Electricity company liable for GST only on supervision fees, not materials and labor costs

The AAR, UP ruled that an electricity distribution company providing supervision services for electric line installation is liable for GST only on supervision fees, not the entire amount including materials and labor costs. The authority determined that where customers arrange their own installation work and the company only supervises, there is no supplier-recipient relationship except for supervision services. The company's supervision constitutes a distinct service classified under SAC 999794, while actual installation work by independent contractors falls under SAC 9954. Since material costs and execution expenses are borne by the service recipient, only supervision charges form the taxable value for GST calculation.

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Issues Involved:
1. Determination of GST applicability on supervision fee versus entire amount including material and labour.

Summary:

Issue 1: Determination of GST Applicability on Supervision Fee versus Entire Amount Including Material and Labour

The applicant, M/s Madhvanchal Vidyut Vitran Nigam Ltd. (MVVNL), sought an advance ruling on whether GST would be applicable only on the supervision fee or on the entire amount including material and labour in cases where customers arrange the material and hire contractors for installation, with MVVNL's role limited to supervision.

Findings:
1. First Method: When MVVNL arranges the entire work with material and installation on behalf of the customer, GST is applicable on the entire amount, including reimbursement. This is not disputed by the applicant.

2. Second Method: When customers arrange the material and hire contractors, and MVVNL only supervises the work, GST applicability is questioned.

3. Applicant's Argument: MVVNL contends that GST should only be applicable on the supervision fee, citing:
- Section 7(1) of the CGST Act, 2017, defining "supply."
- Section 2(31) defining "consideration."
- Section 15(1) stating the value of supply as the transaction value.
- MVVNL is not a supplier of goods/services as per Section 2(105) since the work is undertaken by the customer.
- No consideration under Section 2(31) as payments are made directly to vendors/contractors by the customer.
- Work contract services are supplied by an independent contractor, not MVVNL.
- MVVNL is not liable for unpaid services by third-party contractors.
- The assets created (power lines) are immovable property and do not fall under the definition of "goods" in Section 2(52).

4. Precedents Cited:
- Appellate Authority for Advance Ruling, Uttar Pradesh, in the case of M/s Purvanchal Vidyut Vitran Nigam Ltd., held that GST is applicable only on the supervision fee.
- Similar ruling in the case of M/s National Highways Authority of India.

Ruling:
- Affirmative: GST is applicable only on the supervision fee charged by MVVNL.
- Negative: GST is not applicable on the entire amount including material and labour.

This ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, and subject to provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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