TaxTMI 
TaxTMI 
2019 (8) TMI 1217
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....om contractors? 3. The Applicant has submitted in annexure A of the application, the brief about the company as under : Delhi Mumbai Industrial Corridor Government of India has envisaged development of Delhi Mumbai Industrial Corridor ((DMIC) along the alignment of proposed Multi-modal High Axe Load Western Dedicated Freight Corridor (DFC) between Delhi and Mumbai. Further, Delhi Mumbai Industrial Corridor Development Corporation Limited (DMICDC), a special purpose company, was incorporated to establish, promote and facilitate development of the DMIC Project. Dholera Special Investment Region (DSIR) Dholera Special Investment Region (DSIR) will be Greenfield Industrial City planned and located approximately 100 KM south of Ahmedabad. The project as envisaged will be the first initiative from DMICDC to create a linear zone of industrial clusters and nodes to be developed in the influence area of Western Dedicated Freight Corridor (DFC). As a new city by 2030, Dholera will cater to a population of 2 million and an employment base of over 8,50,000. This project is considered as dream project of our Prime Minister Shri Narendra bhai Modi. Government of Gujarat has been proac....
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....d which will be used for common infrastructure is known as 'public purpose' land. In accordance with GTPUD, for the development of Dholera Industrial City, DICDL has awarded Engineering, Procurement and Construction Contract and it has also awarded certain consultancy contracts as under: EPC CONTRACTS CONSULTANCY CONTRACTS Sr. No. Name of the Contractor Value of Contract Sr. No. Name of the Consultant Value of Contract 1 Cube Construction 72.31 Cr 1 AECOM India Private - 2 Jugalkishor Ramkishan 14.19 Cr 2 Yooshin Engineering 25.43 Cr 3 Larsen & Toubro Ltd - 1,734.04 Cr 3 Stup Consultants Private 14.37 Cr 4 Larsen & Toubro Ltd - 53.91 Cr 4 Vyas Giannetti Creative 1.64 Cr 5 SPML Infra Limited - 90.00 Cr 5 Multi Media Consultants 2.40 Cr 6 HCP Design, Planning 1.99 Cr TOTAL 1964.45 TOTAL 45.83 Applicant has interpreted the questions raised in the application as per annexure B of application as follows : As stated in ARA-01, of their submission in respect of the questions raised by applicant in point no.14 and the additional submission dated 12.07.2018, is discussed by applicant below : ❖....
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....pecial Investment Region and Government is having 100% control by way of holding of equity in the company. Applicant's view and understanding: Hence, in applicant's considered view, applicant is very well covered under the definition of "Government Entity" and it is eligible for benefits that are available to Government Entity under notification no 11/2017-CTR dated 28-06-2017. ❖ Part-B: Applicant can very well avail the Input Tax Credit (ITC) of the Tax paid on the aforesaid contracts: Summary of GST rate applicable on EPC contracts awarded by the applicant: EPC CONTRACTS Sr.No. Name of the Contractor Value of Contract Applicable rate of GST 1 Cube Construction Engineering Ltd. - ABCD 72.31 Cr 12% 2 Larsen & Toubro Ltd. - STP 53.91 Cr 12% 3 SPML Infra Limited - WTP 90.00 Cr 12% 4 Larsen & Toubro Ltd. - R&B 1,734.04 Cr 12% 5 Jugalkishor Ramkishan Agrawal Infra. Pvt Ltd.- River Bunding 14.19 Cr 12% TOTAL 1964.45 Cr Under GST law, taxpayer can claim ITC on inputs and input services used for business purpose. The definition of input and input services becomes very wide. The said definitions are sta....
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....ssions and other contractual arrangements on a commercial format, in public private sector partnership mode or otherwise, for the provision and development of projects related to power generation, transmission and distribution, water treatment and supply, waste management, sewage treatment, sanitation, roads, transportation, logistics parks, exhibition cum convention centers, street lighting, city gas supply along with supporting amenities that will essentially include residential clusters, educational clusters, research, commercial, recreation, offices & administration uses and to further the aforementioned objectives. Also to carry out all kinds of business of developers, promoters, consultants, designers, manufacturers, processors, assemblers, agents, system designers, dealers, contractors, builders, engineers, distributors, marketing, materials, personnel, planning, management, dealers for erection and commissioning of all types of infrastructure and all other works, facilities, services, systems, methods, erections and things of any description whatsoever as the Company thinks proper for facilitating, developing, establishing and improving the project. Based on the aforesaid ....
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....ervices received by applicant from above mentioned contractor is for further development of the Dholera City and such development will be undertaken by applicant in future after the basic infrastructure facilities are in place. Therefore, it is submitted that applicant can very well avail the ITC of Tax paid on composite works contract service availed from contractors stated in Part B. Applicant is entered with Cube Construction Engineering Limited is for Design and Construction of Administration and Business Center of Dholera for design and construction of Administration and Business Centre of Dholera (ABCD) Building, maintenance of project and fulfillment of other obligation. Administrative & Business Centre for Dholera (ABCD Building) is envisaged to function as a centre for administering & overseeing the development works of DSIR. DSIRDA and by DICDL along with other stakeholders being local development authority will pursue administrative, manage and monitor the developmental activities of DSIR. It is cleared that above building is used for administration activity of applicant and so that applicant can very well avail the ITC of service received from cube construction limited....
