GST on shifting / erection of electrical lines for Main Contractor of NHAI-Rajasthan AAR
a. Whether in the facts and circumstances of the case, does the activity carried out by the applicant falls under Entry No. (4) (a) of Notification No. 11/2017-CT ®?
b. Alternatively, whether in the facts and circumstances of the case, does the activity carried out by the Applicant falls under Entry No. (9) of Notification No. 11/2017-CT(R)?
RAJASTTHAN AUTHORITY FOR ADVANCE RULING GOODS AND SERVICE TAX
ADVANCE RULING NO.RAJ /AAR/2019-20 /34
|J.P. Meena Additional Commissioner||Member (Central Tax)|
|Hemant Jain Additional Commissioner||Member (State Tax)|
|Name and Address of the Applicant||Gaurish Sharma (M) S G.K Enterprises A-3 Adarsh Nagar Jaipur Rajasthan 302004|
|GSTIN of the Applicant||08ARNPS7996R1Z3|
|Clause(s) of Section 97(2) of CGST / SGST Act 2017 under which the question raised||(a) Classification of any Goods or Service or Both
(b) Applicability of a Notification issued under the provision of this Act
|Date of Personal Hearing||05.02.2020 19.02.2020|
|Present for the Applicant||Shri Rahul Lakhwani (CA)|
|Date of Ruling||05.03.2020|
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
At the outset, we would like to make it clear that the provisions of both CGST Act and the RGST 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 provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.
The issue raised by Gaurish Sharma, (M/s G K Enterprises), A-3, Adarsh Nagar, Jaipur, Rajasthan 302004 (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) & (b) given as under: –
(a) Classification of any goods or services or both;
(b) Applicability of a notification issued under the provisions of this act;
Further, the applicant being a registered person (GSTIN is 08ARNPS7996R1Z3 as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.
1 SUBMISSION AND INTERPRETATION OF THE APPLICANT:
The National Highway Authority of India (“NHAI’) is an agency of the government which carries out the function of construction of roads and matters incidental thereto. The task of development of highways by the NHAI is a multi-faceted process which involves various phases that must be carried out. In such cases, organisations like the NHAI may get this work executed through contractors.
In the present case, the work to be undertaken is described below.
“Four Laning of Dangiywas (km 96.595 ofNH-112) to Jajiwal (km 283.500 of NH 65 Nagaur road) section- Package-I (Design length 74.619 km) of Jodhpur Ring Road (In Principally declared NH) in the State of Rajasthan under NHDP Phase VII on design, build, operate and transfer (the DBOT Annuity” or Hybrid Annuity”) basis”
This contract has been awarded to a private entity ( Contractor) , wherein the Contractor has entered into an agreement with a Special Purpose Vehicle ‘Sadbhav Jodhpur Ring Road Private Limited ( SPV) for the development of a four-lane highway as a part of the NHDP. The aforementioned SPV has been granted a 17-year concession by NHAI for the four-laning of the specified highway. Under this agreement, the scope of work of the Contractor involves the four-laning of the highway, as well as highway facilities that are listed in Schedule C of the Agreement. The relevant extract of Schedule C is as below:
The Concessionaire shall construct the Project Facilities described in Annex-1 to form part of the Four Lane Project Highway. The Project Facilities shall include
a. Toll Plaza, b. Pedestrian facilities, c. Street lighting, d. Truck lay-bye e. Bus bays and Passenger shelters, f. Rest areas, g. Traffic Aid Posts, h. Medical Aid Posts, i. Vehicle Rescue Posts, j. Telecom System, k. Operation and Maintenance Centre, I. Roadside furniture, m. Landscaping and tree plantation, n. Highway Patrol, o. Ambulance, p. Cranes, q. Others, r. ATMs
The Applicant is a proprietorship concern engaged in the business of construction and is proposing to submit a bid to the aforementioned Contractor for carrying out the work of construction of the project at the site, as detailed in Article XI of the Agreement.
That as per the notifications issued under the Central Goods and Service Tax Act, 2017 (“CGST Act) supply of services of construction has been classified under Heading 9954 as ‘Construction Services’ vide Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 as amended from time to time (“Rate Notification”).
That under the above-mentioned Rate Notification, the rate of GST applicable in relation to construction services with respect to ‘construction of roads’ has been given in Heading 9954 (iv) as 6% Similar rates have been prescribed under Rajasthan Goods and Services Tax Act, 2017 (“RGST Act”). On a combined reading of notifications issued under CGST Act and RGST Act, the effective rate of tax comes to 12% on construction of roads. The Rate Notification also notifies the applicable rate of GST for various kinds of construction services. As per the said Rate Notification, the rate of tax for civil structures or any other original works has been specified at the rate of 6% under Heading 9954(vi), and the effective rate of tax comes to 12%.
That the Applicant has filed the present application in order to determine whether Entry (iv) of Heading 9954 of the Rate Notification would be applicable to them for the contract proposed to be undertaken. The relevant text of the notification is reproduced as below:
Works Contract as Defined in Section 2(119) of the CGST Act.
