2022 (9) TMI 417 - AAR - GST

Works contract services to housing boards and smart city companies attract 18% GST, sub-contractor services also taxable at 18%

In Re: M/s. Yankee Constructions LLP,

AAR Karnataka ruled on GST exemption for works contract services executed by a contractor for various government entities. The contractor worked for ... Exemption from GST - Works contract services - executed as a main contractor as well as sub-contractor - Karnataka Slum Development Board under the Prime Minister Awaz Yojana - Belagavi Smart City Limited projects to Belgaum Smart City Corporation Limited - Karnataka Housing Board, Bangalore with respect to construction of police station at Govindarajanagar, Bangalore - Governmental Authority - N/N. 20/2017-Central Tax (Rate) dated 22nd August 2017 - HELD THAT:- The Karnataka Housing Board (referred as KHB) is established under Karnataka Housing Board Act 1962 and carries out function entrusted by the State Government. Hence the same may be considered as Government Entity as per the definition. Since the applicant is into construction of Magadi road police station, the services provided by the applicant are covered under entry 3(xii) of Notification No.11/2017 - Central Tax (Rate), dated 28.06.2017 further amended vide Notification No.03/2022-Central Tax (Rate) dated: 13.07.2022 and is taxable at 18% GST. The company is a Special Purpose Vehicle created for implementation of smart city project in the city of Belagavi. Hence Belagavi Smart City Limited is neither a Governmental Authority nor a Government Entity as per the explanation mentioned in para 13 supra. In view of the same, the services provided by the applicant to BSCL is liable to CGST at 9% as per the entry 3 (xii) of Notification No.11/2017 - Central Tax (Rate), dated 28.06.2017 further amended vide Notification No.03/2022-Central Tax (Rate) dated: 13.07.2022 and is taxable at 18%. The Composite supply of works contract provided by a sub-contractor to the main contractor who provides services specified in item 3(iii) or item 3(vi) to the Central Government, State Government, Union territory or a local authority are liable to tax at 12% GST. Since the services provided by the applicant are not covered under entry 3(iii) or item 3(vi), the same are liable to tax at 18% GST even though the services are executed as a subcontractor. Issues Involved:1. Determination of the rate of tax on works contract services executed for various governmental and quasi-governmental bodies.2. Clarification on the applicability of GST rates for services provided as a main contractor versus a sub-contractor.Issue-wise Detailed Analysis:1. Works Contract Services Executed to Karnataka Slum Development Board under Pradhan Mantri Awas Yojana as a Main Contractor:The applicant engaged in constructing 888 houses under the PMAY(U)-HFA scheme. Initially, this service was taxed at 12% GST under Notification No. 11/2017 - Central Tax (Rate) dated 28th June 2017, as amended by Notification No. 1/2018. However, Notification No. 03/2022-Central Tax (Rate) dated 13.07.2022 deleted the relevant entry, and thus, from 18.07.2022, the service is taxable at 18% GST under entry 3(xii) of Notification No. 11/2017 - Central Tax (Rate).2. Works Contract Services Executed to Karnataka Slum Development Board under Pradhan Mantri Awas Yojana as a Sub-Contractor:The services provided as a sub-contractor to the Karnataka Slum Development Board under PMAY(U) are not covered under entry 3(ix) of Notification No. 11/2017 - Central Tax (Rate). Hence, these services are taxable at 18% GST under entry 3(xii) of Notification No. 11/2017 - Central Tax (Rate).3. Works Contract Services Executed to Belagavi Smart City Limited Projects as a Main Contractor:The applicant provided services to Belagavi Smart City Limited, a company incorporated under the Smart City Mission. This entity does not qualify as a 'Governmental Authority' or 'Government Entity.' Therefore, the services provided are taxable at 18% GST under entry 3(xii) of Notification No. 11/2017 - Central Tax (Rate).4. Works Contract Services Executed to Belagavi Smart City Limited Projects as a Sub-Contractor:Similar to the main contractor scenario, services provided as a sub-contractor to Belagavi Smart City Limited are taxable at 18% GST under entry 3(xii) of Notification No. 11/2017 - Central Tax (Rate).5. Works Contract Services Executed to Karnataka Housing Board for Construction of Police Station:The Karnataka Housing Board (KHB) is considered a 'Government Entity' as it is established under the Karnataka Housing Board Act 1962 and carries out functions entrusted by the State Government. However, the construction of a police station does not fall under the specified services in Article 243W or 243G of the Constitution. Therefore, the services provided are taxable at 18% GST under entry 3(xii) of Notification No. 11/2017 - Central Tax (Rate).Ruling:i. Works contract services executed to Karnataka Slum Development Board under PMAY as a main contractor are liable to tax at 6% CGST (12% GST) till 17.07.2022 and 9% CGST (18% GST) from 18.07.2022.ii. Works contract services executed to Karnataka Slum Development Board under PMAY as a sub-contractor are liable to tax at 9% CGST (18% GST).iii. Works contract services executed to Belagavi Smart City Limited projects as a main contractor are liable to tax at 9% CGST (18% GST).iv. Works contract services executed to Belagavi Smart City Limited projects as a sub-contractor are liable to tax at 9% CGST (18% GST).v. Works contract services executed to Karnataka Housing Board for the construction of a police station are liable to tax at 9% CGST (18% GST).