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....er the agreement with various contractors, applicant aims to build an image of the best safety conscious practice in DSIR construction and operation undertaken by contractors. An unsafe act or conduct in the construction site may result into an illness, injury, property damage or worst, loss of life. The contractor is expected to take safety very seriously and shall keep the construction site safe at all the times. The Employer shall practice zero tolerance towards unsafe behavior by any parties on the construction site. There is table provided in the agreement indicates the safety, health and environment violation (unsafe act / unsafe condition) and charges to be recovered from contractors. Copy of sample agreement where the said violation charges are mentioned is attached herewith and marked as Now, the question comes whether said violation charges which are adjusted from the payment of the contractors is liable to GST or not. It is noted that said violation charges are not collected separately by the applicant; however the same is adjusted from the payments made to contractors. To check the GST applicability, we need to refer the definition of supply and confirm that whethe....
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...., 2017, interest or late fee or penalty for delayed payment of any consideration for any supply received shall be included in the transaction value of supply. However, the said violation charges are not in the form of penalty for delayed payment and hence need not to include in the value of supply of services provided by contractors. In nutshell, the aforesaid transaction undertaken between applicant and contractors is not covered under definition of 'supply' and hence no GST shall be leviable on the amount received by applicant from various contractors in relation to violation charges related to safety and health of workers. Applicant has entered into contracts with various contractors on a turnkey basis for construction of Road and buildings, water treatment plants, sewage treatment plants, admin building and many future projects. As per the contract the milestone and time of completion are well defined and where there is delay in completion of a particular stage as defined under contract then there is a separate clause for Liquidated Damages which is described in detail as under: (1) In the event that the contractor fails to achieve any project milestone or the scheduled com....
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....al terms, applicant will have to refund back the amount of Rs. 50,00,000/-. There is one more clause in para no 10.3.2, the agreement with regards to the damages which is reproduced as under: "For the avoidance of doubt, it is agreed that recovery of Damages under this clause 10.3.2 shall be without prejudice to the rights of the Employer under this Agreement including the right of Termination thereof." As per the above clause, the applicant reserves the right to terminate the right to recover the damages from contractors. It is further submitted that board of directors of the applicant in board meeting held on 11/11/2016 resolved that in event of 78% excessive rainfall during this period, the board after deliberation decided to defer the imposition of such damages but it is clarified that interest on such deferment will be charged and levied from 1st day of default. In the case of applicant there is contingency occurred for the payment of LD charges. It is clear from the extract of contract clause that LD would be charge on non-achievement of milestone but if in future milestone achieved and project gets well in time then applicant is required to refund the amount of LD. Acc....
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....there is difference in facts of the case of applicant as compared with the fact of the case stated in the Maharashtra Authority for Advance Ruling and the case of applicant. As per the illustration discussed above, the applicant is contractually obligated to refund the amount of damages collected in event of the contractor achieving the milestone subsequently. The applicant has been entered with the clause of liquidated damages for delayed completion of contracts by various contractors. The contractors shall construct the project works in accordance with the project completion schedule set forth in schedule-J of the agreement. In the event that the contractor fails to achieve any project milestone or the scheduled completion date within a period of 30 days from the date set forth in schedule-J, unless such failure has occurred due to force majeure or for reasons solely attributable to the employer, it shall pay damages to the employer of a sum calculated at the rate of 0.05% of the contract price for delay of each day reckoned from the date specified in schedule-J and until such project milestone is achieved or the works are completed; provided that if the period for any or all....
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....any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised; Above arrangement entered by an applicant is just like advance credit given to the contractors and for that amount applicant is charging interest thereon. It is just an amount which is receivable by applicant for the period starting from 1st milestone to the end of next milestone but the applicant is not receiving the amount from contractors but charging the interest on that much of amount which they are differing. Hence, from the above it is very much clear that this is just an interest income on granting the use of money to the contractors and it is clearly exempt from the GST as per the above clarification. So as per the above explanations interest income on that charges is clearly exempt from GST Law. Applicant has concluded in the following table: Part Question Applicant's View A Whether applicant is covered within definition of "Government Entity"? Yes, the applicant is covered within the definition of "Government entity". B Whether applicant is eligible to claim ITC of GST charged by contractors? Yes, applicant ....
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....s a Project Development Agency for Dholera Special Investment Region. From the above definition, it appears that the applicant is a Government entity. (b) Whether applicant is eligible to claim ITC of GST charged by contractors? Clause (c) of Section-17(5) of CGST Act, 2017 provides the eligibility of input tax credit in case of works contract service where it is an input service for further supply of works contract service. Considering the extent of business of construction & erection, maintenance, repair to be conducted by the applicant, the eligibility for input tax credit can only be decided after ensuring that the further supply of works contract service is made by the applicant on a case to case basis. (c) Whether applicant is liable to collect GST on amount recovered from contractors on account of breach of conditions specified in the contract? The applicant has contended that they would adjust the violation charges against the payable amount to the contractor. The applicant can reduce his tax liability only if the contractor has reduced the input tax credit claimed by the same amount. Thus, it follows that the principle of unjust enrichment or reduction in output tax ....
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....of conditions specified in the contract ? : We find that Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides that the following activity be treated a supply of services: "(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" As per the above provision, the transaction shall be treated as supply of services. Moreover, as violation charges are payable by the contractors, the same are required to be treated as consideration. Therefore, this transaction is liable to GST. (iv) Whether applicant is liable to collect GST on amount recovered from contractors on account of not achieving milestone ? We find that Clause (e) of Para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 provides the following activity to be treated a supply of services: "(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and" As per the above provision, the transaction shall be treated as supply of services. Moreover, liquidated damages are payable by the contractors, therefore, the same are to be treated as consideration. Therefore, thi....