Joint venture must pay 18% GST on residential quarters construction at nuclear power project despite government entity involvement

AAR TamilNadu ruled that a joint venture executing works contract services for constructing residential quarters at Kudankulam Nuclear Power Project must pay GST at 18%. Though Nuclear Power Corporation of India Ltd (NPCIL) qualifies as a government entity being a PSE under Department of Atomic Energy with 100% Central Government equity, the construction work failed to meet conditions under Notification No.24/2017 Sl.No.vi. The residential quarters construction was not procured by NPCIL in relation to work entrusted by Central Government, disqualifying it from concessional GST rates. The Authority declined ruling on differential tax payment modalities as procedural aspects fall outside Section 97(2) scope.

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Issues Involved:
1. Applicability of GST rate (12% or 18%) on the execution of works contract service at Kudankulam Nuclear Power Project.
2. Procedure for payment of differential tax if the GST rate is determined to be 18% instead of 12%.

Issue-wise Detailed Analysis:

1. Applicability of GST Rate on Works Contract Service:
The applicant sought clarity on whether the execution of works contract service at Kudankulam Nuclear Power Project (KKNPP) would attract GST at 12% or 18%. The applicant argued that their service should attract 12% GST under S.No. vi of Notification No. 24/2017-CT (Rate), as they are constructing residential quarters for the employees of NPCIL, a Government entity.

The Authority examined the conditions under S.No. vi of Notification No. 24/2017-CT (Rate), which requires:
- The service must be a works contract as defined in Section 2(119) of the CGST Act, 2017.
- The service must be provided to the Central Government, State Government, Union Territory, local authority, Governmental Authority, or Government Entity.
- The service must be procured by the said Government entity in relation to a work entrusted to it by the Central Government, State Government, Union Territory, or local authority.

The applicant demonstrated that NPCIL is a Government entity with 100% shareholding by the President of India and is established under the Department of Atomic Energy. However, the Authority found that the construction of residential quarters for NPCIL employees does not satisfy the condition of being "in relation to" the work entrusted to NPCIL by the Central Government, which is to implement atomic power projects for electricity generation. The Authority concluded that the service is a welfare measure for NPCIL employees and not directly related to the work entrusted to NPCIL.

Therefore, the service does not qualify for the concessional rate of 12% GST under S.No. vi of Notification No. 24/2017-CT (Rate). Instead, it falls under the residual entry S.No. xii of the same notification, attracting 18% GST.

2. Procedure for Payment of Differential Tax:
The applicant also sought guidance on the procedure for paying the differential tax if the GST rate is determined to be 18% instead of 12%. The Authority noted that this question pertains to the procedural aspect of the law, which is not covered under Section 97(2) of the CGST Act, 2017. Consequently, the Authority did not provide a ruling on this question.

Conclusion:
The Authority ruled that the execution of works contract service for the construction of residential quarters for the employees of Kudankulam Nuclear Power Project is not covered under S.No. vi of Notification No. 24/2017-CT (Rate) and attracts GST at 18% as per S.No. xii of Notification No. 11/2017-CT (Rate). The question on the procedure for paying the differential tax was not addressed as it falls outside the purview of Section 97(2) of the CGST Act, 2017.

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