the purpose of connecting with the Gram Panchayat for socioeconomic development hence it is not for the purpose of Commerce, Industry or any other business or profession. They have also submitted that M/s. Railtel Corporation of India ltd. by whom they have been awarded the tender has 100% share holding by Union Government and is a Government of India Enterprise.
3. The applicant has also submitted photocopies of (i) Tripartite Memorandum of Understanding (MOU) between Department of Telecommunications of Government of India, Government of Gujarat and Broadband Network ltd. dated 12.04.2013. (ii) Letter of acceptance dated 26.10.2017 issued by M/s. Railtel Corporation of India ltd. to M/s. Shree Hari Engineers and Contractors, Bhuj-Kachchh containing the schedule of work to be carried out by the applicant alongwith the rates. (iii) Agreement/Contract between M/s. Railtel Corporation of India ltd.and M/s. Shree Hari Engineers and Contractors, Bhuj-Kachchh dated 09.02.2018 for Rs.1,69,75,575/- (iv) GST Notification No:24/2017-CT dated 21.09.2017. (v) Few R.A. bills issued by the applicant to M/s. Railtel Corporation India ltd.
4. The applicant has put the following question for advance ruling in their application:-
“Whether the Contract with Railtel Corporation of India ltd. will fall under the Notification 24/2017-Central Tax (Rate) Sr.No.3(iv)-Construction Service or Original Work to Government Authority, and the rate of tax applicable be 12%?”
5. The applicant vide their submission dated 19.03.2020 have submitted that M/s. Broadband network limited is a corporate body incorporated under the category of ‘Union Government Company’ under Companies Act, that M/s. Bharat Broadband Network ltd. has entered into a MOU with the Government of India, Government of Gujarat and itself for laying for Optical fiber Cable, that the scope of the work includes: (a) connecting the gram panchayats of India on Optical fiber using the fibers of other PSUs/TSPs and/or laying incremental fiber network for providing broadband connectivity. (b) setting up of suitable telecom network on this national optical fiber network for enabling of various types of applications in the gram panchayats/villages (c) operation and maintenance of this project in accordance with the Central Government/DOT guidelines, that Notification No.24/2017-CGST(Rate) amends Sr.No.3(iii) of Notification No.11/2017-CGST (Rates) as:-
“(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 Central Goods and Services Tax Act, 2017.”
6. The applicant have further stated that the work executed by them is Original work and the laying of Optical Fiber Cable is for the purpose of connecting Gram Panchayat as stated in Object of Tripartite MOU hence it satisfied the condition of ‘Original Work’, that the activity is undertaken for the purpose of connecting Gram Panchayat and thus it will be also be satisfying the condition-predominantly for use other than for commerce, industry or any other business or profession’, that M/s. Bharat Broadband Network ltd. have further entered into agreement with M/s. Railtel Corporation of India ltd. to further execute the work entrusted by Government of India for laying of Optical fiber cable, that floating tender for the work, that execution, supervision of the work etc. is done by M/s. Railtel Corporation of India ltd. on behalf of M/s. Bharat Broadband Network ltd., that they carry out the activity of excavation of trenches and laying of optical fiber cable and post execution of works contract, they bill to M/s. Bharat Broadband Network ltd. and submit the bills and other documents to M/s. Railtel Corporation of India ltd. for their review and processing on behalf of M/s. Bharat Broadband Network ltd., that M/s. Bharat Broadband Network ltd. is an entity incorporated under the sub-category of ‘Union Government Company’ under Companies Act and have attached a copy of the said company’s master data. The applicant has attached a copy of MGT-7( as available from the database of Ministry of Corporate Affairs) wherein as per para-VI(a)(Sr.No.2),the Central Government holds 100% shares in M/s. Bharat Broadband Network ltd. and has stated that the work executed and supplied to M/s. Bharat Broadband Network ltd. satisfies the condition of Government entity. The applicant has submitted that ‘Government entity’ is defined at Clause(x) of para-4 of Notification No.31/2017-Central Tax(Rates) dated 13.10.2017 which reads as under:-
(x) “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 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 has therefore submitted that M/s. Bharat Broadband Network ltd. holds more than 90% (i.e. 100%), it satisfies the condition of Government entity.
7. The applicant has submitted that the corporate body M/s. Railtel Corporation of India ltd. is an entity incorporated under the sub-category of ‘Union Government Company’ under Companies Act and submitted a copy of the Company Master Data and a copy of MGT-7 ( as available from the database of Ministry of Corporate Affairs) wherein as per para-VI(a)(Sr.No.2), the Central Government holds 100% shares in M/s. Railtel Corporation of India ltd. The applicant has also submitted copies of Notification No:11/2017-Consolidated Rate Notification-Central Tax(Rates), including the amendment as per Notification No.24/2017-Central Tax (Rates) and Notification No.31/2017-Central Tax(Rates) as per Annexure-F, copy of tender as Annexure-G and copy of letter of acceptance of the tender as Annexure-H (containing letter of acceptance dated 12.05.2018 issued by M/s. Railtel Corporation of India ltd. to M/s. Shree Hari Engineers and Contractors, Bhuj-Kachchh containing the schedule of work to be carried out in 02 blocks of Abdasa and Nakhatrana of Kachchh District ) by the applicant alongwith the rates.. The applicant has concluded their submission with a request to consider the issue under the Advance Ruling application and allow them to charge GST at the rate of 12%.
