TaxTMI 
TaxTMI 
2019 (10) TMI 800
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...., etc., which attracts levy of 12%. 3. The applicant furnishes relevant informations related to the activity as under. 3.1 The Applicant, is a Company, registered under the Goods and Services Act, 2017, engaged in the activity of undertaking civil construction, mechanical structural work, erection of equipment, electrical infrastructure including sub-stations, etc. The applicant also undertakes operation & maintenance of Waste Water Treatment Plants, Flocculation systems, Reverse Osmosis, Effluent Treatment Plants, Drinking water facilities, Zero Liquid Discharge Plants. 3.2 The Applicant (MEIL) is engaged in civil construction, mechanical structural work, erection of equipment, electrical infrastructure including substations etc. MEIL also undertakes operation and maintenance of Waste Water Treatment Plants, Flocculation Systems Reverse Osmosis, Effluent Treatment Plants, Drinking Water Facilities, Zero Liquid Discharge Plants, etc. 3.3 The Applicant regularly bids for the tenders floated by various electricity companies. In the instant case, the applicant participated in the tenders floated by some of the electricity distribution companies based in Karnataka i.e., Hub....
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....of the 'detailed work award' the 'scope of work' has been defined in Section -VII of Volume-I of the tender document. The relevant paras of the scope of work as per the tender document is extracted below: 2.0 The following works are proposed for improvement of Distribution Network under IPDS on Total Turnkey basis in following towns of Udupi Circle. Viz Udupi Town. Saligrama Town, Kundapura Town and Karkala Town. 3.0 The scope of work under the subject package includes site survey, planning, design, engineering, assembly manufacturing, testing, supply, loading, transportation unloading, insurance, delivery at site, handing, Storage, installation, testing, commissioning and documentation, of all items/ material required to complete the Electrification works. 5.0 Any other items not specially mentioned but which are essentially required for satisfactory performance and completeness of work, shall be deemed to be included in the scope of specifications and works and the same shall be executed/carried out by the bidder at no extra cost to the MESCOM. 6.0 The works in each division are handled by concerned engineer in-charge of the O & M Division/ Aut....
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....kV Lines, Installing & Commissioning of 25/63 KVA DTCs, Drawing Z & Commissioning of LT 3 phase lines on total turnkey basis under Rate contract for the period of one year in Urban & Rural Sections of Shikaripura O&M Sub-division, Shikaripura O&M division as specified on the bid documents. ii. The Scope of this Proposal is on 'TOTAL TURNKEY BASIS' wherein all the materials/equipment to be supplied shall be as per IS & MESCOM specification and the services required for the completeness of the works as per specifications come under the scope of the contractor. This shall completely cover packing, forwarding, supply of Materials on FOR Site basis including Insurance and Transportation. Erection, Testing at Site and Commissioning. 4.2.2 From the above it is clear that the work under consideration is a turnkey infrastructure work. 4.3. Rural Electrification and System Strengthening works in Udupi District of MESCOM, Karnataka under Deen Dayal Upadhyaya Gram Jyothi Yojana (DDUGY). 4.3.1 The contract for 'detailed work award' comprises of two parts. First part being the supply of goods and second part the supply of services. Para 4 of Schedule-IV of the 'detailed work aw....
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....f 'DDUGLY' should be done in materials viz, Poles, Transformers (all Rating), Cables, Energy Meter, etc procured for this works 10.0 All materials Released from the existing system /line of the proposed project, has to be returned to corresponding MESCOM Divisional Stores. The Payment In this regard will be admitted only after receipt of store acknowledgement. 4.3.2 A brief scope of work provide under this contract, again, requires MEIL to undertake 'Inland transportation (specified equipment and material) to final destination at site, insurance, taking delivery, unloading, handling, storing and supply including associated civil work, testing and commissioning of all equipment and materials supplied by the contractor and documentation of all items/material required to complete Rural Electrification & System Strengthening works in Udupi District. 5. Contracts with BESCOM 5.1 Contract for the work of providing infrastructure to regularize unauthorized Irrigation Pump (IP) sets in Kolar division. 5.1.1 The contract for providing infrastructure comprises of two parts. First part being the supply of goods and second part the supply of services. 5.1.2 Supply of Go....
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....n, commissioning, installation services in the nature of original works. 8. It is submitted that the relevant entry in the Rate Notification which covers the services by way of construction, erection, commissioning, under chapter Heading 9954 being 'service provided to Electricity Supply Companies (wholly owned Government of Karnataka undertaking) by way of construction, erection, commissioning, installation, etc'. is entry 3(vij(a), which provides for the rate of GST at 12%. The relevant portion of the entry reads as follows: SL. No. Heading Description of Services Rate Condition No. (1) (2) (3) (4) (5) Heading 9954 (vi) Composite supply of works contract as defined in clause (119) if section 2 of the Central Goods and Services Tax Act, 2017, provided to the Central Government, State Government, Union Territory, a local authority or a government, authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of- (a) A civil structure or any other original works meant predominantly for use other that for commerce, industry, or any other business....
