TaxTMI 
TaxTMI 
2019 (3) TMI 1076
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....dated 15.09.2018 = 2018 (10) TMI 1146 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN. Brief facts of the Case 3. The Appellant i.e. M/s. Nagaur Mukundgarh Highways Pvt Ltd. having Goods and Service Tax (GST) Registration Number 08AAFCN4743H1ZC is a company incorporated as Special Purpose Vehicle (SPV) under the provisions of Companies Act, 2013 for the purpose of undertaking two laning/intermediate laning of sections of State Highway (Project) on DBOT (design, built, operate and transfer) basis . The Appellant has been engaged as a 'Concessionaire' wherein the Public Works Department (PWD), Government of Rajasthan has granted concession to construct, operate and maintain the project during : 1. the Construction Period which shall commence from the appointed date and will end on Commercial Operation Date (COD) and 2. a period of 10 years from the COD (O&M period). 4. The Appellant shall receive 50% of the project cost(i.e. cost of construction) which shall be paid to the applicant in five equal instalments during the construction period on the basis of achievement of milestones i.e. achieving specified percentage of physical progress. 5. The Appellant shall receive the ....
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.... period. The applicant is paying applicable GST on full value of the project and they are not supplying any exempted goods and services during the construction period of 2 years, therefore they are entitle to claim full ITC paid on all legible goods and services. 11. We are not agree with the contention of the applicant in respect of second question that they are entitle to claim ITC on procurement of goods and services after reversing the ITC under Section 17(2) of the CGST Act 2017 read with Rule 42 of the Central Goods and Services Tax Rule, 2017 as Annuity Payment received during the period O & M period is exempted and payments received for O&M is subject to GST. The annuity received by the applicant is payment of remaining 50% of cost of the project in biannual equal instalments on which the applicant paid GST during the construction period. As the annuity so received by the applicant is taxable, there is no need to take apportioned credit under Section 17(2) of the CGST Act, 2017. Grounds of Appeal 12. The Ld. Rajasthan AAR has erred in concluding that the Project Works undertaken by the Appellant under the aegis of the said Concession Agreement is a works contract b....
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....olved in Annuity-based Projects and the event of 'transfer' being subject to registration under section 17 of Registration Act, 1908. "Upon Termination, the Concessionaire shall comply with and conform to the following Divestment Requirements.... (vi) executes such deeds of conveyance, documents and other writings as the Authority may reasonably require for conveying, divesting, and assigning all the rights, title and interest of the Concessionaire in the Project Asset, including manufacturers' warranties in respect of any plant or equipment and the right to receive outstanding insurance claims to the extent due and payable to the authority, absolutely unto the Authority or its nominee;" 17. From above said clause of the concession agreement it is clear that No title vests in the State unless it is duly handed over to the Authority through deed of conveyance by a document that is duly registered. The Concession Agreement makes it abundantly clear about the time and manner of 'transfer' of the Project Works. 18. Further, Project Works involving financing construction of large-scale infrastructure is well documented in the principles of accounting contained in Indian Acco....
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....ntant appeared on behalf of the Appellant on 05.02.2019 and reiterated the submissions made in their appeal memorandum. He also submitted additional submissions in their support. Discussion and Findings 24. We have gone through the Appeal papers filed by the Appellant, original application filed before the AAR and Ruling of the AAR. Having gone through all these documents, we find that the Appellant is not satisfied with the ruling of the AAR on these two counts. 1. The AAR has ruled that the annuity payments are not exempted by virtue of Entry No. 23A of the notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Hence these payments are also taxable in the construction phase itself. The Appellant is not satisfied with this ruling and has raised objection as narrated in the "Grounds of Appeal". 2. The AAR has ruled that full credit is available to the Applicant (Now 'Appellant') in the post construction phase (O&M phase) because the annuity received in this phase was liable to be taxed in the construction phase itself and O&M payments are also liable to be charged GST as and when received . The Appellant is not satisfied with this ruling and has raised objection ....
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....ervice provided by concessionaires to NHAI. 3. The works contract services by way of construction of road was exempt from service tax. However, service tax was leviable only on the service component of such works contract (40%). The material or goods component of the works contract was leviable to VAT. However, it was subject to State VAT (composition rate). 4. Construction of roads is now subject to 12% GST. EPC contractor (Engineering, Procurement and Construction) pays 12% GST on the service of road construction to the concessionaire. 5. In view of the above, there is a free flow of ITC from EPC Contractor to the concessionaire and thereafter to NHAI. As a result, the GST of 12%leviable on the service of road construction provided by concessionaire to NHAI would be paid partly from the ITC available with him. 6. A view may be taken for grant of exemption to annuity paid by NHAl/State Highways Construction Authority to concessionaires for construction of roads. This will amount to not taxing the value addition of the concessionaire. The argument for exempting annuity from GST is that the road construction service was exempt from service tax. However, GST would continu....
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....concessionaire. The argument for exempting annuity from GST was that the road construction service was exempt from service tax. However, GST would continue to be levied on the road construction service provided by the EPC contractor to the concessionaire. After discussion, the Council decided to treat annuity at par with toll and to exempt from tax, service by way of access to a road or bridge on payment of annuity. And hence the abovementioned Entry No. 23A was introduced. Entry No. 23A ibid squarely covers the annuity paid to the Concessionaire (i.e. Appellant) by the PWD, Govt. of Rajasthan. The AAR erred in denying the benefit of Entry No. 23A ibid to the Appellant on the ground that the Entry No. 23A belongs to SAC 9967 which is meant for support services of transportation while the activity of the appellant is liable to be taxed under SAC 9954. After going through the Scheme of Classification of Services, Explanatory notes to classification of services, Agenda of the GST Council meeting, Minutes of the GST Council meeting and Entry No. 23A ibid, we are of the firm view that whole project can be divided into two parts- one is construction phase and second is O&M phase. The act....