AAR Maharashtra confirms 5% GST rate for railway earthwork contract under Notification 11/2017-CTR Section 2(119)

AAR Maharashtra ruled that the taxpayer's work contract with Central Railway Department qualified for 5% GST rate under Notification 11/2017-CTR Sr. No. 3(vii). The authority determined that all three conditions were satisfied: the supply constituted a composite works contract under Section 2(119) CGST Act 2017, involved predominantly earthwork (over 75% of contract value including blasting, excavation, levelling, and embankment work), and was provided to Central Government through Central Railway Department. The ruling confirmed the applicability of the concessional GST rate for the railway infrastructure project involving earthwork activities between specified railway stations.

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Issues Involved:
1. Applicability of Notification No. 31/2017-C.T. (Rate) dated 13.10.2017 on the composite supply of works contract.
2. Determination of the applicable GST rate for the taxpayer as per the work order.

Detailed Analysis:

Issue 1: Applicability of Notification No. 31/2017-C.T. (Rate) dated 13.10.2017
- Composite Supply Definition: The applicant's contract involves a composite supply of works contract, defined under Section 2(30) and Section 2(90) of the CGST Act, 2017. This includes the supply of both goods and services that are naturally bundled and provided together.
- Nature of Work: The applicant's work includes earthwork in embankment, cutting, bridge approaches, and construction of minor bridges and RUBs. The earthwork constitutes more than 75% of the total contract value.
- Relevant Notifications: The applicant referred to Notification No. 12/2017-CTR dated 28.06.2017 (amended by Notification No. 2/2018-CTR dated 25.01.2018) and Notification No. 11/2017-CTR dated 28.06.2017 (amended by Notification No. 31/2017-CTR dated 13.10.2017). The latter specifies a 5% GST rate for composite supply of works contracts involving predominantly earthwork provided to the government entities.
- Earthwork Definition: Various dictionary definitions were considered, concluding that earthwork includes excavation, embankment, and related construction activities.
- Contract Details: The contract value was Rs. 33,05,06,116, with 86-89% attributed to earthwork. This satisfies the condition of predominantly earthwork as per the notification.
- Judicial Precedents: Cases like M/s Soma Mohite Joint Venture and P K Agarwala supported the classification of such works under the term 'earthwork,' qualifying for the 5% GST rate.

Issue 2: Determination of the Applicable GST Rate
- Conditions for 5% GST Rate: The three conditions for the 5% GST rate under Sr. No. 3(vii) of Notification No. 11/2017-CTR are:
1. The supply should be a composite supply of works contract.
2. It should involve predominantly earthwork (more than 75% of the contract value).
3. It should be provided to a government entity.
- Contract Compliance: The applicant's contract met all these conditions. The work was predominantly earthwork, provided to the Central Railway Department, a part of the Central Government.
- Central Government Entity: The contract was awarded by the Central Railway Department, acting on behalf of the President of India, thus qualifying as a supply to the Central Government.
- Final Determination: Based on the above, the applicable GST rate for the applicant is 5% (2.5% CGST and 2.5% SGST) or 5% IGST as per the work order.

Conclusion:
- Question 1: The notification No. 31/2017-Central Tax (Rate) dated 13.10.2017, in respect of composite supply of works contract, is applicable to the taxpayer.
- Question 2: The GST rate applicable to the taxpayer as per the attached work order is 5% (2.5% each of CGST and SGST) or 5% IGST.

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