GST Applicability on Capital Subsidy: Odisha AAR Clarifies Composite Supply Issue

The Authority for Advance Ruling in Odisha held that the Capital Subsidy received is subject to GST as it is linked to the transaction value. The ruling clarified that the supply of goods in question is a composite supply, not a works contract service, and therefore, concessional tax rates do not apply. Invoices for the subsidy and fees should be raised according to CGST Act provisions, and the GST rate on supplies by sub-contractors is determined based on goods classification. The decision allows for appeal within 30 days by either party if dissatisfied.

---

---

Issues Involved:
1. Liability of GST on Capital Subsidy.
2. GST rate for the balance 10% of Project Capital Expenditure and O&M Fees.
3. Timing for raising GST invoices for Capital Subsidy and Annuity Fee.
4. GST rate on supplies by sub-contractors to the Applicant.

Detailed Analysis:

Issue 1: Liability of GST on Capital Subsidy
The applicant sought clarification on whether the Capital Subsidy (90% of Project Capital Expenditure) received from the Odisha Government/ULBs for the Green Field Public Street Lighting System is liable to GST. The applicant argued that this subsidy is not "consideration" as defined in Section 2(31) of the CGST Act and should not be subject to GST.

Judgment:
The Authority ruled that the Capital Subsidy received is indeed liable to GST. The ruling emphasized that the subsidy is directly linked to the price and is therefore included in the transaction value for GST calculation. The GST will be paid on the goods at the appropriate rate after classification under the appropriate heading.

Issue 2: GST Rate for the Balance 10% of Project Capital Expenditure and O&M Fees
The applicant queried the applicable GST rate for the remaining 10% of Project Capital Expenditure and O&M Fees received as Annuity Fee over seven years, citing that the supply qualifies as a "works contract service" under Section 2(119) of the CGST Act.

Judgment:
The Authority determined that the supply in question qualifies as a "composite supply" where the principal supply is the supply of goods, not services. Therefore, the concessional rate of tax as per Notification No. 11/2017-Central Tax (Rate) does not apply. The GST must be paid on the goods at the appropriate rate after classification under the appropriate heading.

Issue 3: Timing for Raising GST Invoices for Capital Subsidy and Annuity Fee
The applicant sought guidance on the timing for raising GST invoices for Capital Subsidy and Annuity Fee, suggesting that invoices should be raised at the time of sending the bill for payment to the Authority/ULB.

Judgment:
The Authority ruled that since the supply is a "composite supply" with the principal supply being goods, invoices should be raised as per the provisions of Section 31 of the CGST Act, 2017.

Issue 4: GST Rate on Supplies by Sub-Contractors to the Applicant
The applicant queried whether the rate of tax on supplies by sub-contractors to the applicant should be 12% GST (6% CGST and 6% SGST) in terms of Notification No. 11/2017-Central Tax (Rate).

Judgment:
The Authority ruled that Notification No. 11/2017-Central Tax (Rate) applies to the "supply of service." Since the supply by the applicant qualifies as a "composite supply" with the principal supply being goods, the notification is not applicable. Therefore, the GST rate on supplies by sub-contractors to the applicant must be determined based on the classification of goods.

Conclusion:
The Authority for Advance Ruling, Odisha, concluded that the Capital Subsidy is liable to GST, the supply qualifies as a composite supply of goods, and invoices should be raised as per Section 31 of the CGST Act. The notification for concessional GST rates on services does not apply to the applicant's case. This ruling is subject to appeal within 30 days if either party is aggrieved.

---