2019 (8) TMI 1217 - AAR - GST

Ruling: Dholera Project qualifies as Government Entity for GST benefits. Criteria for claiming Input Tax Credit clarified.

In Re: M/s. Dholera Industrial City Development Project Ltd.

The ruling determined that the applicant, Dholera Industrial City Development Project Ltd., qualifies as a 'Government Entity' and can claim benefits ... Government Entity or not - applicant is formed by Government of Gujarat along with Government of India with a single object to develop Industrial City in Dholera Special Investment Region and Government is having 100% control by way of holding of equity in the company - Whether applicant can claim benefits available to Government Entity? - HELD THAT:- Since the applicant is constituted by the participation share of 51% of State Government and 49% of Central Government, hence being, fully constituted by the share of Government, the applicant is covered under the definition of “Government Entity”. Input tax credit - credit of GST charged by contractors - HELD THAT:- Clause (c) of Section 17(5) of CGST Act, 2017 provides the eligibility of input tax credit in case of works contract service where it is an input service for further supply of works contract service. Considering the extent of business of construction & erection, maintenance, repair to be conducted by the applicant, the eligibility of input tax credit can only be decided after ensuring that the further supply of works contract service is made by the applicant on a case to case basis. Classification of supply - amount recovered from contractors on account of breach of conditions specified in the contract - Liability to to collect GST - HELD THAT:- Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides the following activity be treated a supply of services - the transaction shall be treated as supply of services. Moreover, as violation charges are payable by the contractors, the same are required to be treated as consideration. Therefore, this transaction is liable to GST. Classification of supply - amount recovered from contractors on account of not achieving milestone - Liability to to collect GST - HELD THAT:- Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides the following activity be treated a supply of services - the transaction shall be treated as supply of services. Moreover, liquidated damages are payable by the contractors, therefore, the same are to be treated as consideration. Therefore, this transaction is liable to GST. Classification of supply - interest amount received for deferring the liquidated damages recovered from contractors - Liability to to collect GST - HELD THAT:- Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides the following activity be treated a supply of services - the liquidated damages are liable to tax and interest on liquidated damages is a part of liquidated damages, therefore the interest is also liable to tax. Issues Involved:1. Whether the applicant can claim benefits available to a Government Entity.2. Whether the applicant is eligible to claim ITC of GST charged by contractors.3. Whether the applicant is liable to collect GST on the amount recovered from contractors on account of breach of conditions specified in the contract.4. Whether the applicant is liable to collect GST on the amount recovered from contractors on account of not achieving milestones.5. Whether the applicant is liable to collect GST on the interest amount received for deferring the liquidated damages recovered from contractors.Analysis of the Judgment:1. Claiming Benefits as a Government Entity:The applicant, Dholera Industrial City Development Project Ltd., sought to determine if it qualifies as a 'Government Entity' under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The definition includes any authority or body established by the government with 90% or more participation by way of equity or control. Since the applicant is constituted with 51% equity by the State Government and 49% by the Central Government, it qualifies as a 'Government Entity.' Therefore, the applicant can claim benefits available to Government Entities under the relevant GST notifications.2. Eligibility to Claim ITC of GST Charged by Contractors:The applicant contended that it should be eligible to claim Input Tax Credit (ITC) on GST paid for works contract services availed from various contractors. Under Section 17(5) of the CGST Act, 2017, ITC is available on works contract services if used for further supply of works contract services. Given the applicant's extensive involvement in construction, erection, maintenance, and repair, the eligibility for ITC can be determined on a case-by-case basis, ensuring that the services are used for further supply of works contract services.3. GST on Amount Recovered for Breach of Contract:The applicant sought clarity on whether GST is applicable on amounts recovered from contractors for breach of contract conditions. As per Clause (e) of Para 5 of Schedule II of the CGST Act, 2017, agreeing to the obligation to refrain from an act, tolerate an act, or do an act is treated as a supply of services. Therefore, violation charges collected from contractors are considered a supply of services and are liable to GST.4. GST on Amount Recovered for Not Achieving Milestones:Similar to the breach of contract conditions, the applicant questioned the applicability of GST on amounts recovered for not achieving project milestones. According to Clause (e) of Para 5 of Schedule II of the CGST Act, 2017, such transactions are treated as a supply of services. Liquidated damages payable by contractors for not meeting milestones are considered consideration for the supply of services and are therefore subject to GST.5. GST on Interest for Deferring Liquidated Damages:The applicant inquired whether GST is applicable on interest amounts received for deferring liquidated damages. Since liquidated damages are liable to GST, the interest on such damages is also considered part of the liquidated damages and is subject to GST. The ruling aligns with the Maharashtra Authority for Advance Ruling in the case of Maharashtra State Power Generation Co. Ltd., which held that GST is applicable on liquidated damages.Ruling:1. The applicant can claim benefits available to a Government Entity.2. The eligibility to claim ITC of GST charged by contractors is subject to the condition that the services are used for further supply of works contract services, decided on a case-by-case basis.3. The applicant is liable to collect GST on amounts recovered from contractors for breach of contract conditions.4. The applicant is liable to collect GST on amounts recovered from contractors for not achieving milestones.5. The applicant is liable to collect GST on interest amounts received for deferring liquidated damages.