2019 (3) TMI 1567 - AAAR - GST

Appellate Authority confirms 12% GST on railway works contract services

The Appellate Authority upheld the ruling of the Advance Ruling Authority, confirming that the works contract services provided by the sub-contractor to ... Composite supply of works contract - concessional rate of 12% GST - pertaining to the railways - interpretation of Notification No. 11/2017 as amended by Notification No. 1/2018Composite supply of works contract - pertaining to the railways - concessional rate of 12% GST - Whether works contract services provided by a sub-contractor to a main contractor for original works pertaining to railways are covered by item (v) of Sr. 3 of Notification No. 11/2017 as amended and therefore attract the concessional rate of 12% GST. - HELD THAT: - The Appellate Authority accepted the Advance Ruling's conclusion that the plain language of item (v) covers any supply of works contract 'pertaining to the railways', irrespective of whether the services are performed by a main contractor or a sub-contractor. The determinative condition is that the composite supply is by way of construction, erection, commissioning or installation of original works pertaining to railways and that the property in goods used is ultimately transferred to the railways without change. Since the sub-contractor's composite supply in the case at hand flows directly to and is for the use of the railways, the notification's condition is fulfilled and the concessional rate of 12% applies. [Paras 7, 8, 10]The works contract services supplied by the sub-contractor for original works pertaining to railways are covered by item (v) and attract the concessional rate of 12% GST.Interpretation of Notification No. 11/2017 as amended by Notification No. 1/2018 - concessional rate of 12% GST - Whether the absence of an express mention of 'sub-contractor' in item (v), despite the later insertion of specific sub-contractor entries elsewhere in the notification, excludes sub-contractors from the benefit of item (v). - HELD THAT: - The Appellate Authority found no merit in the departmental contention that sub-contractors were excluded because item (v) does not expressly name them. The notifications describe services specific to activities 'pertaining to the railways', making the identity of the service-provider or recipient immaterial. Thus there was no need for an express inclusion of sub-contractors in item (v); eligibility is determined by whether the activity matches the description in item (v), not by the contractual relationship. [Paras 9, 11]Absence of an express reference to 'sub-contractor' in item (v) does not exclude sub-contractors from the concessional 12% rate where the service performed satisfies the description 'pertaining to the railways'.Final Conclusion: The AAAR upheld the Authority for Advance Ruling: composite works contract services performed by the sub-contractor for original railway works fall within item (v) of Notification No. 11/2017 as amended and attract the concessional rate of 12% GST; explicit mention of 'sub-contractor' in the notification was not necessary to confer the concession. Issues Involved:1. Determination of the correct GST rate for works contract services provided by a sub-contractor to the main contractor for original works pertaining to railways.2. Applicability of Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 and Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018 to the services provided by the sub-contractor.Issue-wise Detailed Analysis:1. Determination of the correct GST rate for works contract services provided by a sub-contractor to the main contractor for original works pertaining to railways:The core issue revolves around the correct GST rate applicable to works contract services provided by a sub-contractor to a main contractor for original works related to railways. The party contended that, based on Notification No. 20/2017-Central Tax (Rate) dated 22-08-2017 and the press release from the 25th GST Council meeting, the applicable GST rate should be 12%. This was supported by the Advance Ruling Authority, which ruled that the tax rate to be charged by the sub-contractor to the main contractor would be 6% CGST and 6% SGST, totaling 12%.2. Applicability of Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 and Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018 to the services provided by the sub-contractor:The appellant (Assistant Commissioner, Central Tax) argued that the Advance Ruling was not legally correct, asserting that Notification No. 20/2017 does not specifically include works contract services provided by a sub-contractor to a main contractor. They further argued that Notification No. 01/2018 specifies that the concessional rate of 12% GST is applicable only to certain services provided by sub-contractors to main contractors for specific government entities, and not for railway-related works contracts. Therefore, they contended that the services provided by the sub-contractor should attract an 18% GST rate under the general category of construction services.Discussion and Findings:Upon reviewing the submissions, it was noted that the primary issue was whether the works contract services provided by the sub-contractor (M/s. Shree Construction) were covered under item (v) of Sr. 3 of Notification No. 11/2017, as amended by Notification No. 1/2018. The Advance Ruling Authority had determined that these services were indeed covered under the concessional rate of 12% GST, as they pertained to original works related to railways.The appellant's contention was that the sub-contractor's services should fall under the general category with an 18% GST rate, as there was no specific mention of sub-contractors in the relevant notifications. However, the respondent argued that the services were specific due to the clause 'pertaining to' railways, making the provider or recipient of the services irrelevant.The Appellate Authority found no merit in the appellant's argument, stating that the plain reading of item (v) of Sr. 3 of the Notification clearly indicated that any works contract pertaining to railways, including those provided by sub-contractors, was subject to a 12% GST rate. The condition specified was that the works contract should be a composite supply as defined in clause (119) of section 2 of the CGST Act, and should pertain to railways. These conditions were fulfilled in the case of M/s. Shree Construction, thereby justifying the concessional rate of 12% GST.Order:The Appellate Authority upheld the ruling of the Advance Ruling Authority, confirming that the works contract services provided by the sub-contractor to the main contractor for original works pertaining to railways were subject to a concessional GST rate of 12%.