2022 (12) TMI 515 - AAR - GST

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

The AAR-Telangana ruled that works contract services for constructing warehouses and cold storage facilities for a state-owned corporation attract 18% GST ... Concessional rate for composite supply of works contract provided to Governmental Authority or Government Entity - use predominantly for commerce, industry or any other business or profession - definition of Governmental Authority and Government Entity for concessional entry - deletion of Government Entity/Governmental Authority from concessional entry with effect from 01.01.2022 - applicable tax rate of 9% CGST and 9% SGST on taxable works contractsConcessional rate for composite supply of works contract provided to Governmental Authority or Government Entity - use predominantly for commerce, industry or any other business or profession - deletion of Government Entity/Governmental Authority from concessional entry with effect from 01.01.2022 - applicable tax rate of 9% CGST and 9% SGST on taxable works contracts - Rate of tax applicable to works contract executed for Telangana State Industrial Infrastructure Corporation Limited (TSIICL) for construction of warehouses and cold storage which are let out on rent by TSIICL. - HELD THAT: - The Authority examined Notification No. 11/2017 and its explanation which initially accorded concessional rate to works contracts supplied to Governmental Authorities or Government Entities only where the constructed civil structure was 'predominantly for use other than for commerce, industry, or any other business or profession.' The contracts under consideration relate to construction of warehouses and cold storage which TSIICL proposes to let out on rent, constituting use for business/commerce. Consequently, the concessional entry is not attracted. Further, Notification No. 15/2021 (effective 01.01.2022) deleted the phrases 'Government Entity' and 'Governmental Authority' from the said entry, thereby removing the special concession for such entities with effect from that date. On these bases the Authority ruled that the works contracts are taxable at the rate applicable to standard taxable works contracts, viz., 9% CGST and 9% SGST. [Paras 8, 9]Works contracts executed for TSIICL for construction of warehouses and cold storages which are to be let out on rent are taxable at 9% CGST and 9% SGST.Final Conclusion: The Advance Ruling clarifies that construction of warehouses and cold storage for TSIICL, which are to be let out on rent, do not qualify for the concessional rate for Government Entities and are taxable at 9% CGST and 9% SGST. 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.