2022 (11) TMI 207 - AAR - GST

Shifting electrical utilities under highway sub-contract not considered road construction services under GST Notification 11/2017

AAR West Bengal ruled that shifting of electrical utilities under a sub-contract for highway construction does not qualify as 'construction of road' ... Works contract - composite supply - construction of road for use by general public - recipient of supply - ancillary services - Entry 3(iv)(a) of Heading 9954 (Rate Notification)Works contract - construction of road for use by general public - ancillary services - Entry 3(iv)(a) of Heading 9954 (Rate Notification) - Whether the applicant's activity of shifting electrical utilities falls within Entry 3(iv)(a) of Heading 9954 and therefore constitutes a composite supply of works contract by way of construction of road. - HELD THAT: - The Authority found on the materials that the applicant is a subcontractor engaged to perform a specific, limited scope - shifting and erection of electrical utilities - pursuant to a sub-contract with the main contractor and that the main contractor (not NHAI) is the recipient of the applicant's supply. On the legal characterisation, the Authority held that services which are ancillary to construction (such as shifting of utilities) when supplied separately and limited to that specific activity cannot themselves be treated as supply by way of construction of a road under Entry 3(iv)(a). The arrangement of reimbursement in the EPC Agreement and the independence of the shifting activity indicate it is not integrally the construction of the road but an ancillary or separate service. The Authority also noted consistent reasoning in a prior ruling of another AAR where similar utility-shifting works were held not to attract the concessional entry. Applying these findings, the Authority concluded the applicant's activity does not qualify as a composite works contract for construction of a road within Entry 3(iv)(a). [Paras 4]The applicant's activity of shifting electrical utilities does not fall under Entry 3(iv)(a) of Heading 9954 and thus cannot be regarded as a composite supply of works contract by way of construction of road.Final Conclusion: The application is dismissed insofar as it seeks a ruling that the subcontracted utility-shifting works qualify under Entry 3(iv)(a) of the Rate Notification; such works are not covered by that entry and thus do not attract the concessional rate provided therein. Issues Involved:1. Whether the activity carried out by the applicant falls under Heading 9954: Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R) and is liable to tax at 12%.Issue-wise Detailed Analysis:1. Admissibility of Application:The applicant has made an application under Section 97(1) of the GST Act, seeking an advance ruling on whether their activity falls under Heading 9954: Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R). The application was admitted as it met the criteria under Section 97(2)(a) and (b) of the GST Act, and there were no objections from the revenue officer.2. Applicant's Submission:The applicant is engaged in works contract services related to road and highway projects and has been subcontracted by M/s KCC Buildcon Private Limited for shifting electrical utilities for the NH-34 project. They argue that their work should be classified under Heading 9954: Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R), which pertains to construction services for roads, and should attract a GST rate of 12%.The applicant contends that:- NHAI, an agency of the Central Government, is responsible for the development of National Highways.- The applicant's work of shifting electrical utilities is directly connected to the highway construction.- The scope of work involves significant construction activities, making it a 'works contract' under Section 2(119) of the GST Act.- Based on the GST Council's intent and relevant case laws, the concessional rate applicable to the main contractor should also apply to the sub-contractor.3. Revenue's Submission:The revenue officer contends that the applicant's work of shifting electrical utilities does not fall under the concessional rate for works contracts related to road construction as specified in Notification No. 11/2017-CT(R). They reference an advance ruling from the Rajasthan Authority for Advance Ruling (RAJ/AAR/2019-20/34) to support their argument.4. Observations and Findings:The authority examined the submissions and documents provided by both parties. They noted that:- The applicant has been subcontracted by M/s KCC Buildcon Private Limited for shifting electrical utilities, which is a specific part of the main contract for highway construction.- The work of shifting utilities is ancillary to the main project but does not itself constitute road construction.- The recipient of the applicant's services is M/s KCC Buildcon Pvt Ltd, not NHAI, as per Section 2(93) of the GST Act.- The authority referred to the Rajasthan AAR ruling, which held that shifting/erection of electrical lines does not qualify as road construction services under Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R).5. Ruling:The authority ruled that the applicant's activities of shifting electrical utilities for the NH-34 project do not qualify as composite supply of works contract by way of construction of road under Entry No. 3(iv)(a) of Notification No. 11/2017-CT(R). Therefore, the concessional GST rate of 12% does not apply to the applicant's services.