Government entity with 95% state ownership liable for 18% GST on works contracts from January 2022

Kerala AAR ruled that M/s. Kerala Land Development Corporation Ltd., being a government entity with 95.23% state ownership, is liable for 18% GST on works contracts from 01/01/2022 onwards. The reduced 12% GST rate benefit for works contracts supplied to governmental entities was discontinued per SGST Circular No. 01/2022. The corporation's services did not qualify for the 12% rate under specified exemptions, making 18% the applicable rate.

---

---

Issues Involved
1. Applicability of GST rate for works executed by the applicant from 01/01/2022 to 17/07/2022.
2. Classification of the applicant as a "Governmental Entity."
3. Interpretation of relevant GST notifications and circulars.

Detailed Analysis

1. Applicability of GST Rate for Works Executed from 01/01/2022 to 17/07/2022
The applicant sought clarification on whether GST at 12% is applicable for works executed during the period from 01/01/2022 to 17/07/2022, as per the notification from the State Goods and Services Tax Department, Government of Kerala, vide Circular No. 01/2022 dated 19/01/2022. The ruling clarified that, effective from 01/01/2022, the benefit of the reduced tax rate of 12% on works contract services supplied to a Governmental Authority or a Government Entity was discontinued. Consequently, the applicable GST rate for the services provided by the applicant during this period is 18%.

2. Classification of the Applicant as a "Governmental Entity"
The applicant, Kerala Land Development Corporation Limited (KLDC), is a fully owned Kerala Government undertaking under the administrative control of the Agriculture Department. The corporation was established with more than 90% participation by the Government, fulfilling the criteria under Notification No. 12/2017 C.T. (Rate) dated 28.6.2017, which defines a "Governmental Entity" as an authority or body set up by an Act of Parliament or State Legislature or established by any Government with 90% or more participation by way of equity or control to carry out functions entrusted by the Government.

3. Interpretation of Relevant GST Notifications and Circulars
The ruling examined Circular No. 01/2022 dated 19/01/2022, which was based on amendments to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, revised by Notification No. 22/2021-Central Tax (Rate) dated 31.12.2021. These amendments specified that, effective from 01/01/2022, the reduced tax rate of 12% for works contract services supplied to Governmental Authorities or Government Entities was discontinued, and the rate was revised to 18%. The relevant entries in the notification were amended to reflect that the reduced rate of 12% would no longer apply to services provided to Governmental Authorities or Government Entities, but only to services provided to the Central Government, State Government, Union Territory, or local authorities.

Conclusion
The ruling concluded that the applicant, being a Government Entity, is liable to pay GST at the rate of 18% for the works executed during the period from 01/01/2022 to 17/07/2022. The services rendered by the applicant do not fall under the specific entries that would qualify for the reduced rate of 12%, and therefore, the applicable rate is 18%.

Ruling
Question: Whether GST at 12% is applicable for the period from 01/01/2022 to 17/07/2022 for the works executed by the applicant as per notification from SGST Kerala vide Circular No. 01/2022, No. CT/3/2021-C1 dated 19/01/2022Rs.

Ruling: No. The applicant is liable to pay GST at 18% for the period from 01/01/2022 to 17/07/2022.

---