(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of properly in goods (whether as goods or in some other form) is involved in the execution of such contract;
As per the above definition, the requirements to qualify as a ‘works contract’ are:-
a contract for
building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning
of immovable property and
ownership of goods used for execution of contract is transferred.
Therefore, the above mentioned criterion needs to be fulfilled in order to be regarded as a contract as Works Contract.
That since there exists a written agreement between the Applicant and the Contractor for a part of the work of the highway development project, it is clear that there exists a contract between the parties for such work.
That a contract will be termed as ‘works contract’ only when it is for construction of immovable property. Therefore, it is imperative to analyse definition of immovable property’. The meaning of term immovable property” is not provided under the GST law. Therefore, wo have to refer to other laws, case-laws and dictionaries to ascertain the meaning of said terms which are reproduced below for reference:
Section 3(26) of General Clauses Act, 1897
Section 3 of Transfer of Property Act, 1882
‘immovable property’ does not include standing timber, growing crops or grass.,
‘immovable property’ shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.
That in the present case, the construction at the site of the highway project including utilities like cables and wires are fastened to the earth by using cement and concrete or by using nuts and bolts and if in case they are required to be shifted from one location to another then they are first dismantled and then re-erected at another site. The scope of work of the Applicant also involves activities like drilling through the ground to lay down such new electrical lines. That within the scope of work, the Applicant will also have to erect “lattice towers”, which are structures commonly used for transmission of power through electrical conductors on which conductors and electric wires can be affixed at a suitable height above the ground. Structurally these towers are required to be able to resist loads such as wind load, snow load and self-weight. In order to erect these structures, it is clear that the previously existing lattice towers will be dismantled and thereafter new towers shall be erected.
In light of the above cited law and interpretation, it is submitted that the activity proposed to be undertaken by the Applicant will be in the nature of a ‘works contract” in terms of Section 2(119) of the CGST Act since the supply involves transfer of goods along with construction services and such supply is resulting in the formation of immovable property.
The scope of the Project (the “Scope of the Project”) shall mean and include, during the Concession Period:-
(a) construction of the Project on the Site set forth in Schedule-A and as specified in Schedule-B together with provision of Project Facilities as specified in Schedule- C, and in conformity with the Specifications and Standards set forth in Schedule- D;
(b) operation and maintenance of-the Project in accordance with the provisions of this Agreement; and
(c) performance and fulfillment of all other obligations of the Concessionaire in accordance with the provisions of this Agreement and matters incidental thereto or necessary for the performance of any or all of the obligations of the Concessionaire under this Agreement
As per ‘Article V: Obligations of The Concessionaire’ in the Agreement, para 5.2.1 specifies the obligations of the Contractor as follows:
It is expressly agreed that the Concessionaire shall, at all times, be responsible and liable for all its obligations under this Agreement notwithstanding anything contained in the Project Agreements or any other agreement, and no default under any Project Agreement or agreement shall excuse the Concessionaire from its obligations or liability hereunder.
Next, ‘Article XI: Utilities, Associated Roads and Trees makes it clear that the scope of work of Contractor also involves the shifting, relocation, rebuilding and erection of dismantled utilities that were obstructing the course of the four-lane highway. The extract of Article XI is as below:
The Concessionaire shall, subject to Applicable Laws and with assistance of the Authority, undertake shifting of any utility including electric lines, water pipes and telephone cables, to an appropriate location or alignment within or outside the Site if and only if such utility causes or shall cause a material adverse effect on the construction, operation or maintenance of the Project. The cost of such shifting shall be borne by the Authority or by the entity owning such utility, If the Authority so directs, and in the event of any delay in shifting thereof, the Concessionaire shall be excused for failure to perform any of its obligations hereunder if such failure is a direct consequence of delay on the part of the entity owning such electric lines, water pipes or telephone cables, as the case may be.
That on a reading of Article II and V it is clear that each component of the scope of work as listed in the Agreement has to be carried out by the contractor in order for the Agreement to be fulfilled. Since the Agreement includes the obligations as given in Article XI of the Agreement as well, it is evident that carrying out the work as prescribed therein is a part of the process and a vital component of the work of construction of a four-lane highway to be carried out by the main Contractor in order to carry out the highway development project. Thus, it is submitted that the work proposed to be carried out by the Applicant in the present case is nothing more than the obligations of the main Contractor as specified in Article XI, which consists of construction as well as completion of a road.
In the present case, the main contract awarded by NHAI to the Contractor itself includes in its scope of work the construction of project facilities as specified in Article XI. It can be said that these facilities will be a part of the four-lane highway and it is essential for the development of the highway as per the Agreement that all the project facilities and other structures as specified in the Agreement are constructed.
Applicability of Entry (iv) on sub-contractors
That as per the facts of the current case, NHAI has executed an agreement with a Contractor for the development of a four-lane highway. The Applicant proposes to enter into a contract with the said Contractor for carrying out a specified part of this work. Thus, it can be said that the Applicant is a sub-contractor for NHAI, providing services of a works contract. However, it is to be noted that to be eligible under Entry (iv) it is not required that the service should be supplied to a government entity, or that a sub-contractor qualifying the requirements of the said entry cannot avail the rate prescribed therein.
