2019 (10) TMI 869 - AAR - GST

Taxable Construction Service: Private Company's Tax Rate Dispute

The Authority for Advance Ruling in Karnataka determined that the construction service provided by a Private Limited Company to the National Centre for ... Rate of tax - construction service rendered to NCBS - works contract service - whether the NCBS is covered under any one of the categories “Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity? - HELD THAT:- The Government of India has agreed to fund the institute and the institute was to function as an “autonomous unit under the aegis of TIFR. Hence it is clear that NCBS is neither set up by an Act of Parliament or State Legislature nor is established by any Government. Further the council which administers this institute has only four members appointed by the Government and hence the government does not have more than 90% control over it. One more important point to note is that this institute is not established to carry out a function entrusted by the Government. Hence, for all these reasons, NCBS is not covered under the definition of a “Government Entity” as per the clause (x) of paragraph 4 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017. The service supplied by the applicant is not covered under clause (vi) of Serial No.3 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 as amended from time to time and hence is not taxable at 6% CGST and 6% KGST. And it is taxable at 9% CGST and 9% KGST under the residual item no. (xii) of Serial No.3 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 as amended from time to time. Issues Involved:Determining the applicable tax rate for construction services provided to a specific entity.Analysis:1. Nature of Service and Dispute: The applicant, a Private Limited Company, sought an advance ruling on the applicable tax rate for providing construction services to the National Centre for Biological Sciences (NCBS). The applicant believed the service was taxable at either 12% or 18%, while NCBS argued for a 12% rate based on its status as an educational research institute.2. Legal Framework: The Authority examined the definitions of 'Governmental Authority' and 'Government Entity' as per relevant notifications to determine NCBS's classification. The applicant contended that NCBS was a Government Entity, but the Authority disagreed based on specific criteria outlined in the notifications.3. Classification of NCBS: The Authority analyzed NCBS's structure and governance, noting its registration as a Trust and the composition of its Council with government-appointed members. However, it concluded that NCBS did not meet the criteria to be classified as a Government Entity as defined in the notifications.4. Tax Rate Determination: Based on the findings regarding NCBS's classification and the provisions of the relevant notifications, the Authority ruled that the service provided was not covered under the lower tax rate specified for certain entities. Therefore, the construction service was deemed taxable at 9% CGST and 9% KGST under the residual item specified in the notifications.5. Final Ruling: The Authority's ruling established that the works contract service provided by the applicant to NCBS was subject to tax at 9% under both CGST and KGST Acts, as per the specific items listed in the notifications, rejecting the applicant's argument for a lower tax rate.This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the legal framework applied, the classification of the entity in question, and the ultimate tax rate determination as ruled by the Authority for Advance Ruling in Karnataka.