BSNL network setup activities reclassified under Entry 3(xii) via Notification 03/2019, composite supply attracts 18% GST

AAR Maharashtra ruled that network setup activities for BSNL, previously classified under Entry 3(ii) of Notification 11/2017-CTR, now fall under Entry 3(xii) following amendments by Notification 03/2019 dated March 29, 2019. The Authority determined these supplies constitute composite supply rather than works contract, attracting 18% GST rate. The ruling confirmed continuity of tax treatment despite notification amendments, with activities remaining taxable at 18% under the revised classification structure.

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Issues Involved:
1. Determination of the applicable tax rate for supplies made under the contract.
2. Classification of the supply as a 'works contract' or 'composite supply.'
3. Applicability of the amended Notification No. 11/2017-CT (Rate) to the applicant's activities.

Detailed Analysis:

1. Determination of the Applicable Tax Rate:
The core issue revolves around identifying the correct GST rate applicable to the supplies made under the contract. The applicant, engaged in manufacturing telecom products and providing network infrastructure services, sought clarification on the tax rate post-amendment of the Notification No. 11/2017-CT (Rate).

2. Classification of Supply as 'Works Contract' or 'Composite Supply':
The applicant's activities include manufacturing telecom products, laying optic fiber cables, constructing buildings, installing equipment, and setting up a network. These activities were previously classified as a 'composite supply of works contract' under Section 2(119) of the CGST Act, attracting GST at 18% as per the earlier Advance Ruling Order No. GST-ARA-106/2018-19/B-34 dated 28.03.2019.

3. Applicability of Amended Notification No. 11/2017-CT (Rate):
The applicant argued that post the deletion of Entry No. 3(ii) by Notification No. 3/2019-CT (Rate) dated 29.03.2019, their activities should be taxed at 12% under Entry No. 3(vi)(a) of the Notification. However, the Authority found that the activities which were earlier covered under Entry 3(ii) would now fall under the residual Entry No. 3(xii) of the Notification No. 11/2017-CT (Rate), as amended, and thus attract an 18% GST rate.

Observations and Findings:
- The applicant's activities, including construction, installation, and commissioning of network infrastructure, were previously classified under Entry No. 3(ii) and taxed at 18%.
- The deletion of Entry No. 3(ii) necessitated reclassification under the amended Notification. The Authority determined that the activities now fall under Entry No. 3(xii), which also attracts an 18% GST rate.
- The applicant's contention that their activities should be taxed at 12% under Entry No. 3(vi)(a) was not accepted, as the Authority concluded that the nature of the activities remained unchanged and continued to fall under the higher tax bracket.

Conclusion:
The supplies made by the applicant under the contract are classified under sub-clause (xii) of Entry No. 3 of Notification No. 11/2017-CT (Rate) as amended, and are taxable at 18% GST. The Authority upheld the previous classification and tax rate, despite the deletion of Entry No. 3(ii), reaffirming that the applicant's activities do not qualify for the reduced 12% rate under Entry No. 3(vi)(a).

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