AAR rules services for highway project not eligible for concessional GST rate

The Authority for Advance Ruling (AAR) determined that the applicant's services of shifting and erecting electrical lines for a highway development project do not qualify for the concessional GST rate under Entry (iv) or Entry (ix) of Notification No. 11/2017-CT (Rate). The AAR found that the work was independent of the main contract for road construction and did not meet the criteria specified for subcontractors. Consequently, the applicant's services were not eligible for the lower GST rate provided for specific works contracts, as per the ruling.

---

---

Issues Involved:

1. Classification of the services provided by the applicant.
2. Applicability of specific GST notifications to the services provided by the applicant.

Detailed Analysis:

Issue 1: Classification of the Services Provided by the Applicant

The applicant, a proprietorship concern engaged in construction, is proposing to submit a bid to a contractor for shifting and erection of electrical lines as part of a highway development project. The applicant seeks to determine whether their services fall under Entry (iv) of Heading 9954 of Notification No. 11/2017-CT (Rate) dated 28.06.2017, which specifies a concessional GST rate for works contracts related to the construction of roads, bridges, tunnels, or terminals for road transportation for use by the general public.

The applicant argues that their work qualifies as a 'works contract' under Section 2(119) of the CGST Act, involving the transfer of goods along with construction services resulting in immovable property. They cite the definition of 'immovable property' from the General Clauses Act, 1897, and the Transfer of Property Act, 1882, to support their claim. The applicant also references the scope of the project, which includes the construction of various facilities essential for the highway, such as toll plazas, pedestrian facilities, street lighting, and more.

The applicant contends that their subcontracted work is an integral part of the main contractor's obligations under the agreement with NHAI and should be classified under Entry (iv) of Heading 9954, attracting a GST rate of 12% (6% CGST + 6% SGST). They argue that the GST Council's intent is to extend the same concessional rate to subcontractors as that applicable to the main contractor, as reflected in the recommendations from the 25th GST Council Meeting and supported by case law from the Maharashtra AAR and AAAR.

Issue 2: Applicability of Entry (ix) of Notification No. 11/2017-CT (Rate)

Alternatively, the applicant seeks to determine if their services fall under Entry (ix) of Heading 9954, which pertains to works contracts provided by subcontractors to main contractors supplying services to government entities. The applicant asserts that their work qualifies as a works contract, and since the main contract is with NHAI, a government entity, their services should be covered under Entry (ix), attracting a GST rate of 12%.

Personal Hearing and Additional Submissions:

During the personal hearing, the applicant reiterated their submissions and provided additional documents, including the concession agreement between NHAI and the main contractor and a letter detailing the scope of work.

Comments of the Jurisdictional Officer:

The jurisdictional officer contended that the applicant's work of shifting and erecting electrical lines does not fall under Entry (iv)(a) of Notification No. 11/2017-CT (Rate) as it does not constitute the construction of a road, bridge, tunnel, or terminal. The officer also argued that the applicant's work is independent and not part of the main contract, thus not qualifying under Entry (ix).

Findings, Analysis, and Conclusion:

The Authority for Advance Ruling (AAR) observed that the applicant's work is restricted to shifting and erecting electrical lines, which is independent of the main contract for road construction. The cost of this work is borne separately by the authority or the utility-owning entity, indicating its independent nature.

The AAR noted that Entry (iv)(a) of Notification No. 11/2017-CT (Rate) applies to works contracts for the construction of roads, bridges, tunnels, or terminals for road transportation. Since the applicant's work does not constitute road construction, it does not fall under this entry.

Similarly, the AAR concluded that the applicant's work does not qualify under Entry (ix) of Notification No. 11/2017-CT (Rate) as it is not part of the main contract and does not meet the conditions specified for subcontractors.

Ruling:

a. The activity proposed to be undertaken by the applicant does not fall under Entry No. (iv)(a) of Notification No. 11/2017-CT (Rate) dated 28.06.2017.
b. The activity proposed to be undertaken by the applicant does not fall under Entry No. (ix) of Notification No. 11/2017-CT (Rate) dated 28.06.2017.

---