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

AAR Karnataka ruled on GST exemption for works contract services executed by a contractor for various government entities. The contractor worked for Karnataka Slum Development Board, Belagavi Smart City Limited, and Karnataka Housing Board for construction projects. AAR held that Karnataka Housing Board qualifies as a government entity under Karnataka Housing Board Act 1962, making services taxable at 18% GST under relevant notifications. Belagavi Smart City Limited, being a Special Purpose Vehicle, does not qualify as governmental authority, attracting 18% GST. Sub-contractor services to main contractors are taxable at 18% GST as they don't fall under specified exempted categories attracting 12% rate.

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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).

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