Hospital construction services to government attract 18% GST rate not concessional 12% under amended notification

Maharashtra AAR ruled that a composite supply of works contract for hospital construction services to a government entity does not qualify for the concessional 12% GST rate under S.No. 3(vi) of Notification No. 11/2017-Central Tax (Rate). Due to amendments effective from 01.01.2022 via Notification No. 15/2021-CTR, the construction services fall under the residuary clause (xii) of S.No. 3, attracting 18% GST rate instead of the sought concessional rate.

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Issues Involved:
1. Eligibility for concessional GST rate of 12% for construction services provided to UPRNN.
2. Appropriate rate and classification of GST if concessional rate is not applicable.

Issue-wise Detailed Analysis:

1. Eligibility for Concessional GST Rate of 12%:

The applicant, M/s. KPC Projects Ltd., sought an advance ruling on whether the construction services provided to Uttar Pradesh Rajkiya Nirman Nigam Ltd. (UPRNN) for building a 200-bed ESI Hospital are eligible for a concessional GST rate of 12% under S.No. 3(vi) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.

The applicant argued that:
- The services provided constitute a composite supply of works contract as defined under Section 2(119) of the CGST Act, 2017.
- UPRNN, being a wholly owned entity of the Government of Uttar Pradesh, qualifies as a "Governmental Authority" or "Governmental Entity."
- The construction of the hospital, a clinical establishment, falls under the purview of S.No. 3(vi)(b) of the said notification, which allows for a concessional rate of 12% GST.

However, the authority observed that:
- The relevant notification was amended by Notification No. 15/2021-CTR dated 18.11.2021, effective from 01.01.2022, which removed "Governmental Authority" and "Governmental Entity" from the scope of entities eligible for the concessional rate.
- The applicant's services, being proposed for a future date, would not be covered under the amended provisions of S.No. 3(vi) post-01.01.2022.

Therefore, it was concluded that the applicant is not eligible for the concessional GST rate of 12% for the construction services provided to UPRNN.

2. Appropriate Rate and Classification of GST:

Given the ineligibility for the concessional rate, the applicant sought clarification on the appropriate GST rate and classification for their services.

The authority determined that:
- The services provided by the applicant, which are expected to commence in the future, would fall under the residuary clause (xii) of S.No. 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.
- Consequently, the applicable GST rate for the construction services would be 18% (CGST @ 9% and SGST/UTGST @ 9% or IGST @ 18%).

Order:

1. The applicant is not eligible to avail the concessional GST rate of 12% as per S.No. 3(vi) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.
2. The construction services provided by the applicant are classifiable under Heading 9954 (Construction Services), S.No. 3(xii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, and the applicable GST rate is 18%.

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