2018 (10) TMI 1146 - AAR - GST

Works contractor entitled to full ITC during construction and operation maintenance periods for taxable services

In Re: M/s Nagaur Mukangarh Highways Pvt. Ltd.

The AAR Rajasthan ruled that the applicant, a works contract service provider for immovable property construction, is entitled to claim full ITC during ... Input Tax Credit - taxes paid on procurement of goods and services during the Construction period - work contract service - applicant is of the view that it is eligible to claim ITC of taxes paid on procurement of goods and services during the O & M period after reversal of input tax credit as per Section 17(2) Of the CGST Act read with Rule 42 of the CGST rules. Whether appellant is eligible to claim full ITC pertaining to procurement of goods and services for construction of the project during the Construction Period as the entire revenue received during the said period is subject to CST? - Held that:- The applicant is a supplier of works contract services for construction of an immovable property and goods and services received by them for construction of immovable property are not owned and capitalised by them, hence restriction contained under clause (c) & (d) ibid is not applicable for the applicant - The applicant is paying applicable GST on full value of the project and they are not supplying any exempted goods and services during the construction period of 2 years, therefore they are entitled to claim full ITC paid on all eligible goods and services - Appellant are entitled to claim full ITC during the construction period. Whether appellant is eligible to claim ITCs pertaining to procurement of goods and services during the O & M period after reversal of ITC as per Section 17 (2) of the Central Goods and Services Tax Act 2017 read with Rule 42 of the Central Goods and Services Tax Rule, 2017 as Annuity Payment received during the said period is exempt whereas O & M payments received are subject to CST? - Held that:- The annuity received by them for the construction of road and bridges is classifiable under SAC 9954 and liable to tax at the applicable rate of GST. The applicant has not specified whether they are supplying any other exempted goods and services during the operation and maintenance period. If they are not supplying any exempted goods and services during the O & M periods the provision of section 17(2) of the CGST Act, 2017 are not applicable upon the applicant - The annuity received by the applicant isa payment of the remaining 50% of cost of the project in biannual equal installments on which the applicant would be paying GST during the construction periods. As the annuity so received by the applicant is taxable, there is no need to take apportioned credit under section 17(2) of the CGST Act, 2017. Ruling:- The applicant is rendering taxable services during the construction of roads which is liable to tax; hence they are entitled to claim full ITC under the provisions of section 16(1) of the CGST Act. 2017. The Applicant is entitled to claim ITC on supplies of goods and services or both procured for use in outward supply of O & M service purpose, as they are paying GST on 100 percent of the amount received on account of O & M of the Project. Issues Involved:1. Admissibility of input tax credit (ITC) of tax paid or deemed to have been paid during the construction period.2. Admissibility of ITC during the Operation and Maintenance (O&M) period after reversal of ITC as per Section 17(2) of the CGST Act read with Rule 42 of the CGST Rules.Issue-Wise Detailed Analysis:1. Admissibility of ITC during the Construction Period:The applicant, a Special Purpose Vehicle (SPV) registered under the Companies Act, 2013, engaged as a 'Concessionaire' by the Public Works Department (PWD), Government of Rajasthan, sought clarification on the admissibility of ITC for goods and services procured during the construction period of a state highway project. The construction period commences from the appointed date and ends on the Commercial Operation Date (COD). The applicant receives 50% of the project cost during this period in five equal installments based on milestone achievements.The applicant contended that it is eligible to avail full ITC of taxes paid on procurement of goods and services during the construction period. The jurisdictional officer supported this view, stating that the construction of roads and bridges, classifiable under SAC 9954, is liable to tax, making the applicant eligible to avail ITC on all goods and services used in the said construction.The Authority for Advance Ruling (AAR) observed that the applicant is providing 'work contract service' under Section 2(119) of the CGST Act, 2017, which is a composite supply. The supply of services for construction of roads and bridges is a composite supply in terms of Section 2(30) of the CGST Act, 2017. The AAR concluded that the applicant is entitled to claim full ITC during the construction period as they are paying applicable GST on the full value of the project and are not supplying any exempted goods and services during this period.2. Admissibility of ITC during the O&M Period:The applicant also sought clarification on the admissibility of ITC during the O&M period, after reversal of ITC as per Section 17(2) of the CGST Act read with Rule 42 of the CGST Rules. During the O&M period, the applicant receives the remaining 50% of the project cost in bi-annual installments as annuity payments, along with interest, and payments towards O&M expenses.The applicant contended that the annuity payments received during the O&M period are exempt under Entry No. 23A of Notification 12/2017-CT (Rate) dated 28.06.2017. However, the AAR disagreed, stating that the services provided by the applicant are classifiable under SAC 9954, which is liable to tax at the applicable rate of GST. The annuity received by the applicant is already GST paid during the construction period, and hence, the provision of Section 17(2) of the CGST Act, 2017, is not applicable.The AAR concluded that the applicant is entitled to claim ITC on supplies of goods and services procured for use in outward supply of O&M services, as they are paying GST on 100% of the amount received on account of O&M of the project. The annuity received by the applicant is taxable, and there is no need to take apportioned credit under Section 17(2) of the CGST Act, 2017.Ruling:1. The applicant is rendering taxable services during the construction of roads, which is liable to tax; hence, they are entitled to claim full ITC under the provisions of Section 16(1) of the CGST Act, 2017.2. The applicant is entitled to claim ITC on supplies of goods and services procured for use in outward supply of O&M services, as they are paying GST on 100% of the amount received on account of O&M of the project.