2021 (4) TMI 567 - AAR - GST

Sub-contractor in works contract chain denied concessional GST rates without direct government contract.

The Authority for Advance Ruling in Karnataka determined that a sub-contractor in a works contract chain, subcontracted by the main contractor providing ... Sub-Contract from a Sub-Contractor - Sub-contractor is sub-contracted from a sub-contractor of the main contractor - main contractor is provider of works contract to a Government entity - eligibility for concessional rate of GST - no privity of contract between applicant and main contractor - HELD THAT:- In the instant case, it is seen that there is no privity of contract between the applicant and M/s. Karnataka Neeravari Nigam Ltd. The original contract is awarded by M/s. Karnataka Neeravari Nigam Limited to M/s. Ocean Constructions (India) Private Limite - Hence as per the notification, any subcontractor providing services to Main contractor by executing the works mentioned in the serial number 3 of clause (iii) and clause (vi) which is exclusively covered under the clause (ix) of serial no.3 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 (as amended from time to time) will be exempted from payment of GST subject to M/s. Karnataka Neeravari Nigam Limited is qualified to be called as a Government Entity. In the present case, it is M/s. Shaaz Electricals who is the sub-contractor who is covered under the said entry. As there is no privity of contract between the applicant and M/s. Ocean Constructions (India) Private Limited and the contract is between the applicant and M/s. Shaaz Electricals, the services provided by the applicant is not covered under the said entry. It is observed that the privity of contract is between the applicant and the M/s. Shaaz Electricals, however M/s. Shaaz Electricals is not covered under Central Government, State Government, Union Territory, a local authority or a Governmental Authority or a Government Entity and hence the supply made by the applicant is not covered entry no.3 (iii) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 - For the same reason, the activity of the applicant is also not covered under entry no. 3(vi) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended). Issues:1. Applicability of concessional GST rate to a sub-contractor in a works contract chain involving a government entity.Analysis:The applicant, a proprietary concern engaged in electrical works contracts, sought an advance ruling on whether a sub-contractor, subcontracted by the main contractor providing works contract to a government entity, is eligible for the concessional GST rate. The Authority for Advance Ruling, Karnataka, examined the admissibility of the application and considered the relevant notifications under the CGST Act and KGST Act. The applicant detailed the contractual chain involving M/s. Ocean Construction (India) Pvt. Ltd., M/s. Shaaz Electricals, and themselves, all working on a project for M/s. Karnataka Neeravari Nigam Ltd., a government entity.The Authority noted that the applicant's services were subcontracted by M/s. Shaaz Electricals, not directly by the main contractor M/s. Ocean Construction (India) Pvt. Ltd. The absence of a direct contract with the government entity led to the conclusion that the applicant did not fall under the specific entry for concessional GST rates. The Authority highlighted the requirements for concessional rates under various entries of Notification No. 11/2017-Central Tax (Rate) and determined that the applicant's activities did not meet the criteria for the lower GST rate.Upon detailed examination of the contractual arrangements and relevant notifications, the Authority ruled that the applicant's composite supply of works contract was not covered under the specified entries of the notification. Consequently, the applicant was deemed ineligible for the concessional GST rate and was directed to charge CGST and KGST at the standard rates of 9% each. The ruling clarified the specific provisions governing the applicability of concessional rates in works contracts involving government entities, emphasizing the necessity of a direct contractual relationship with the entity to qualify for the lower tax rate.