GST Payable On Composite Supply of Work Contract Involving Earth Work: Maharashtra AAR

REENA CONSUL 15 Apr 2022 2,370 Views 0 comment Print Goods and Services Tax | Articles

Overview

1. The applicant, M/s. Mahalxmi BT Patil Honai Constructions JV, a GST registered company, is in the business of construction of infrastructure projects, was formed to undertake the construction of Jeur Tunnel Under Krishna Marathwada Irrigation Project. This is a work allotted by the Executive Engineer, Lift Irrigation Division, Osmanabad Project, awarded by Godavari Marathwada Irrigation Development Corporation (GMIDC), Aurangabad.

2. The work order consisted of earth work such as excavation for a tunnel, removing excavated stuff, fabrication, transporting, providing steel support, rock bolting, reinforcement, fixing of chain link, cement concreting, providing drainage arrangement, etc., of which total earth work was approximately 91% and construction work was around 9%, which involved the transfer of property.

Question

1. Whether the said contract is covered under the term “Earth Work” and therefore covered under SI No. 3A-Chapter No. 9954 as per Notification No. 12/2017-C.T. (Rate) dated 28.06.2017, as amended by Notification No. 2/2018-C.T. (Rate) dated 25.01.2018, w.e.f. 25.01.2018?

2. Whether the said Contract under the term Earth Work and therefore covered under SI No – Chapter No. 9954 as per Notification No. 31/2017- Central Tax (Rate) dated 13^th October 2017?

3. Meaning of Earth Work?

Facts as per Applicant :-

1. The applicant submitted that the work order consists of earth work, such as excavation for a tunnel, removing of excavated stuff, fabrication, transporting, providing steel support, rock bolting, reinforcement, fixing of chain link, cement concreting, providing drainage arrangement, etc. wherein total earth work is around 91% and the remaining 9% is construction work wherein, transfer of property is involved.

2. According to the applicant, the activity is a composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, 2017, where such supply is to a governmental authority or government entity which is exempted under SI No. 3A-Chapter No. 9954 as per Notification No. 12/2017-C.T. (Rate) dated 28.06.2017, as amended by Notification No. 2/2018-C.T. (Rate) dated 25.01.2018, w.e.f. 25.01.2018.

GST Payable On Composite Supply of Work Contract Involving Earth Work Maharashtra AAR

Facts as per Concerned Officer

1. After Verification of the documents, it appears that the said contract does not come under Notification No. 2/2018-C.T. (Rate) dated 25.01.2018, as no activity n the said contract is in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.

2. Apparently condition specified in Column no 5 of SI No – Chapter No. 9954 as per Notification No. 31/2017- Central Tax (Rate) dated 13^th October 2017 also appears to be satisfied as the work entrusted is to GMIDC, Aurangabad, which is Maharashtra Govt. undertaking.

Law

Sr. No. 3A of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 covers composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent, of the value of the composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.

Chapter No. 9954 as per Notification No. 31/2017- Central Tax (Rate) dated 13^th October 2017 related to (b) Contractuction of canal, dam or other irrigation works (c) pipeline, conduit or plant for water supply, water treatment or sewerage treatment or disposal.

Conclusion

1. The AAR has ruled that the primary requirement under Sr. No. 3A is that the supply should be in the form of a “composite supply of goods and services”. However, the activity of earth work is a “composite supply of works contract” as defined in clause (119) of section 2 of the CGST Act, 2017. The activity cannot be covered by Sr. No. 3A because it is a composite supply work contract.

2. The said contract is covered under SI Notification No. 31/2017- Central Tax (Rate) dated 13^th October 2017.