Applicant ineligible for concessional GST rate on construction services due to business-oriented activities.

The applicant, M/s. KPC Projects Limited, was not eligible for the concessional rate of GST at 12% for construction services provided to Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC). The authority ruled that APIIC's commercial activities rendered the construction services by the applicant as business-oriented, making the concessional rate inapplicable. The appropriate rate and classification of GST for the contract were determined to be under SAC heading No. 9954 with an 18% tax rate (9% Central Tax + 9% State Tax).

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Issues Involved:
1. Eligibility of the applicant to avail the concessional rate of GST at 12% for construction services provided to APIIC.
2. Appropriate rate and classification of GST to be charged by the applicant if the concessional rate is not applicable.

Detailed Analysis:

Issue 1: Eligibility for Concessional Rate of GST at 12%

The applicant, M/s. KPC Projects Limited, entered into a contract with Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) for the construction of ready-built factory (RBF) sheds at YSR Electronic Manufacturing Cluster, Kopparthy, YSR Kadapa District, Andhra Pradesh. The applicant contended that the rate of tax should be 12% as per Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 24/2017 - Central Tax (Rate) dated 21.09.2017.

The applicant argued that APIIC qualifies as a "Governmental Authority" or "Government Entity" as defined under the relevant GST notifications. They cited Notification No. 11/2017-Central Tax (Rate) which provides a concessional GST rate of 6% for works contract services provided to a governmental authority or entity for non-commercial purposes.

The applicant further claimed that APIIC, being wholly owned by the Government of Andhra Pradesh, qualifies as a governmental authority or entity. They also referred to a previous ruling (AAR No.02/AP/GST/2020 dated 17.02.2020) which classified APIIC as a governmental entity.

Issue 2: Appropriate Rate and Classification of GST

The authority examined the nature of APIIC's activities and concluded that APIIC engages in business activities. APIIC's operations include land acquisition, development, and allotment of plots and sheds to industrial ventures, generating revenue from these activities. The authority referenced APIIC’s annual report, which indicated that APIIC’s activities are business-oriented, including the sale of sheds, land, and houses.

Given that APIIC's activities are commercial in nature, the authority determined that the construction services provided by the applicant are for business purposes. Consequently, the concessional rate of 12% GST is not applicable.

Ruling:

1. Eligibility for Concessional Rate of GST at 12%:
- Answer: Negative. The applicant is not eligible to avail the concessional rate of GST at 12% for construction services provided to APIIC.

2. Appropriate Rate and Classification of GST:
- Answer: The contract is classifiable under SAC heading No. 9954 (construction services), with entry no (ii) of serial No. 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017, as amended. The applicable rate of tax is 18% (9% Central Tax + 9% State Tax).

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