2021 (12) TMI 609 - AAR - GST

Construction sub-contractor's services qualify for 12% GST rate per Notification No. 20/2017-Central Tax (Rate)

In Re: M/s. Core Construction (Yatin Manoj Mora)

The Authority determined that the applicant's work contract services as a sub-contractor for the construction of roads fall under Entry No. 3(iv) of ... Classification of services - Work Contract Services on Construction of Roads - Tax Rate to be charged by the sub-contractor to main contractor - rate of tax of 12% or 18%? - HELD THAT:- In the present case, the works contract i.e. composite contract of construction of roads has been awarded by the Aurangabad Municipal Corporation to M/s J.P. Enterprises (Main contractor) and the said main contractor has awarded part of said contract to the applicant. The applicant is thus a sub-contractor and for the supply undertaken, has issued invoices by charging GST @ 12% - the supply of service under the impugned contract is not yet completed. It is still a work being undertaken by the applicant at the time of filing of the application and therefore satisfies the provisions of Section 95 of the CGST Act. Hence, the subject application cannot be rejected outright on the ground contended by the jurisdictional officer. Hence, the application of the applicant is being considered. As per Sr. No. 3 (ix) of the notification amended by Not cation 1/2018-Central Tax (Rate) dated 25 January 2018, “Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services specified in item (iii) or item (vi) above to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity.” attracts levy of GST at 12%. The jurisdictional officer has stated that, since the activity undertaken by applicant, construction of roads is related to item (iv) of the original notification 11/2017 and hence its does not qualify for tax rate of 12% GST due to the fact that the said Entry No. (iv) is not mentioned in the amended Sr. No. 3(ix). Hence, according to the jurisdictional officer, as the activity undertaken by applicant does not qualify for 12% tax rate, it should attract 18% tax rate i.e. 9% CGST and 9% MGST.” Similarly, in the case of IN RE: M/S. BUILDING ROADS INFRASTRUCTURE & CONSTRUCTION PRIVATE LIMITED, [2021 (8) TMI 526 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH] held that the ‘works contract’ services pertaining to construction, erection, commissioning and completion of ‘Bridges and Roads’ provided by the applicant as a subcontractor to the Contractors who have been awarded the construction contract pertaining to construction/widening of roads by the Government Entities such as National Highway Authority of India, falls under Serial No 3 (iv) of the Notification No.11/2017 as amended from time to time and chargeable to GST @ 12%. Issues Involved:1. Tax Rate for Work Contract Services on Construction of Roads by a sub-contractor to the main contractor.2. Applicability of 12% or 18% GST rate.Issue 1: Tax Rate for Work Contract Services on Construction of Roads by a sub-contractor to the main contractorThe applicant, M/s. Core Construction, provides work contract services (WCS) as a sub-contractor for the construction of roads used by the general public. They argue that their services fall under Notification No. 20/2017-CT(Rate) dated 22/08/2017, which specifies a 12% GST rate for such services. The applicant cites various entries and notifications, including Notification No. 01/2018 C.T. (R) dated 25/01/2018, and contends that the 12% rate should apply to sub-contractors as well, given that their work is identical to that of the main contractor. The applicant also references several rulings from different Advance Ruling Authorities to support their position.The jurisdictional officer, however, argues that the majority of the subcontractor's work is completed and that retrospective amendments to invoices would be difficult. They also contend that Notification 1/2018-Central Tax (Rate) dated 25 January 2018 specifies a 12% GST rate only for services provided to the Central Government, State Government, Union territory, a local authority, a Governmental Authority, or a Government Entity, and that the applicant's services do not qualify for this rate, thus attracting an 18% GST rate.Upon review, the Authority finds that the applicant's services fall under Entry No. (iv) of Notification No. 20/2017-Central Tax (Rate) dated 22nd August 2017, which specifies a 12% GST rate for the construction of roads, bridges, tunnels, or terminals for road transportation for use by the general public. The Authority notes that this entry does not specify that it applies only to main contractors, and thus should apply to sub-contractors as well. The Authority also observes that the GST Council's 25th meeting recommended a 12% GST rate for WCS provided by sub-contractors to main contractors providing services to government entities, further supporting the applicant's position.The Authority concludes that the applicant's services are covered under Entry No. 3(iv) of Notification No. 20/2017-Central Tax (Rate) dated 22nd August 2017, and thus attract a 12% GST rate (6% CGST and 6% SGST).Issue 2: Applicability of 12% or 18% GST rateThe jurisdictional officer's argument that the applicant's services should attract an 18% GST rate is based on the absence of a specific entry for sub-contractors under Notification No. 1/2018-Central Tax (Rate) dated 25 January 2018. However, the Authority finds that the principal Notification No. 11/2017, as amended, does not restrict the 12% GST rate to main contractors only. The Authority also notes that the GST Council's recommendations and the wording of the relevant entries support the application of the 12% GST rate to sub-contractors.The Authority concludes that the applicant's services are taxable at a 12% GST rate (6% CGST and 6% SGST), as specified under Entry No. 3(iv) of Notification No. 20/2017-Central Tax (Rate) dated 22nd August 2017.Order:Question 1: What Tax Rate to be charged by the sub-contractor to the main contractor on Work Contract Services on Construction of RoadsRs.Answer: The rate to be charged is 6% SGST plus 6% CGST, total 12%, as discussed above.Question 2: Whether to Charge GST tax of 12% or 18%Rs.Answer: As mentioned in Answer to Question No. 1 above.