2022 (2) TMI 1047 - AAR - GST

Drilling and blasting for boulder extraction qualifies as works contract under Entry 3(x) but loses concessional GST rate post-amendment

AAR Maharashtra ruled that drilling and blasting operations with explosives for boulder extraction constitutes a composite supply of works contract. The ... Classification of supply - supply of goods or supply of services - composite supply or not - works contract - applicability of Entry 3(x) of Notification No. 11/2017-CT (R) dated 28.06.2017 i.e. provided by a sub-contractor to the main contractor providing services specified in item (vii) above to the Central/State Government, Union territory, a local authority, a Governmental Authority or a Government Entity taxable at the rate of 5% - HELD THAT:- The applicant is to provide only drilling and blasting operation with the usage of explosives for extraction of boulders at the said QUARRY to M/s Balajee. The applicant's submissions as well as the submissions of the jurisdictional officer that, the work of blasting with explosives which is subcontracted to the applicant, is a composite supply as defined under the GST Laws, is agreed upon - also since the Applicant is rendering a composite supply and since the said supply is in respect of immovable property i.e. Airport Land, it is found that the applicant is providing Composite supply of works contract as to M/s Balajee. Whether the work of drilling and blasting with explosives, which has been sub contracted to the applicant, falls under Sr. No. 3 (x) of Notification No 11/2017-CT (Rate) dated 28.06.2017? - HELD THAT:- Sr. No. 3 (x) of Notification No 11/2017-CT (Rate) elated 28.06.2017 states that 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 (vii) above to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity - the impugned service supplied by the applicant will be covered under Sr. No. 3 (x) of Notification No. 11/2017 - CTR dated 28.06.2017 only if the services provided by M/s Balajee to M/s CIDCO, a Government entity, falls under Sr. No. 3 (vii) of Notification No.11/2017-CT (Rate) dated 28/6/2017. Notification No.11/2017-CT (Rate) dated 28/6/2017 was amended vide Notification No. 15/2021 - CT(R) dated 18.11.2021 (with effect from 01.01.2022) and in Sr. No 3 (vii) of the amended Notification No. 15/2021-CTR dated 18.11.2021, the words “Governmental Authority” and “Government Entity” have been deleted. Therefore, with effect from 01.01.2022, the impugned services supplied by the applicant will not be covered under Sr. No. 3 (x) of Notification No. 11/2017-CT (Rate) dated 28/6/2017, as amended. Issues Involved:1. Classification of the activity as supply of goods, services, or a composite supply of 'works contract'.2. Applicability of Entry 3(x) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 for the activity carried out by the applicant.Detailed Analysis:Issue 1: Classification of the ActivityRelevant Facts:- The applicant, M/s Kapil Sons Explosives LLP, is engaged in drilling and blasting works using industrial explosives.- The main contractor, M/s Balajee Infratech & Constructions Pvt Ltd, has been awarded a contract by CIDCO for land development, including drilling, blasting, and reclamation works.- The applicant is subcontracted to provide drilling and blasting operations with explosives for extracting boulders at the designated site.Applicant's Interpretation:- The applicant argues that the activity involves both goods (explosives) and services (drilling and blasting), thus constituting a composite supply.- The term 'works contract' under Section 2(119) of the CGST Act includes activities involving immovable property and transfer of property in goods in some form.Authority's Findings:- The activity performed by the applicant is a composite supply as defined under GST laws.- Reference is made to the decision in M/s KHEDUT HAT [2018-TIOL-173-AAR-GST], which held that blasting work with the use of explosives is a composite supply.- The activity involves immovable property (airport land), thus classifying it as a composite supply of works contract.Conclusion:- The activity carried out by the applicant is classified as a composite supply of 'works contract'.Issue 2: Applicability of Entry 3(x) of Notification No. 11/2017-CT (Rate)Relevant Facts:- The main contractor, M/s Balajee, is providing services to CIDCO, a governmental authority, predominantly involving earthwork constituting more than 75% of the value of the works contract.- The applicant contends that their subcontracted services should be classified under Entry 3(x) of the Notification, which allows for a 5% GST rate.Applicant's Interpretation:- The applicant argues that since the main contractor’s services are classified under Entry 3(vii), their subcontracted services should fall under Entry 3(x), thus qualifying for the reduced tax rate.- The applicant provides evidence that the main contractor’s work involves predominantly earthwork and is billed under HSN Code 9954 at a 5% GST rate.Jurisdictional Officer's Submissions:- The officer agrees that the applicant’s activity is a composite supply of works contract but contends that it does not predominantly involve earthwork.- The officer argues that the applicant’s activity should be categorized under Entry 3(xii) of the Notification, which is taxed at 18%.Authority's Findings:- The authority agrees that the applicant’s work is a composite supply of works contract.- The authority examines whether the subcontracted work falls under Entry 3(x), which depends on the classification of the main contractor’s services under Entry 3(vii).- The authority acknowledges that the main contractor’s work is predominantly earthwork and qualifies for the reduced tax rate.- However, the Notification No. 15/2021-CT(R) dated 18.11.2021, effective from 01.01.2022, excludes “Governmental Authority” and “Government Entity” from Entry 3(vii).Conclusion:- Before 01.01.2022, the applicant’s services would qualify under Entry 3(x) and be taxed at 5% if the main contractor’s services fall under Entry 3(vii).- From 01.01.2022, due to the amendment in the Notification, the applicant’s services do not qualify under Entry 3(x).Final Order:1. The activity carried out by the applicant is classified as a composite supply of 'works contract'.2. The activity does not qualify for classification under Entry 3(x) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 for the reduced tax rate of 5%.