2019 (1) TMI 359 - AAR - GST

Company denied concessional tax rate for government electrification work

In Re: Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited

The ruling authority determined that a company engaged in electrification work, classified as a government entity, was not entitled to a concessional tax ... Classification of supply - Works contract services or not - Applicability of clause (vi)(a) of Sr. No. 3 of table of Notification No. 11/2017-Central Tax(Rate) dated the 28th June, 2017 - applicability of rate of tax on the works contract services received - Held that:- The projects are undertaken for construction of electricity distribution lines, sub-stations and other infrastructure which are meant predominately for sell of electricity in urban and/or rural area - the projects under DDUGY, IPDS, ADB, SSTD, Saubhagya Yojna, FSP and all other schemes of governments are carried out for business purpose and the benefit of Concessional Rate of 12% (6% under Central tax and 6% State tax) as per notification under is not available to the applicant on works pertaining to construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration, which are carried out in respect of projects under DDUGY, IPDS, ADB, SSTD, Saubhagya Yojna, FSP and all other schemes of governments as the same is undertaken for the business purpose - The composite supply of works contract as defined at Section 2 of CGST Act '2017 and MPGST Act, 2017 is treated as supply of service in terms of serial no.6, Schedule Il of CGST Act '2017 and MPGST Act, 2017. In the instant case, the applicant had awarded work to the successful bidder for Supply of Materials and Erection respectively. Therefore, the contract entered by the applicant is squarely falls under the works contract and falls under entry no. (ii) of S. No. 3 of the table of notification no. 11/2017-Central Tax (Rate), Dated - 20 June 2017 as amended from time to time and corresponding notifications under and MPGST Act, 2017, the applicable rate of tax is 18% (9% under Central tax and 9% State tax). Ruling:- The Applicant is not entitled for the benefit of concessional rate of GST @12% (6% under Central tax and 6% State tax) for the said projects in terms of Notification No.24/2017-Central Tax (Rate) dated 21.09.2017 read with Notification No.31/2017-Central Tax (Rate) dated 13.10.2017. The applicable rate of tax is 18% (9% under Central tax and 9% State tax). Issues:- Interpretation of Notification No. 11/2017-Central Tax(Rate) for works contract services.- Determination of tax liability for works contract services received.Analysis:1. The application was filed by a company engaged in electrification work seeking clarification on the applicability of Notification No. 11/2017-Central Tax(Rate) for works contract services received.2. The company argued for the applicability of a specific clause for a concessional tax rate, while the department contended that a higher tax rate was applicable.3. During the personal hearing, the company presented details of its ownership structure and functions, emphasizing its government entity status.4. The ruling authority analyzed the company's status as a government entity based on ownership and control by the Government of Madhya Pradesh.5. It was established that the company fell under the definition of a government entity, thereby impacting the tax treatment.6. The nature of work undertaken by the company was scrutinized, focusing on projects related to power distribution and electrification for public welfare.7. The authority determined that the projects undertaken were for business purposes and did not qualify for the concessional tax rate under the notification.8. The works contract entered into by the company was classified as falling under a specific entry of the notification, attracting a higher tax rate of 18%.9. The ruling concluded that the company was not entitled to the concessional tax rate and confirmed the applicable tax rate of 18% for the works contract services.10. The ruling was made subject to the provisions of the GST Act until declared void under the relevant sections.This detailed analysis provides a comprehensive overview of the judgment, including the issues raised, arguments presented, factual findings, legal interpretations, and the final ruling by the authority.