DISCUSSION & FINDINGS
8. We have considered the submissions made by the applicant in their application for advance ruling as well as at the time of personal hearing. The issue involved in this case pertains to applicability of notification no. 24/2017-Central Tax (Rate) dated 21.09.2017, which amends notification no. 11/2017-Central Tax (Rate) dated 28.06.2017,issued under the Central Goods and Services Tax Act, 2017 (herein after referred to as the ‘CGSTAct’), in the case of the applicant. As per the letter of acceptance/work order issued by M/s Railtel Corporation India ltd. No.Rail Tel/Tender/OT/WR/NOFN/2017-18/04/LOA dated 26.10.2017 as well as the agreement dated 09.02.2018 signed between the applicant and M/s. Railtel Corporation ltd., the applicant has been awarded a contract for excavation of trenches and laying of Optical Fibre Cables(OFC) through ducts, testing, commissioning of OFC and maintenance in the 01(one) Block(Nakhatrana) of Kachchh District of Gujarat State. The amount involved in the said contract is Rs.1,69,75,575/-. The applicant has also submitted another letter of acceptance/work order No.RailTel/Tender/ OT/WR/NOFN/2017-18/49/LOA dated 12.05.2018 issued by M/s Railtel Corporation India ltd. regarding a contract for excavation of trenches and laying of Optical Fibre Cables(OFC) through ducts, testing, commissioning of OFC and maintenance in the 02 Blocks of Abdasa and Nakhatarana of Kachchh District of Gujarat State valued at Rs.1,86,41,523/-. Further, as per the Tripartite Memorandum of Understanding signed between Department of Telecommunications of Government of India, Government of Gujarat and Bharat Broadband Network ltd. dated 12.04.2013, the scope of the work in the project includes: (a) connecting the gram panchayats of India on Optical fiber using the fibers of other PSUs/TSPs and/or laying incremental fiber network for providing broadband connectivity. (b) setting up of suitable telecom network on this national optical fiber network for enabling of various types of applications in the gram panchayats/villages (c) operation and maintenance of this project in accordance with the Central Government/DOT guidelines.
9. The applicant has put the following question for advance ruling in their application:-
“Whether the Contract with Railtel Corporation of India ltd. will fall under the Notification 24/2017-Central Tax (Rate) Sr.No.3(iv)-Construction Service or Original Work to Government Authority, and the rate of tax applicable be 12%?”
10. On going through the Notification No:24/2017-Central Tax (Rates), it is seen that only Sr.No.3(vi) finds mention whereas there is no mention of Sr.No.3(iv) therein. We find that the original notification issued in this case is Notification No:11/2017-Central Tax (Rates) dated 28.06.2017(which contained Sr.No.3(i) to (iii) pertaining to Works Contract Service) which was first amended by Notification No:20/2017- Central Tax (Rates) dated 22.08.2017 (wherein Sr.No.3(iv) to 3(vi) pertaining to Works Contract Service were inserted) and later on amended by Notification No:24/2017- Central Tax (Rates) dated 21.09.2017(wherein Sr.No.3(vi) of the previous notification was amended and another Sr.No.3(vii) was inserted with respect to Works Contract Service). The said notification has thereafter been amended from time to time. It therefore appears that the applicant has wrongly mentioned Sr.No.3(iv) instead of 3(vi) of Notification No.24/2017- Central Tax (Rates) dated 21.09.2017 which appears to be a typographical error by the applicant. Also, the applicant vide his submission dated 19.03.2020 has referred to Sr.No.3(vi) of Notification No.24/2017-Central Tax (Rates) and the same was also discussed by the representative of the applicant during the course of personal hearing held on 12.03.2020. We would therefore consider the question for advance ruling of the applicant to be as follows:-
“Whether the Contract with Railtel Corporation of India ltd. will fall under the Notification 24/2017-Central Tax (Rate) Sr.No.3(vi)-Construction Service or Original Work to Government Authority, and the rate of tax applicable be 12%?”
11. The issue for consideration is whether the two contracts in question are covered under entry No.3(vi)(a) of Notification No.24/2017-Central Tax(Rate) dated 21.9.2017 (which amends original Notification No.11/2017-Central Tax(Rate) dated 28.06.2017) as amended from time to time, liable to tax at 12% (CGST + SGST together) or not.
12. The entry no.3(vi) of the above notification reads as under:
