In re M/s. Dholera Industrial City Development Project ltd. (GST AAR Gujarat)
(i) Whether applicant can claim benefits available to Government Entity?
Government entity has been defined in Notification No. 11/2017-Central Tax (rate) dated 28.06.2017, as amended, which reads as below:-
“Government Entity” means an authority or a board or any other body including a society, trust, corporation, i) set up by an Act or 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.”
Since the applicant is constituted by the participation share of 51% of State Government and 49% of Central Government, hence being, fully constituted by the share of Government, the applicant is covered under the definition of “Government Entity”
(ii) Whether applicant is eligible to claim ITC of GST charged by contractors?:
Clause (c) of Section 17(5) of CGST Act, 2017 provides the eligibility of input tax credit in case of works contract service where it is an input service for further supply of works contract service. Considering the extent of business of construction & erection, maintenance, repair to be conducted by the applicant, the eligibility of input tax credit can only be decided after ensuring that the further supply of works contract service is made by the applicant on a case to case basis.
(iii)Whether applicant is liable to collect GST on amount recovered from contractors on account of breach of conditions specified in the contract ? :
We find that Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides that the following activity be treated a supply of services:
“(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;”
As per the above provision, the transaction shall be treated as supply of services. Moreover, as violation charges are payable by the contractors, the same are required to be treated as consideration. Therefore, this transaction is liable to GST.
(iv)Whether applicant is liable to collect GST on amount recovered from contractors on account of not achieving milestone ?
We find that Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides the following activity to be treated a supply of services:
“(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and”
As per the above provision, the transaction shall be treated as supply of services. Moreover, liquidated damages are payable by the contractors, therefore, the same are to be treated as consideration. Therefore, this transaction is liable to GST.
The Advance Ruling of Maharashtra Advance Ruling Authority in the case of Maharashtra State Power Generation Co. Ltd. No. GST-ARA-15/2017-18/B-30 Dated 8/5/2018 is also in consonance with the present ruling.
(v) Whether applicant is liable to collect GST on interest amount received for deferring the liquidated damages recovered from contractors?:
We find that, as ruled above, liquidated damages are liable to tax and interest on liquidated damages is a part of liquidated damages, therefore the interest is also liable to tax.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
2. There are following questions as per the additional submission dated 12.07.2018 wherein advance ruling is sought by the applicant, M/s. Dholera Industrial City Development Project ltd. :
1. Whether applicant can claim benefits available to Government Entity?
2. Whether applicant is eligible to claim ITC of GST charged by contractors?
3. Whether applicant is liable to collect GST on amount recovered from contractors on account of breach of conditions specified in the contract.
4. Whether applicant is liable to collect GST on amount recovered from contractors on account of not achieving milestone ?
5. Whether applicant is liable to collect GST on interest amount received for deferring the liquidated damages recovered from contractors?
3. The Applicant has submitted in annexure A of the application, the brief about the company as under :
Delhi Mumbai Industrial Corridor
Government of India has envisaged development of Delhi Mumbai Industrial Corridor ((DMIC) along the alignment of proposed Multi-modal High Axe Load Western Dedicated Freight Corridor (DFC) between Delhi and Mumbai. Further, Delhi Mumbai Industrial Corridor Development Corporation Limited (DMICDC), a special purpose company, was incorporated to establish, promote and facilitate development of the DMIC Project.
Dholera Special Investment Region (DSIR)
Dholera Special Investment Region (DSIR) will be Greenfield Industrial City planned and located approximately 100 KM south of Ahmedabad. The project as envisaged will be the first initiative from DMICDC to create a linear zone of industrial clusters and nodes to be developed in the influence area of Western Dedicated Freight Corridor (DFC). As a new city by 2030, Dholera will cater to a population of 2 million and an employment base of over 8,50,000. This project is considered as dream project of our Prime Minister Shri Narendra bhai Modi.
Government of Gujarat has been proactive in creating suitable legislative framework for formation of a Special Investment Region Act 2009. Under the act, a Regional Development Authority for DSIR has been established in the year 2010. The Dholera Special Investment Region Development Authority (DSIRDA) has the responsibility of planning and development of DSIR and will encompass function of administering government land within DSIR.
Dholera Industrial City Development Limited (DICDL)
For the development of Dholera SIR, the Government of India (through DMIC Trust) and the Government of Gujarat (through DSIRDA) formed a Special Purpose Vehicle (SPV) called” Dholera Industrial City Development Ltd.” (DICDL) on Jan 28, 2016. The SPV is made up of a 51% stake of the Government of Gujarat through DSIRDA and a 49% stake of Government of India through DMIC Trust.
Dholera Industrial City Development Limited (“DICDL” or “Company”) is a company registered under Companies Act, 2013 having participation by State Government and Central Government by way of equity in the ratio of 51 percent and 49 percent respectively.
Planning and Development of Dholera Special Investment Region (DSIR)
DSIR has been planned over an extensive area of land measuring approximately 920 Sq. Km. and encompassing 22 villages of Dholera Taluka in the Ahmedabad District. This node is strategically located between the industrial cities of Ahmedabad, Vadodara, Rajkot, Surat and Bhavnagar urban agglomerations. DMIDC, with support of Government of Gujarat, plans to create an economically and socially balanced new-age city with world class infrastructure and highest quality-of-life standards and sustainability in the urban form.
Town Planning Schemes in DSIR
Government of Gujarat and DSIRDA has adopted the mechanism of town planning schemes (TP) to ensure delivery of serviced land that can benefit the local population and the private sector. TP Schemes are being implemented under the Gujarat Town Planning and Urban Development Act, 1976 (GTPUD). Broadly the TP mechanism is a means of land pooling for provision of infrastructure. Under TP schemes, 50% of an individual‟s land holding is aggregated for physical and social infrastructure, and 50% is returned as serviced land. The 50% land aggregated for infrastructure is used for roads, physical infrastructure, social infrastructure and other facilities and amenities. The land which will be used for common infrastructure is known as „public purpose‟ land.
In accordance with GTPUD, for the development of Dholera Industrial City, DICDL has awarded Engineering, Procurement and Construction Contract and it has also awarded certain consultancy contracts as under:
