2021 (9) TMI 568 - AAR - GST

Composite works contract for fish market construction qualifies for 12% GST rate

The authority ruled that the supply of the composite works contract service for the construction of the fish market to the Valsad Panchayat is eligible ... Classification of services - composite supply of works contract service - construction of fish market for the Panchayat(Road and Building) Division, Valsad District Panchayat - service recipient is Panchayat - Local Authority or not - merits classification at Serial Number 3(vi)(a) of Notification No.11/2017-Central Tax(Rate) dated 28-6-17 or otherwise? - HELD THAT:- The subject contract is for the construction of immovable property wherein transfer of property in goods is involved in the execution of subject contract. The subject supply is a composite supply of works contract service. The service recipient is Panchayat Vibhag-Road and Building, Valsad District. ‘Panchayat’ is a Local Authority as defined vide Section 2(69)(a) of CGST Act, 2017. Fish Market being a market is covered under said entry 22 of ‘Markets and Fairs’. Further it is stated that ‘Markets and Fairs’ can also be read as ‘Markets or Fairs’. There are merit to classify the subject supply of Fish Market(a composite works contract) to the Valsad Panchayat( a local authority) and this activity is undertaken by the Valsad Panchayat engaged as public authority and the activity squarely falls under the entry no 22- ‘Markets and Fairs’ of the Eleventh Schedule of our Constitution - the subject matter falls within the ambit of ‘predominantly meant for use other than for commerce, industry, or any other business or profession’. The subject Supply is eligible for 12% GST vide Serial Number 3(vi) (a) of said NT (as amended from time to time). Issues Involved:1. Classification of the activity of composite supply of works contract service for the construction of a fish market.2. Applicability of GST rate on the said service.Issue-wise Detailed Analysis:1. Classification of the Activity:The applicant, M/s. Tirupati Construction, entered into a contract with the Panchayat Vibhag (Marg and Makan and Road and Building), Valsad, for the construction of a fish market building. The construction involves multiple stages such as excavation, masonry work, roofing, plastering, painting, plumbing, and more. The applicant contends that this activity qualifies as a 'supply of service' under Section 7(1)(a) of the CGST Act, 2017, and is a 'works contract' as defined in Section 2(119) of the CGST Act, 2017. The contract involves both goods and labor, thus fitting the definition of a works contract.The authority examined whether the activity falls under Entry 3(vi)(a) of Notification No.11/2017-Central Tax (Rate), which pertains to composite supply of works contract provided to the government or local authority for structures predominantly meant for non-commercial use. The authority confirmed that the contract is for the construction of immovable property involving the transfer of property in goods, thereby constituting a composite supply of works contract service. The recipient of the service, Panchayat Vibhag-Road and Building, is identified as a 'local authority' under Section 2(69)(a) of the CGST Act, 2017.2. Applicability of GST Rate:The applicant argued that the fish market is constructed under the Matsya Udhyog Yojana of the Government of Gujarat, with no profit motive, and thus should not be deemed for business or professional use. The authority examined whether the fish market falls under the category of structures predominantly meant for non-commercial use. The term 'business' is broadly defined under Section 2(17) of the CGST Act, but an explanation added to Serial No.3(vi) of the Notification clarifies that 'business' does not include activities undertaken by the government or local authorities as public authorities.The applicant claimed that the fish market's purpose aligns with 'Fisheries' under Entry 5 of the Eleventh Schedule to the Constitution of India. However, the authority clarified that a fish market, being a place where fish is sold, does not fall under 'Fisheries' but under 'Markets and Fairs' (Entry 22 of the Eleventh Schedule). The authority referred to Article 243G of the Constitution, which empowers Panchayats to manage markets and fairs, thus classifying the fish market under this entry.Given this classification, the authority concluded that the construction of the fish market by the Valsad Panchayat, a public authority, is predominantly for non-commercial use. Therefore, the activity qualifies for the GST rate of 12% (6% CGST and 6% SGST) under Serial Number 3(vi)(a) of Notification No.11/2017-Central Tax (Rate).Ruling:The authority ruled that the supply of the composite works contract service for the construction of the fish market to the Valsad Panchayat is eligible for a 12% GST rate (6% CGST and 6% SGST) under Serial Number 3(vi)(a) of the said Notification.