2019 (4) TMI 1447 - AAR - GST

Court sets GST rate at 18% for electricity project, deeming it a business activity under CGST Act.

In Re: M/s TATA Projects Limited

The court ruled that the applicable GST rate for the project undertaken by the applicant is 18% (SGST 9% + CGST 9%). The court determined that the ... Rate of GST - Composite supply - supply under the contract is given to a Central Government by the applicant - HELD THAT:- It is clear that the activity is a work contract supply undertaken for Central Government. The limitation under this notification is that activity/ supply is meant predominantly for use other than commerce, industry or any other business or profession. The activity thus may fall under the definition of business as NFC is engaged in manufacture and enrichment of fuel which will ultimately be used for production of electricity. The activity of manufacture of fuel from NFC is thus leading to ultimate production and distribution of electricity which is a commercial activity - The supply thus provided by the applicant to the NFC is a Works Contract Service (construction service) falling at Serial No. 3(xii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended from time to time and will attract GST @ 18%. Issues Involved:1. Determination of whether Nuclear Fuel Complex (NFC) qualifies as a Central Government, State Government, Union Territory, Local Authority, Governmental Authority, or Government Entity.2. Qualification of the supply involved in the contract as a Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, 2017.3. Determination of whether the supply involved in the contract falls under the ambit of Civil Structure or any other Original Works.4. Determination of whether the supply involved in the contract is predominantly meant for use other than for commerce, industry, or any other business or profession.5. Determination of the applicable GST rate for the project.Issue-wise Detailed Analysis:1. Qualification of NFC:The applicant argued that NFC qualifies as a Central Government entity since it is managed by the Department of Atomic Energy, which is under the authority of the Prime Minister's Office and the Atomic Energy Commission. The jurisdictional officer concurred, stating NFC is a government entity as it is an undertaking of the Government of India and managed by the Department of Atomic Energy.2. Composite Supply of Works Contract:The applicant submitted that the contract involves a mix of goods and services, including civil, structural, and PH works for plant and non-plant buildings, which qualifies as a composite supply of works contract under Section 2(119) of the CGST Act, 2017. This definition includes contracts for building, construction, erection, installation, and other activities related to immovable property. The authority agreed that the supply involves both goods and services, constituting a works contract service.3. Civil Structure or Original Works:The applicant cited the explanation to Section 2(zs) of Notification 12/2017, which defines 'original works' as all new constructions. The authority accepted this interpretation, noting that the civil works under the contract will give rise to immovable property, thus falling under the definition of works contract.4. Predominant Use:The applicant contended that the supply under the contract is predominantly meant for use other than commerce, industry, or any other business or profession. However, the jurisdictional officer noted that the ultimate production and distribution of electricity by NFC is a commercial activity. The authority concluded that the activity of manufacturing fuel, leading to the production and distribution of electricity, falls under the definition of business as per Section 2(17) of the CGST Act.5. Applicable GST Rate:The applicant argued for a 12% GST rate based on Notification No. 11/2017-Central Tax (Rate) as amended, which applies to works contracts provided to the government for non-commercial use. However, the authority determined that since the activity leads to a commercial outcome (electricity production), the applicable GST rate is 18% (SGST 9% + CGST 9%), as per Serial No. 3(xii) of Notification No. 11/2017-CT (Rate).Ruling:The GST rate applicable on the project undertaken by the applicant is 18% (SGST 9% + CGST 9%).