Appellate authority rules sub-contractors in Indo-Nepal Border Road construction not exempt from GST

The appellate authority ruled that sub-contractors involved in the construction of the Indo-Nepal Border Road are not exempt from GST under Notification No. 12/2017-Central Tax (Rate). Despite differing opinions, the authority held that the exemption available to main contractors cannot be extended to sub-contractors. Following a personal hearing and considering relevant precedents, the sub-contractors were deemed liable to pay GST at a rate of 12% (CGST 6% + SGST 6%).

---

---

Issues Involved:
1. Applicability of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 to contractors/sub-contractors involved in the construction of Indo-Nepal Border Road.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 to Contractors/Sub-contractors:

Background:
The applicant sought an advance ruling on whether the exemption provided under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 is applicable to sub-contractors involved in the construction of the Indo-Nepal Border Road.

Divergent Opinions:
- Shri Vipin Chandra's View:
- The applicant's activity of road construction was previously exempted from GST under Notification No. 12/2017-CT (Rate) dated 28.06.2017.
- However, there is no specific entry in the exemption notification that exempts the supply by sub-contractors.
- Entry (iv) of serial no. 3 of Notification No. 11/2017-CT (Rate) prescribes a GST rate of 12% for road construction.
- Thus, sub-contractors are liable to pay GST @ 12% as their supply is not exempted under Notification No. 12/2017-CT (Rate).

- Shri Amit Gupta's View:
- The Ministry of External Affairs allotted the road construction work to NHPC, which sub-let it to PWD, Uttarakhand, who further sub-let it to a contractor.
- The services provided by NHPC to MEA were exempted as per Notification No. 12/2017-CT (Rate).
- The GST Council recommended reducing the GST rate on works contract services provided by sub-contractors to the main contractor.
- The purpose of the GST Council's recommendation was to extend the benefit to the last chain of supply.
- If the principal contractor is exempt from GST, then sub-contractors should also be exempt to avoid defeating the objective of the GST Council.

Appellate Authority's Findings:
- The issue was examined in light of the points raised by both members.
- There is no specific entry in Notification No. 12/2017-CT (Rate) exempting sub-contractors' supply of services to the main contractor.
- The exemption available to PWD Uttarakhand and NHPC Ltd. cannot be extended to sub-contractors.
- The GST Council's recommendation was for ease of calculation and does not imply exemption for sub-contractors.
- The Supreme Court's ruling in Commissioner of Custom (Import) Mumbai vs. M/s. Dilip Kumar and Company emphasized strict interpretation of exemption notifications.
- Exemption notifications should be interpreted strictly, and any ambiguity should be resolved in favor of the revenue.

Ruling:
- The works contract services for road construction provided by sub-contractors to PWD, Uttarakhand, who in turn provides services to NHPC Ltd., are not exempted from GST.
- The sub-contractors are liable to pay GST @ 12% (CGST 6% + SGST 6%).

Personal Hearing:
- A personal hearing was held where representatives reiterated their points and submitted additional documents.

Conclusion:
- The exemption under Notification No. 12/2017-Central Tax (Rate) cannot be extended to sub-contractors.
- Sub-contractors involved in the construction of the Indo-Nepal Border Road are liable to pay GST at the prescribed rate of 12%.

---