Sub-contractor liable for 18% GST on irrigation services without main contractor consent under Notification 11/2017

The AAAR Gujarat rejected the appellant sub-contractor's appeal seeking 12% GST rate for irrigation construction and maintenance services. The Authority held that the appellant's services to M/s Radhe Construction (intermediate sub-contractor) were not covered under the concessional rate provisions of Notification No. 11/2017-CT(Rate) entries 3(iii) or 3(ix). The sub-contracting arrangement lacked main contractor consent as required. The work order specifically mentioned 18% GST liability, indicating awareness that further sub-contracting would attract 18% GST rate. The appellant was held liable for CGST @9% and SGST @9% under Entry 3(ii)/3(xii) of the notification.

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Issues Involved:
1. Time limit for filing appeal.
2. Applicability of GST rate on services provided by sub-contractors.
3. Classification of services under GST.
4. Eligibility for concessional GST rate of 12%.

Summary:

1. Time Limit for Filing Appeal:
The appeal was filed after the prescribed time limit of 30 days from the date of communication of the Advance Ruling. However, considering the Supreme Court's order extending the limitation period due to the COVID-19 pandemic, the appeal is deemed to be filed within the prescribed time limit under Section 100 of the CGST Act, 2017.

2. Applicability of GST Rate on Services Provided by Sub-Contractors:
The appellant, M/s Shreeji Earth Movers, provided works contract services as a sub-contractor to M/s Radhe Construction, who was a sub-contractor to the main contractor, M/s JSIW Infrastructure Pvt. Ltd. The original contract was with the Irrigation Department of the State of Gujarat. The GAAR ruled that the GST rate on the appellant's services is 18%, classifying the services under Heading 9954, Entry No. 3(H) of Notification No. 11/2017-CT(R) dated 28.06.2017.

3. Classification of Services under GST:
The appellant contended that their services should be classified under a concessional rate of 12% as per Notification No. 20/2017-CT(R) dated 22.08.2017. However, the appellate authority found that the appellant did not have a direct contract with any governmental authority and was not classified under the specified categories for the concessional rate.

4. Eligibility for Concessional GST Rate of 12%:
The appellant argued that they should be eligible for the concessional rate of 12% GST as a sub-contractor. However, the appellate authority noted that the appellant is a second-level sub-contractor and does not have a direct relationship with the main contractor or the governmental authority. Therefore, the appellant does not fulfill the criteria for the concessional rate under Notification No. 11/2017-CT(R) as amended by Notification No. 1/2018-CT(R).

Conclusion:
The appellate authority upheld the decision of the GAAR, ruling that the appellant, M/s Shreeji Earth Movers, is liable to discharge tax at the rate of CGST @9% and GGST @9% under Entry No. 3(ii) of Notification No. 11/2017-CT(R) dated 28.06.2017, as amended. The appeal was rejected, and the Advance Ruling No. GUJ/GAAR/R/43/2021 dated 11.08.2021 was upheld.

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