2018 (11) TMI 57 - AAR - GST

Madhya Pradesh Government Entity Liable for 18% GST on Business Works Contracts, Not Eligible for 12% Concession.

The Authority for Advance Ruling (AAR) in Madhya Pradesh determined that the applicant, a government entity wholly owned by the Government of Madhya ... Government Entity - Concessional GST rate for construction services to Government/Government Entity - Works contract characterised as supply of service - Applicability of Notification No.24/2017 and Notification No.31/2017 vis-a -vis entry (ii) of Sr. No.3 of Notification No.11/2017-Central Tax(Rate)Government Entity - Whether the applicant falls within the definition of 'Government Entity' for purposes of concessional notification. - HELD THAT: - The Authority examined the ownership and control of the applicant and its holding company. The holding company, M.P. Power Management Co. Ltd., is wholly owned by the Government of Madhya Pradesh and audited accounts show 100% share capital held by Secretary (Energy), GOMP. The applicant is a wholly owned subsidiary carrying out distribution functions entrusted by the State by government order. On these facts the Authority concluded that the Government of Madhya Pradesh has full control over the applicant and that the applicant is covered by the definition of 'Government Entity' as provided in Notification No.31/2017. [Paras 7]Applicant is a 'Government Entity' within the meaning of the notification.Works contract characterised as supply of service - Concessional GST rate for construction services to Government/Government Entity - Applicability of Notification No.24/2017 and Notification No.31/2017 vis-a -vis entry (ii) of Sr. No.3 of Notification No.11/2017-Central Tax(Rate) - Whether the works contract services received by the applicant attract the concessional rate (12%) or the standard rate (18%). - HELD THAT: - The Authority analysed the nature and purpose of the projects undertaken by the applicant (DDUGJY, IPDS, Saubhagya, ADB funded projects, SSTD, FSP etc.) and the contractual scope-supply of materials and erection-to conclude that the contracts are 'works contracts' as defined under the CGST/MPGST Acts and treated as supply of service under Schedule II. Although the applicant is a Government Entity, the projects were carried out for business purposes and predominately for sale of electricity in urban/rural areas. Consequently, these works do not fall within the concessional entry for construction services 'meant predominantly for use other than for commerce, industry or any other business or profession' and the concessional notification entries do not extend to the applicant's contracts. Therefore the contracts fall under entry (ii) of Sr. No.3 of Notification No.11/2017 (as amended) attracting the standard rate. [Paras 7]Works contract services received by the applicant are not eligible for the concessional 12% rate and are taxable at 18% (9% CGST + 9% SGST).Final Conclusion: The Authority ruled that although the applicant is a 'Government Entity', the works contracts in question are undertaken for business purposes and, being works contracts treated as supply of service, do not qualify for the concessional rate under Notification Nos.24/2017 and 31/2017; the applicable rate is 18% (9% CGST + 9% SGST). Issues:1. Applicability of clause (vi)(a) of Sr. No. 3 of table of Notification No. 11/2017-Central Tax(Rate) dated the 28th June, 2017 on works contract services received.2. Determination of liability to pay Tax.Analysis:1. The applicant sought clarification on the applicability of clause (vi)(a) of Sr. No. 3 of the notification on works contract services received. The department argued that the nature of works contract undertaken did not fall under the category attracting a 12% tax rate but rather an 18% tax rate.2. The discussions revolved around whether the applicant qualified as a government entity. It was established that the applicant, a subsidiary of M.P. Power Management Co. Ltd., was wholly owned by the Government of Madhya Pradesh, making it a government entity. The nature of work undertaken by the applicant for various government projects was analyzed, indicating that the projects were for business purposes and did not qualify for the concessional 12% tax rate. The works contract entered by the applicant fell under the category attracting an 18% tax rate.3. The ruling concluded that the applicant was not entitled to the concessional 12% tax rate but was liable to pay tax at the rate of 18% (9% under Central tax and 9% State tax) for the projects in question. The ruling's validity was subject to the provisions under the GST Act until declared void.This detailed analysis of the judgment provides insights into the issues raised, the arguments presented, and the final ruling delivered by the Authority for Advance Ruling in Madhya Pradesh.