2022 (12) TMI 514 - AAR - GST

Tourism corporation construction services face 18% GST rate despite government entity status under works contract classification

AAR Telangana ruled on GST rate classification for works contract services provided to a state tourism corporation. The corporation, being a government ... Concessional rate for works contract provided to a Government Entity - Government Entity / Governmental Authority - definition and 90% participation test - predominant use test - use other than for commerce, industry or any other business or profession - composite supply of works contract - effect of Notification amendment changing rate with effect from 01.01.2022Concessional rate for works contract provided to a Government Entity - predominant use test - use other than for commerce, industry or any other business or profession - effect of Notification amendment changing rate with effect from 01.01.2022 - Rate of tax applicable to the contracts for bund beautification and construction of suspension bridge executed for Telangana State Tourism Development Corporation Limited. - HELD THAT: - The Authority found that Telangana State Tourism Development Corporation Limited qualifies as a Government Entity within the definitions inserted in the rate notification. The contracts for bund beautification and the suspension bridge were held to be works executed not for commerce, industry or any other business or profession and thus fall within the Entry at S.No.3(vi) of Notification No.11/2017 granting concessional rate for works contracts supplied to a Government Entity where the predominant use is other than for commerce. The Authority further observed that the notification was amended such that the concessional rate applicable up to the specified date changed thereafter, and accordingly applied the rates as per the temporal cut off stated in the notification. [Paras 8, 9]The two contracts are eligible for the concessional rate as works supplied to a Government Entity - combined CGST+SGST at the concessional rate applicable upto 31.12.2021 and at the revised rate applicable from 01.01.2022.Composite supply of works contract - predominant use test - use for commerce, industry or any other business or profession - Rate of tax applicable to the contracts for establishing mini shilparamam and construction of Neera cafe & plant executed for Telangana State Tourism Development Corporation Limited. - HELD THAT: - The Authority held that these works will result in structures used for commercial activity by the Corporation and therefore do not satisfy the requirement of being meant predominantly for use other than for commerce, industry or any other business or profession under the Entry at S.No.3(vi). Consequently, these contracts are not eligible for the concessional rate available to supplies made to a Government Entity and attract the standard rate for works contracts from the inception of those contracts. [Paras 8, 9]The two contracts are not eligible for the concessional Government Entity rate and attract the standard combined CGST+SGST rate applicable to works contracts (i.e., the ordinary rate from inception).Final Conclusion: The Authority ruled contract wise: works intended for non commercial public use executed for the Government Entity attract the concessional rate (as applicable upto 31.12.2021 and at the revised rate thereafter), whereas works resulting in structures used for commercial/business purposes do not qualify for the concessional rate and attract the standard rate from inception. Issues involved:1. Determination of the applicable tax rate for works contract services provided to a Government entity by a construction company. Analysis:1. Facts of the Case: The applicant, a construction company, sought an advance ruling on the tax rate applicable to works contract services provided to Telangana State Tourism Development Corporation Limited (TSTDCL), a Government entity. 2. Legal Interpretation: The applicant argued that a previous ruling mandated collecting GST at 18% for similar services. The applicant contended that TSTDCL being a Government entity should attract a lower tax rate.3. Discussion & Findings: The Authority analyzed the nature of contracts executed by the applicant for TSTDCL. Contracts involving public structures attracted a concessional tax rate of 6% CGST & SGST till 31.12.2021, later revised to 9% each. Contracts for commercial structures attracted the standard rate of 9% CGST & SGST from the beginning.4. Ruling: The Authority clarified that the tax rate for works contract services provided to TSTDCL varied based on the nature of the contract. Contracts for public structures were taxed at 6% or 9%, while contracts for commercial structures attracted the standard rate of 9% CGST & SGST.5. Conclusion: The ruling provided a detailed breakdown of the applicable tax rates for each specific contract executed by the applicant for TSTDCL, based on the nature of the works and the entity's classification.