2022 (12) TMI 515 - AAR - GST

Works contract services for constructing warehouses and cold storage facilities attract 18% GST despite government ownership

In Re: M/s. Shree Constructions,

The AAR-Telangana ruled that works contract services for constructing warehouses and cold storage facilities for a state-owned corporation attract 18% GST ... Classification of services - rate of tax - Government authority/entity or not - works contract service provided to the Telangana State Industrial Infrastructure Corporation Limited (TSIICL) which is wholly owned by the Government of Telangana State by way of construction of building on their land - Whether it is 12% as the for Telangana State Industrial Infrastructure Corporation Limited (TSIICL) is wholly owned by the Government of Telangana or 18% as the for Telangana State Industrial Infrastructure Corporation Limited is a business entity and collecting rent for letting our Godown/Building from its customers? HELD THAT:- Telangana State Tourism development corporation limited is a Government entity. However the original notification No.11/2017 applied concessional rate of tax to Government Entities & Governmental Authorities @6% of CGST & SGST each only if such construction is predominantly for use other than for commerce, industry or any other business or profession. As seen from the agreement contract, the contract is for “construction of ware house & cold storage at primary processing centre in Jillela Village, Tangalapally Mandal of Rajanna Sircilla District. Further, the applicant has also averred that these godowns will be given on rent by TSIICL. Therefore, the concessional rate of tax is not applicable to this transaction and tax payable will be 9% CGST & SGST each. Further, this entry was amended in Nov’ 2021 vide Notification No. 15/2021 dt. 18.11.2021 and the phrases ‘Government Entity’ & ‘Governmental Authority’ were deleted from the Entry at S.No. 3(vi) of Notification No. 11/2017 with effect from 01.01.2022. Thus the works executed even for the ‘Governmental Entity or ‘Government Authority’ will be taxable @9% CGST & SGST each. Issues:1. Determination of the applicable tax rate for works contract services provided to a government entity wholly owned by the Government of Telangana State.Analysis:The applicant, engaged in works contracts, sought an advance ruling on the tax rate applicable to services provided to Telangana State Industrial Infrastructure Corporation Limited (TSIICL), a government entity wholly owned by the Government of Telangana. The applicant contended that since TSIICL is a government entity, a lower tax rate should apply. However, the Authority for Advance Ruling analyzed the nature of the contracts and the subsequent use of the constructed premises. It was observed that TSIICL was letting out the godowns constructed by the applicant for commercial purposes, which did not qualify for the concessional tax rate applicable to government entities. The ruling clarified that the tax rate for such contracts would be 9% CGST & SGST each, as per the amendments made to the relevant notification. The ruling emphasized that the deletion of the terms 'Government Entity' and 'Governmental Authority' from the notification meant that even contracts with such entities would be taxed at the standard rate of 9% each.The ruling highlighted the definitions of 'Governmental Authority' and 'Government Entity' as per the notifications and explained that the concessional tax rate applied only if the construction was predominantly for non-commercial use. Since the applicant's contracts involved construction for commercial purposes, the concessional rate did not apply. The ruling also referenced the specific amendment made in November 2021, which clarified the tax treatment for works contracts with government entities. It was emphasized that the amendments effectively subjected works contracts with government entities to the standard tax rate of 9% each for CGST & SGST.In conclusion, the ruling provided a clear interpretation of the tax implications for works contracts with government entities like TSIICL. It underscored the importance of analyzing the nature of the construction and subsequent use of the premises to determine the appropriate tax rate. The ruling's detailed discussion on the legislative provisions and notifications ensured a comprehensive understanding of the tax treatment for such transactions, guiding both the applicant and other entities engaged in similar works contracts with government entities.