In re P.S. Electricals (GST AAR Karnataka)
Question 1- What is rate of tax applicable to the composite supply of works contract as defined in clause (119) of Section 2 of Central Goods and Services Act, 2017 (The Act), undertaken by the supplier (applicant) ie., whether the GST rate 18% or 12% is to be charged by the supplier?
Facts
Applicant entered into subcontract agreement with M/s Mega Engineering and Infrastructures Limited (herein after called “Principal Contractor, for design, testing, commissioning of transmission of towers and was awarded the following subcontract works by the Principal Contractor on 12-10-2018 to execute the substation and terminal bay works.
The above said works were mainly awarded to the Principal Contractor by the state government entities such as Krishna Bhagya Jala Nigam Limited, Karnataka Neeravari Nigam Limited and Karnataka Power Transmission Corporation Limited. The said works has been awarded prior to GST but the same have been amended during the post GST period.
The applicant’s argument is that the said works are mainly awarded to the principal contractor by state government entities such as Krishna Bhagya Jala Nigam Limited, Karnataka Neeravari Nigam Limited and Karnataka Power Transmission Corporation Limited. In turn few of the contracts have been awarded to the applicant on sub contractor basis by the Principal Contractor. Hence the supply of services is covered under entry number 3 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 vide HSN code 9954 and hence attracts CGST at the rate of 9 percent. Similarly the SGST is also attracted at 9%. Based on the said notifications, the applicant has charged the tax component and collected and discharged the same.
Held by AAR
The nature of the contract between the applicant and the main contractor is verified. It is seen that the sub-contracts are covered under the item no. (ix) of SI.No. 3 of the Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017 and this is with effect from 25.01.2018. Earlier to this, the nature of the service provided by the applicant to the main contractor was covered under item no. (ii) of the Sl.No. 3 of the Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017 taxable at 9% under CGST Act and 9% under SGST Act.
The item no. (ix), which governs the sub-contracts of the main contracts where the main contract is for provision of composite supply of works contract to the Government, is verified and found that for the sub-contract to get included in this item, the main contract between the principal contractor and the Government entity should relate to the supply of works contract services specified in item no. (iii) and (vi). The contract between the main contractor and the Government entity is for the supply, design, erection, transmission and commissioning of different capacity of transformers of 220 KV, 110 KV, 66 KV, 33 KV, & 11 KV lines and industrial electrification works, Networking & Automation Apartments /complex, Electrical works and allied services and this supply is neither covered under item (iii) or item (vi) and hence the supply of services by the applicant is not covered under item no. (ix) and hence gets covered only under item (ii) of the 31.No. 3 of the Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017 taxable at 9% under CGST Act and 9% under SGST Act.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
1. M/s P.S. Electricals, 76, CH-01, 8th Cross, 4th Main, Jayanagar, Mysore 570014, having GSTIN number 29ADQPP5361C1Z8, have filed an application for Advance Ruling under Section 97 of CGST Act, 2017, KGST Act, 2017 read with Rule 104 of CGST Rules 2017 as KGST Rules 2017, in form GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is a Proprietary concern and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:
1. What is rate of tax applicable to the composite supply of works contract as defined in clause (119) of Section 2 of Central Goods and Services Act, 2017 (The Act), undertaken by the supplier (applicant) ie., whether the GST rate 18% or 12% is to be charged by the supplier?
2. If the GST rate 18% (9% CGST+ 9% SGST) as• prescribed in serial no. 3, against heading no. 9954 (construction services), specified in Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017, is the rate applicable to the nature of works contract undertaken by the applicant, kindly clarify the following related aspects also:
The Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 has been amended by:
i. Notification No. 20/2017-Central Tax (Rate), dated 22nd August, 2017 – cannot applicable
ii. Notification No: 31/2017-Central Tax (Rate), dated 13th October, 2017
iii. Notification No. 1/2018-Central Tax (Rate), dated 25th January, 2018
Wherein the GST rate of 12% (6% COST + 6% SGST) has been notified in respect of works contract as defined in clause (119) of Section 2 of The Act.
If so, whether it would be in order for the applicant (supplier) to charge GS?’ at the rate of 12% (6% COST+6% SGST) or is the GST rate 18%(9% CGST+ 9% SGST) applicable to the nature of works contract undertaken by the applicant?
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant is engaged in works contract such as design, erection, testing, commissioning, including pre-commissioning activities in relation to or incidental to installation of transformer of all kinds of capacity and supply of electrical equipments and electrical transformers.
b. The applicant undertook turnkey projects for supply, erection, testing, commissioning of transmission towers and terminals within the state of Karnataka and also outside the state.
c. Further the applicant entered into subcontract agreement with M/s Mega Engineering and Infrastructures Limited (herein after called “Principal Contractor, for design, testing, commissioning of transmission of towers and was awarded the following subcontract works by the Principal Contractor on 12-10-2018 to execute the substation and terminal bay works and the details are as under.
