2021 (9) TMI 1038 - AAR - GST

Sub-sub-contractor providing irrigation services liable for 18% GST, not concessional 12% rate under Notification 11/2017-CT(R)

The AAR Gujarat ruled that a sub-sub-contractor providing irrigation construction and maintenance services to a sub-contractor is liable to pay 18% GST, ... Composite supply of works contract - Concessional GST rate for works contracts supplied to Government - Sub-contractor versus sub sub contractor distinction - Strict and literal interpretation of notificationComposite supply of works contract - Concessional GST rate for works contracts supplied to Government - Sub-contractor versus sub sub contractor distinction - Strict and literal interpretation of notification - Rate and classification of GST for services provided by the applicant (a sub sub contractor) in execution of irrigation/construction works for the irrigation department, State of Gujarat. - HELD THAT: - The Authority held that the concessional 12% entries in the Notification apply only where the service is (a) supplied by the main contractor to the Government, or (b) supplied by a sub contractor to the main contractor who is providing the specified service to the Government. The applicant is a sub sub contractor supplying to the sub contractor (Radhe Construction) and not to the main contractor (JSIW) or directly to the Government; hence the applicant does not satisfy the specific conditions of the concessional entries. The wording of the Notification is clear and unambiguous and must be given a literal interpretation without importing intendment; accordingly the benefit of the concessional entry cannot be extended to a sub sub contractor who does not meet the notified conditions. Applying this reasoning, the supply by the applicant does not fall within the concessional entries and must be classified under the residual heading for works contract services attracting the standard concessional classification identified by the Authority for such supplies by suppliers not covered by the specific concessional entries. [Paras 14, 15, 16, 18]Services supplied by the applicant (sub sub contractor) are not eligible for the 12% concessional entry and are taxable at 18%; the supply merits entry under the general works contract heading identified by the Authority.Final Conclusion: Advance Ruling: the applicant, being a sub sub contractor supplying services to the sub contractor and not to the main contractor or Government as required by the concessional entries, is not eligible for the 12% rate; the supply is taxable at 18% and classified under the general works contract entry indicated by the Authority. Issues Involved:1. Determination of the applicable GST rate for services provided by sub-sub-contractors to sub-contractors.2. Classification of services provided by sub-sub-contractors to the irrigation department, State of Gujarat.3. Whether the GST rate should be 12% or 18%.Detailed Analysis:1. Determination of the Applicable GST Rate for Services Provided by Sub-Sub-Contractors to Sub-Contractors:The applicant, a sub-sub-contractor, sought clarification on the GST rate applicable to their services provided to a sub-contractor for original contract work with the irrigation department, State of Gujarat. The applicant argued that they should be subject to a 12% GST rate as per Notification No. 20/2017-Central Tax (Rate) dated 22-8-2017, which specifies a 12% GST rate for composite supply of works contract supplied by way of construction, erection, commissioning, or installation of original works pertaining to irrigation and construction works supplied to the government.However, the authority observed that the applicant, being a sub-sub-contractor, does not satisfy the conditions outlined in the notification. Specifically, the notification requires that the composite supply of works contract must be provided by the main contractor to the government or by a sub-contractor to the main contractor providing services to the government. Since the applicant is neither the main contractor nor a direct sub-contractor to the main contractor, they do not qualify for the 12% GST rate under this notification.2. Classification of Services Provided by Sub-Sub-Contractors to the Irrigation Department, State of Gujarat:The applicant classified their services under the SAC code for composite supply of works contract as defined in clause (119) of Section 2 of the CGST Act, 2017. They argued that their services should be classified under the same head as the main contractor and sub-contractor, which pertains to irrigation and construction work supplied to the irrigation department.The authority, however, clarified that the classification under the relevant SAC code and the corresponding GST rate is contingent upon the relationship between the service provider and the recipient. Since the applicant is a sub-sub-contractor, their services do not directly fall under the specified entries for main contractors or sub-contractors providing services to the government.3. Whether the GST Rate Should Be 12% or 18%:The applicant contended that the GST rate applicable to their services should be 12%, similar to the rate applicable to the main contractor and sub-contractor. They cited various judgments to support their claim, arguing that the intent of the government was to harmonize the GST rates for main contractors and sub-contractors providing services to government entities.The authority, however, emphasized the need for strict interpretation of the notification's wording. The notification clearly specifies that the concessional 12% GST rate applies only to main contractors providing services to the government and sub-contractors providing services to the main contractor for government projects. Since the applicant is a sub-sub-contractor providing services to a sub-contractor, they do not meet the conditions for the 12% GST rate.Conclusion:The authority ruled that the GST rate on the subject supply is 18% for services supplied by the sub-sub-contractor to the sub-contractor. The supply merits entry at Heading 9954, Entry No. 3(ii) of Notification No. 11/2017-CT(R) dated 28-6-17. The applicant's services do not qualify for the 12% GST rate applicable to main contractors and sub-contractors providing services to the government.