That in addition to the above, it is also mentioned that though entry no. (ix) and (x) of the rate notification specifically mention sub-contractors, however, no part of the Rate Notification places a bar on the subcontractors qualifying under any other Entry even if they do not fall within the parameters of Entry (ix) and (x), since Entry (iv) is not specific to a service supplier or a service recipient.
Intention of GST Council
That it is also the intent of the GST Council that in cases where the main contractor is falling within the any entry, the same entry should also be made applicable on a sub-contractor providing those services. This intent has clearly been reflected in one of the recommendations that was made by the GST Council in their 25th Meeting held on 18.01.2018, the text of which is as follows:
“to reduce GST rate (from 18% to 12%) on Works Contract Services (WCS) provided by sub-contractor to the main contractor providing works contract services to Central Government. State Government, Union territory, a local authority, a Governmental Authority or a Government Entity from which attracts the GST rate of 12%. Likewise, WCS attracting 5% GST, their sub-contractor would also liable @ 5%. “
On a reading of the above, it is clear that the purpose or object of the GST Council is to extend benefit to the last chain of said supply and reason for the same is to provide equal opportunities and equal level playing fields to business entities and avoid discrimination. Based on this reason, as well as the interpretation of the notification as explained above, it is submitted that the rate that should be applicable on the Applicant should be the same as that of the main contractor for providing the service of construction of civil works through a works contract.
That this intent of the GST Council has also been recognised by the Maharashtra AAR in the case of Shree Constructions [2018 (17) G.S.T.L. 504 (A.A.R. – GST)], which has been upheld by the Appellate Authority as well [2019 (23) G.S.T.L. 473 (App. A.A.R. – GST)]. The relevant text of the Maharashtra AAAR is reproduced below for reference:-
It is very much clear that any supply of works contract pertaining to the railways including monorail and metro is subject to concessional rate of 12% GST. In the instant case, though the respondent i.e. M/s. Shree Construction is providing works contract services to its main contractor who has entered into works contract agreement with railways, the composite supply of works contract being carried out by M/s. Shree Construction is ultimately going to the use of railways without being subjected to any change or modification, thus the said works contracts, though undertaken by the subcontractor, is undoubtedly pertaining to the railways and no one else. Thus, the condition specified under item (v) of the Sr. 3 of the said notification is completely fulfilled and therefore the services provided by the subcontractor would attract concessional rate of 12% GST.
As regards the appellant’s contention that there is no specific mention of sub-contractor providing services in Sr. (v) as provided in item (ix) and (x) which were incorporated into the Notification No. 11/2017-C.T. by the amending Notification No. 1/2018, dated 25-1-2018, we are of the opinion that there was no need to include such sub-contractors in the item (v) of the Notification as there was no confusion whether the sub-contractor will be eligible to such concessional rate of GST, since the activities described under item (v) of Sr. No. 3 oi the notification are services specific. The service provider and the service recipient are immaterial for the determination of beneficiary of this concessional rate of GST. That is. if the works contract services provided by the main contractor or sub-contractor are pertaining to the railways, the concessional rate of 12% GST is allowed to the person who carries out the such works contract pertaining to railways.
That based on a reading of the above cited case laws and interpretation above, it is submitted that the current contract is one of construction of road and thus should be covered in Entry (iv) of Heading 995-4 and the effective rate for the contract proposed to be undertaken by the Applicant will thus be 12% (6% CGST + 6% SGST).
Applying this interpretation to the present facts, it can be said that since the language used in Entry (iv) of Heading 9954 is verv similar to the exemption entry with relation to roads in the service tax regime, the activity of shifting/laying down of electric cables should be interpreted as part of a road, and thus should be considered to be covered under Entry (iv).
ISSUE 2: ALTERNATIVELY, WHETHER IN THE FACTS .AND CIRCUMSTANCES OF THE CASE, DOES THE ACTIVITY CARRIED OUT BY THE .APPLICANT FALL UNDER ENTRY NO. (IX) OF NOTIFICATION NO. 11/2017-CIYR)?
That alternatively, and without prejudice to the above, the contract proposed to be undertaken should be considered as a contract covered under entry (ix) of Heading 9954 under sub-clause (a), which relates to sub-contracting of construction services. The Rate Notification entry- has been reproduced below:
In view of the foregoing, we rule as follows: –
a. The activity proposed to be undertaken by the applicant does not fall under entry no. (iv)(a) of the Notification No. 11/2017- CT(R) dated 28.6.2017.
b. The activity proposed to be undertaken by the applicant does not fall under entry no. (ix) of the Notification No. 11/2017- CT(R) dated 28.6.2017
Member Central Tax
Member State Tax
Visit our Partner Websites – To view our sites click on given links below:
For further Query on
Mr Abhishek Raja Ram 9810638155
Email I,d email@example.com