1) WO: MEIL/Chimmalagi/Lis HTLINE/143/2016-17 Dated 05-052016.
2) WO: MEIL/KOPPAL LIS/CODE 3076/49/2016-17 dated 20-042016
3) WO: MEIL/Chimmalagi/LIS/251/2013-14 dated 26.07.2013.
4) WO: MEIL/KOLAR LIS/536/2017-18 dated 23.06.2017 (Lift -01 K & C Valley).
5) WO: MEIL/38/YEITINAHOLE PACKAGE-05/2017-18 dated 06-042017
6) WO: MEIL/38/ YETTINAHOLE PACKAGE-05/2017-18 dated 06.04.2017
7) WO: MEIL/ YETT1NAHOLE WEIR-05/1061/2017-18 dated 15-092017
8) WO: MEIL/MULWAD LIS(Pkg-03)/ 1168-2014-15 Dated 29-01-2015
9) WO: MEIL/Mamasapura LIS /794/16-17 Dated 06-10-2016
The above said works were mainly awarded to the Principal Contractor by the state government entities such as Krishna Bhagya Jala Nigam Limited, Karnataka Neeravari Nigam Limited and Karnataka Power Transmission Corporation Limited. The said works has been awarded prior to GST but the same have been amended during the post GST period.
d. The applicant’s argument is that the said works are mainly awarded to the principal contractor by state government entities such as Krishna Bhagya Jala Nigam Limited, Karnataka Neeravari Nigam Limited and Karnataka Power Transmission Corporation Limited. In turn few of the contracts have been awarded to the applicant on sub contractor basis by the Principal Contractor. Hence the supply of services is covered under entry number 3 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 vide HSN code 9954 and hence attracts CGST at the rate of 9 percent. Similarly the SGST is also attracted at 9%. Based on the said notifications, the applicant has charged the tax component and collected and discharged the same.
e. Subsequently, the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017 was amended by the following notifications:
i. Notification No. 20/2017-Central Tax (Rate), dated 22nd August, 2017
ii. Notification No. 31/2017-Central Tax (Rate), dated 13th October, 2017
iii. Notification No. 1/2018-Central Tax (Rate), dated 25th January, 2018
Based on aforesaid notification the applicant has charged CGST at the rate of six percent. Similarly the SOST was also charged at the rate of six percent.
PERSONAL HEARING: / PROCEEDINGS HELD ON 28-06-2018
6. Sri N. Vaidyanathan Charted Accountant appeared on behalf of the applicant, before the Authority for Advance Ruling on 28-06-2018 and was heard.
6.1 The DAR argued that the applicant undertook turnkey projects for supply, erection, testing, commissioning of transmission of towers and terminals at required subcontract works awarded by the principal contractor wherein the applicant had to supply, design, erection, transmission and commissioning of different capacity of transformers of 220 KV, 110 KV, 66 KV, 33 KV, 8s 11 KV lines and industrial electrification works, Net working 8.1 Automation Apartments /complex, Electrical works and allied services.
6.3 He further submitted that as a result of amendment to the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017 by the following notifications
a) Notification No. 20/2017-Central Tax (Rate), dated 22nd August, 2017
b) Notification No. 31/2017-Central Tax (Rate), dated 13th October, 2017
c) Notification No. 1/2018-Central Tax (Rate), dated 25th January, 2018
the rate of tax on turnkey projects, which is subcontracted to the applicant by principal contractor which in turn was awarded to him by the state government entities such as Krishna Bhagya Jala Nigam Limited, Karnataka Neeravari Nigam Limited and Karnataka Power Transmission Corporation Limited, attracts CGST and SGST at six percent each.
7. FINDINGS & DISCUSSION:
7.1 We have considered the submissions made by the applicant in their application for advance ruling as well as the additional submissions made by Sri N.Vaidyanathan, Charted Accountant, during the personal hearing. We also considered the issues involved on which advance ruling is sought by the applicant and relevant facts.
7.2 At the outset, we would like to state that the provisions of both the CGST Act and the KGST 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 KGST Act.
7.3 The applicant has been awarded the sub contract works of supply, design, erection, transmission and commissioning of transformers of different capacities like 220 KV, 110 KV, 66 KV, 33 KV 86 11 KV lines and industrial electrification works, Networking & Automation Apartments /complex, Electrical works and allied service by the principal contractor. This, in turn was the contract awarded to the principal contractor by the state government entities.
7.4 As per the Notification No. 11/2017-CGST dated 28-06-2017 the entry in serial number 3 reads as under:
