GST Rate Changes for Specified Composite & Pure Supply of Services

GST Rates on various Composite or works contract services to various recipients has been one mind boggling affair for all taxpayers due to multiple amendments from time to time. Some of these amendments are so fine that they are hardly visible and come to notice only when a proper verification or assessment is taken up or when an issue of revision of agreed contract price arising out of rate changes which were not part of the quoted and agreed price when the tender was floated or when the contract was awarded. The rates have been changing frequently since inception of GST w.e.f. 01.07.2017. The highest number of changes were made between 01.07.2017 and 25.01.2018, and thereafter, another notable amendment has been notified on 18.11.2021 to be effective from 01.01.2022.

The biggest change relating to Real Estate and Apartment Construction and allied services came on 29.03.2019 to be made effective 01.04.2019. However, the changes relating Real Estate and Apartment Sector have been kept out of the scope of discussion in this article.

Notification No. 15/2021 C. T. (Rate) dated 18.11.2021 amending Notification 11/2017 C. T. (Rate) has been issued to be effective from 1^st January 2022. The effect of the amendment is that ‘Governmental Authority’ or ‘Government Entity’ have been removed from the list of specified recipients when composite services are supplied at the concessional rate of 12%/5% under S. No. 3 (iii), (vi), (vii), (ix) and (x) of Notification No. 11/2017-CGST (Rate) dated 28.06.2017. In other words, with effect from 1 January 2022, the concessional rate of 12% / 5% in case of the nature of services under these entries will be available only when the recipients are Central Government, State Government, Union territory or a local authority. Whenever the specified services are provided to a ‘Governmental Authority’ or ‘Government Entity’, on or after 1^st January, 2022, the rate applicable to such supply of services shall be 18%.

Similarly, Notification No. 16/2021 C. T. (Rate) dated 18.11.2021 amending Notification 12/2017 C. T. (Rate) has been issued to be effective from 1^st January 2022 to withdraw exemption to certain services when provided to ‘Governmental Authority’ or ‘Government Entity’ which were earlier exempt under Notification 12/2017 C. T. (Rate) dated 28.06.2017.

For a simple understanding of the old and new GST rates applicable to the different types of such specified composite/ pure supply of services as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 and which will see a change w.e.f. 01.01.2022, the table below shall serve well:

Government sector GST rate changes (services) applicable from 01.01.2022 [Notification No. 15/2021 C. T. (Rate) dt. 18.11.2021 amending Notification 11/2017 C. T. (Rate) dt. 28.06.2017]
Nofn. Entry Sr. No.	SAC	Description of Services	Supply to Central Government/ State Government/ UT/ Local Authority		Supply to Governmental Authority		Supply to Government Entity
		Particulars	Old rate	New rate	Old rate	New rate	Old rate	New rate
3 (iii)	9954	Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, –	18% (w.e.f. 01/07/2017) 12% (w.e.f. 22.08.2017)	12% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 12% (w.e.f. 22.08.2017)	18% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 12% (w.e.f. 13.10.2017; in cases where the services supplied to a Govt. Entity, should have been procured by the said Govt. entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority)	18% (w.e.f. 01-01-2022)
		(a) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
		(b) canal, dam or other irrigation works;
		(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.
3 (vi)*	9954	Services provided/ Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, {other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –	18% (w.e.f. 01/07/2017) 12% (w.e.f. 21.09.2017)	12% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 12% (w.e.f. 21.09.2017)	18% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 12% (w.e.f. 13.10.2017 ; in cases where the services supplied to a Govt. Entity, should have been procured by the said Govt. entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority)	18% (w.e.f. 01.01.2022)
		(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.
*Point to Note: Till 13.11.2017, the words “Services provided” was used in above clause (vi) of Entry Sl No. 3, which was replaced with the words “Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, provided” w.e.f. 14.11.2017. Thus, it so appears non composite supply contracts for above nature of services were also covered under the above entry between 21.09.2017 to 13.11.2017 ^Point to Note: An explanation was inserted expressly to be effective w.e.f 26.07.2018 to define the term for the purpose of interpreting clause (vi) of Entry Sl No. 3 (vi) that ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.”. This gives an impression that prior to such period, the general meaning of ‘business’ will apply.
3 (ix)	9954	Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services specified above [Entry Sr. No. 3 (iii) & (vi) above] to the Governmental Authority or a Government Entity.	18% (w.e.f. 01/07/2017) 12% (w.e.f. 25.01.2018)	12% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 12% (w.e.f. 25.01.2018)	18% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 12% (w.e.f. 25.01.2018 ; in cases where the services supplied to a Govt. Entity, should have been procured by the said Govt. entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority)	18% (w.e.f. 01.01.2022)
3 (vii)	9954	Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, involving predominantly earth work (that is, constituting more than 75 per cent. of the value of the works contract)	18% (w.e.f. 01/07/2017) 5% (w.e.f. 13.10.2017)	5% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 5% (w.e.f. 13.10.2017	18% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 5% (w.e.f. 13.10.2017; in cases where the services supplied to a Govt. Entity, should have been procured by the said Govt. entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority)	18% w.e.f. 01.01.2022
3 (x)	9954	Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services specified above [Entry Sr. No. 3 (vii) above]	18% (w.e.f. 01/07/2017) 5% (w.e.f. 25.01.2018)	5% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 5% (w.e.f. 25.01.2018)	18% (w.e.f. 01.01.2022)	18% (w.e.f. 01/07/2017) 5% (w.e.f. 25.01.2018 ; in cases where the services supplied to a Govt. Entity, should have been procured by the said Govt. entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority)	18% (w.e.f. 01.01.2022)
Government sector rate changes (services) applicable from 01.01.2022 [Notification No. 16/2021 C. T. (Rate) dt. 18.11.2021 amending Notification 12/2017 C. T. (Rate) dt. 28.06.2017]
3	99	Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided 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.	Nil (w.e.f. 01.07.2017)	Nil (w.e.f. 01.01.2022)	Nil (w.e.f. 01.07.2017)	18% (w.e.f. 01.01.2022)	Nil (w.e.f. 25.01.2018)	18% (w.e.f. 01.01.2022)
3A	99	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 said composite supply provided 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.	18% (w.e.f. 01.07.2017) Nil (w.e.f 25.01.2018)	Nil (w.e.f 01.01.2022)	18% (w.e.f. 01.07.2017) Nil (w.e.f 25.01.2018)	18% (w.e.f 01.01.2022)	18% (w.e.f. 01.07.2017) Nil (w.e.f 25.01.2018)	18% (w.e.f 01.01.2022)

For understanding the changes, what now becomes most critical is to understand the meaning of the terms, “Government”, “Central Government”, “State Government”, “Local Authority”, “Governmental Authority” and “Government Entity”. Wherever terms are defined or context for definition is provided under the GST law, the relevant definition will apply and when the definition is not available in the GST law, the definition under the general clauses Act or such appropriate law becomes applicable.

Let us first refer to the relevant definitions in this regard:

• “GOVERNMENT”: As per Section 2(53) of the CGST Act, 2017, ‘Government’ means the Central Government, similarly as per the respective State GST Acts, ‘Government” means the State Government’ As per Clause (23) of Section 3 of the General Clauses Act, 1897 the ‘Government’ includes both the Central Government and any State Government.

• “CENTRAL GOVERNMENT”: As per Clause (8) of Section 3 of the General Clauses Act, 1897, the ‘Central Government’, in relation to anything done or to be done after the commencement of the Constitution, means the President. As per Article 53 of the Constitution, the executive power of the Union shall be vested in the President and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, in terms of Article 77 of the Constitution, all executive actions of the Government of India shall be expressed to be taken in the name of the President. Therefore, the Central Government means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President.

• “STATE GOVERNMENT”: As per clause (60) of section 3 of the General Clauses Act,1897, the ‘State Government’, as respects anything done after the commencement of the Constitution, shall be in a State the Governor, and in an Union Territory the Central Government. As per Article 154 of the Constitution, the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or indirectly through officers subordinate to him in accordance with the Constitution. Further, as per Article 166 of the Constitution, all executive actions of the Government of State shall be expressed to be taken in the name of Governor. Therefore, State Government means the Governor or the officers subordinate to him who exercise the executive powers of the State vested in the Governor and in the name of the Governor.

• “LOCAL AUTHORITY”: As per Section 2 (69) of the CGST Act, 2017, “local authority” means:

(a) a “Panchayat” as defined in clause (d) of Article 243 of the Constitution;

(b) a “Municipality” as defined in clause (e) of Article 243P of the Constitution;

(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;

(d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (41 of 2006);

(e) a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;

(f) a Development Board constituted under article 371 [and article 371J] of the Constitution; or

(g) a Regional Council constituted under article 371A of the Constitution.

• GOVERNMENTAL AUTHORITY: As per Explanation under Section 2 (16) of the IGST Act, 2017, the expression “governmental authority” means an authority or a board or any other body, –

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with ninety per cent. or more participation by way of equity or control, to carry out any function entrusted [to a Panchayat under Article 243G or] to a municipality under article 243W of the Constitution;

However, with effect from 13.10.2017, the following definition was inserted for the purposes of Notification 11/2017 C.T. (Rate) & 12/2017 C.T. (Rate):

“(zf) “Governmental Authority” means an authority or a board or any other body, –

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with 90 per cent, or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the Constitution or to a Panchayat under article 243G of the Constitution.

• GOVERNMENT ENTITY: With effect from 13.10.2017, the following definition was inserted for the purposes of Notification 11/2017 C.T. (Rate) & 12/2017 C.T. (Rate):

“(zfa) “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”.

Though there are definitions for each, there is a lot of confusion among taxpayers/ authorities as well as professionals as to which entities are Governmental authority or government entity and which are Government or local authority. It is indeed difficult to know at once and a lot of analysis and clarity is required to correctly decide the status of the entity to whom service is being provided by the supplier.

Let us be clear to understand that the corporations formed under the Central or a State Act or various companies registered under the Companies Act, 1956/2013 or autonomous institutions set up by the State Acts will not be covered under the definition of ‘Government’ or ‘local authority’, whereas, Departments of the Government are part of the Government itself and hence to be treated as ‘Government’.

A statutory body, corporation or an authority created by the Parliament or a State Legislature is neither ‘Government’ nor a ‘local authority’. Such statutory bodies, corporations or authorities are normally created by the Parliament or a State Legislature in exercise of the powers conferred under article 53(3)(b) and article 154(2)(b) of the Constitution respectively. A statutory body, corporation or an authority as a juridical entity is separate from the State and cannot be regarded as the Central or a State Government and also do not fall in the definition of ‘local authority’. Thus, regulatory bodies and other autonomous entities would not be regarded as the government or local authorities for the purposes of the GST Acts.

Rather, it may be noted that the definition of ‘local authority’ is very specific and means only those bodies which are mentioned as ‘local authorities’ in clause (69) of section 2 of the CGST Act, 2017. It would not include other bodies which are merely described as a ‘local body’ by virtue of a local law. For example, State Governments have setup local developmental authorities to undertake developmental works like infrastructure, housing, residential & commercial development, construction of houses, etc. The Governments setup these authorities under the Town and Planning Act. Examples of such developmental authorities are Delhi Development Authority, Ahmedabad Development Authority, Bangalore Development Authority, Chennai Metropolitan Development Authority, Bihar Industrial Area Development Authority, etc. Such developmental authorities formed under the Town and Planning Act are not qualified as local authorities for the purposes of the GST Acts.

A regulatory body, also called regulatory agency, is a public authority or a governmental body which exercises functions assigned to them in a regulatory or supervisory capacity. These bodies do not fall under the definition of Government. Examples of regulatory bodies are – Competition Commission of India, Press Council of India, Directorate General of Civil Aviation, Forward Market Commission, Inland Water Supply Authority of India, Central Pollution Control Board, Securities and Exchange Board of India.

We hope this Article helps in understanding and interpreting the amendments with regard to changes in tax rates for specified supply of services throughout the GST Regime.

******

Author: CA. Raginee Goyal, FCA, DISA (ICAI), Guwahati

The views expressed are the personal views arising from the academic research and personal study of the author. The readers are advised to consider all the points and consult technical experts for commercial applicability of the relevant provisions before relying upon the above write ups and we are not taking any responsibility for any damage caused or if contrary views are taken by the authorities in any matter.