Hospital construction works contract ineligible for 12% GST rate, attracts 18% under residuary clause post-2022 amendments

AAR Maharashtra ruled that the applicant providing composite supply of works contract for hospital construction to a government entity was not eligible for 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 residuary clause (xii) of S.No. 3, attracting 18% GST rate on taxable value instead of the sought concessional rate.

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Issues:
1. Eligibility for concessional GST rate of 12% for construction services provided by the applicant to UPRNN.
2. Appropriate rate and classification of GST if not eligible for the concessional rate.

Analysis:

Issue 1:
The applicant, M/s. KPC Projects Ltd., sought an advance ruling on whether they are eligible for the concessional rate of GST at 12% for providing construction services to UPRNN. The applicant argued that the works contract services provided to UPRNN for constructing staff quarters for ESIC fall under the definition of a composite supply of works contract meant predominantly for non-commercial use. They relied on Notification No. 11/2017-Central Tax (Rate) and claimed eligibility for the concessional rate of 12% as per SI. No. 3 (vi) of the notification. The applicant contended that the construction was for a governmental authority and not for commercial purposes, hence qualifying for the lower rate.

Issue 2:
The concerned officer, on the other hand, pointed out that the GST rate applicable had changed over time. While the applicant was liable to pay GST at 12% until December 31, 2021, the rate increased to 18% from January 1, 2022, as per subsequent notifications. The Authority observed that the impugned services provided by the applicant would not be covered under SI. No. 3 (vi) of the Notification No. 11/2017 post the amendment effective from January 1, 2022. Therefore, the applicant was deemed ineligible for the concessional rate of 12% as claimed. The Authority determined that the appropriate classification and rate of GST for the future activity of the applicant would be 18% under the residuary clause (xii) of the notification.

In conclusion, the Authority ruled that the applicant was not eligible for the concessional rate of 12% for the construction services provided to UPRNN. The appropriate rate and classification of GST for the applicant's future activity were determined to be 18% under the residuary clause of the notification. The decision was based on the amendments in the notification effective from January 1, 2022, altering the eligibility criteria for the concessional rate.

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