JV subcontractor's composite works contract for tunnel excavation denied NIL tax rate but gets exemption under Notification 11/2017-CTR until January 2022

AAR Maharashtra ruled that a JV subcontractor performing composite works contract (91% earth work, 9% construction) for tunnel excavation cannot avail NIL tax rate under Notification 12/2017-C.T.(Rate) Sr.No.3A-Chapter 9954. However, the supply qualifies for exemption under Sr.No.3(x) of Notification 11/2017-CTR as services provided to main contractor serving government entity GMIDC. The ruling noted that from January 1, 2022, such services will lose exemption due to amendment removing "Governmental Authority or Government Entity" from the notification's scope.

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Issues Involved:
1. Applicability of NIL tax rate under SI No 3A- Chapter No. 9954 as per Notification No. 12/2017 C.T. (Rate) dated 28.06.2017, as amended by Notification No. 2/2018-C.T. (Rate) dated 25.01.2018.
2. Applicability of the tax rate under SI No 3(x) - Chapter No. 9954 as per Notification No. 01/2018-C.T. (Rate) dated 25.01.2018 (amendments in Notification No 11/2017- Central Tax (Rate) dated 18th June 2017).

Detailed Analysis:

Issue 1: Applicability of NIL Tax Rate under SI No 3A- Chapter No. 9954
The applicant sought to determine whether the tax rate for the JV, as per SI No 3A- Chapter No. 9954, could be NIL. The work order involved a composite supply of works contract, predominantly earthwork (91%) and construction work (9%), provided to a Government Entity (GMIDC).

The ruling referred to a previous decision in the case of Soma Mohite Joint Venture, where it was held that similar works were covered under Entry 3(vii) of Notification No. 11/2017-CTR. However, the jurisdictional officer opined that the impugned contract is not covered under Sr. No. 3A of Notification No. 12/2017-CTR.

Upon review, it was found that the Principal Contractor’s activity does not fall under Sr. No. 3A of Notification No. 12/2017-C.T. (Rate). Thus, the applicant cannot avail the benefit of NIL tax rate under the said notification.

Issue 2: Applicability of Tax Rate under SI No 3(x) - Chapter No. 9954
The applicant also queried whether they could avail the benefit under SI No 3(x) - Chapter No. 9954 as per Notification No. 01/2018-C.T. (Rate). The jurisdictional officer confirmed that the work order, predominantly earthwork (91%), falls under Sr.No. 3(x) of Notification No. 11/2017-CTR, given that GMIDC is a Government Entity and the work was procured by the principal contractor in relation to work entrusted by the State Government.

The ruling referenced the decision in the case of Soma Mohite Joint Venture, where it was held that the work carried out by the JV was covered by Entry 3(vii) of Notification No. 11/2017-CTR. Applying this ratio, it was concluded that the applicant’s supply is covered under Sr. No. 3(x) of Notification No. 11/2017-CTR.

However, it was noted that Notification No. 11/2017-CT (Rate) was amended by Notification No. 15/2021-Central Tax (Rate) dated 18.11.2021, effective from 01.01.2022, which omitted the words “a Governmental authority or a Government Entity.” Therefore, from 01.01.2022, the impugned services supplied by the applicant will not be covered under Sr. No. 3(x) of Notification No. 11/2021-CTR.

Conclusion:
1. The applicant cannot avail the benefit of NIL tax rate under SI No 3A- Chapter No. 9954 as per Notification No. 12/2017-C.T. (Rate).
2. The applicant can avail the benefit of the tax rate under SI No 3(x) - Chapter No. 9954 as per Notification No. 01/2018-C.T. (Rate) until 31.12.2021.

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