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....bject to tax under Entry No. 3(vi)(a) to Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017 (as amended] which provides for applicable rate of Integrated Tax at the rate of 12%. A. THE SERVICES UNDER CONSIDERATION CONSTRUCTION SERVICES COVERED UNDER SAC 9954 A.1. The Central Board of Indirect Taxes and Customs (CBIC) has released Explanatory Notes to the Scheme of Classification of Services on 11.06.2018. The Scheme of Classification of Services adopted for the purposes of GST is a modified version of the United Nations Central Product Classification (UNCPC). The Explanatory notes for the said Scheme of Classification of Service is based on the explanatory notes to the UNCPC, and as recommended by the committee constituted for the purpose. The explanatory notes indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These ae used by the assessee and the tax administration as a guiding tool for classification of services. A.2 Heading 9954 covers construction services. Sub-heading 995425 covers general construction services of local pipelines and electricity & communication cables and related work....
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....er form) is involved in the execution of such contact. B.2. In terms of the above provision, an activity of supply is treated as works contract only if the following conditions are fulfilled: Sl.No. Criteria Answer Remark 1 Whether the supply is under a contract? Yes If the answer for all the question is "Yes", then such contracts Works Contracts 2 Whether there is transfer of property in goods involved while executing such contract? Whether the contract is for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, Maintenance, renovation, alteration or commissioning of any immovable property? B.3. It is submitted that as per the factual matrix, the supply of services is under a contract entered into between MEIL and the electricity distribution companies. It is established from the work orders that there is a transfer of property in goods involved while executing the contracts. B.4. In terms of the above, the third questions needs to be examined critically, as to whether the work undertaken by the applicant results in emergence of an immovable p....
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.... assimilated in a permanent structure, the movable character of the same becomes extinct, Where a plant has to be assembled, erected and attached to the earth by a foundation and it is not capable of being sold as it is, without anything more, the same does not constitute "goods" and becomes immovable property. B.9. In Commissioner of Central Excise, Indore v. Virdi Brothers - 2007 (207) E.L.T. 321 (S.C.) = 2006 (12) TMI 3 - SUPREME COURT Hon'ble Supreme Court has referred to Circular No. 58/1/2001-CX., dated 15.01.2002, wherein it was clarified as follows: "... (d) Integrated plants/machines, as a whole, may or may not be 'goods'. For example, plants for transportation of material (such as handling plants) are actually a system or a network of machines, The system comes into being upon assembly of its component. In such a situation there is no manufacture of 'goods' as it is only a case of assembly of manufactured goods into a system. This cannot be compared to a fabrication where a group of machines themselves may be combined to combined to constitute a new machine which has its own identity/ marketability and is dutiable (e.g. a paper making machine asse....
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....ng: • Rural Electrification and setting up of electricity distribution work on turnkey basis. • Laying of high tension wires and erection of distribution transformers on turkey basis. B.14, By applying the ratio of the above decisions into facts of the present case it can be said that the instant work has following ingredients: • The works of electrification has a permanent location therefore, have an inherent element of permanency. • Electrification works are not feasible to be shifted from one place to another, • The works are entrusted by the Government Projects constitute the element of permanency. • It would involve construction of civil structure which cannot be moved and has to be demolished. B.15. In view of the above, it is submitted that the current work is intended to be permanently attached to earth without the intention of removing or such removal is not possible without causing substantial damage to the goods. Therefore, work undertaken by the applicant squarely fails under the category of works contract. B.16. In this regard the applicant also would like to refer to In this regard ....
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....cipation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority. C.2. As can be seen, the definition of Government Entity means an authority or a board or any other body which is established by any Government, with 90 percent or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority. C3. In this regard, it is submitted that the electricity distribution companies HESCOM, MESCOM and BESCOM are established by the Government of Karnataka, with shareholding of more than 90 percent. The annual reports of HESCOM, MESCOM and BESCOM are enclosed. C.4 It is submitted that in the Annual Report for the year 2016-17 of BESCOM, Note 2.16 provides the details of shareholder holing more than 5% shares in the Company. In terms of the said Note, the Hon'ble Governor of State of Karnataka holds 54.69 Crores of shares in BESCOM, which constitutes 99.99% of total equity shares of total shares of Rs. 10 each fully paid equity shares as at 31.03.2017. C.5 Similarly, it is submitted that in the Ann....
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....ntral Act. C.11 As per Section 86 of the Electricity Act,2003, the State Electricity Regulatory Commissions are required to discharge the following functions: a) Determine the tariff for generation, supply, transmission and wheeling of electricity; wholesale, bulk or retail, as the case may be, within the State; b) Regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State; c) Facilitate intra-state transmission and wheeling of electricity; d) Issue licenses to persons seeking to act as transmission licensees, distribution licensees and electricity traders with respect to their operations within the State: e) Promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity i....
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....d by State Government. Hence, service provided by contractors was within exemption clause 12 of Notification No.25/2012-S.T., dated 20-06-2012, effective from 1-7-2012. The relevant portion of the judgment is extracted hereunder: "The Board has been constituted in terms of the provisions of Section 3 of the Act, as was enacted by the State Legislature, It is a body corporate which consists of a Chairman, a Chief Administrator and such other members, as the State Government may, from time to time, appoint by a notification. The Chief Administrator shall be a person from amongst the officers of the rank of Head of the Department or Joint Secretary of the State Government. It is termed to be a local authority for the purposes of Land Acquisition Act, 1894, Section 20 of the Act provides that subject to control of the State Government in Board may incur expenditure on framing and execution of such housing schemes as may be considered necessary from time to time or as may be entrusted to it by the State Government. Every year, the Board is to prepare a budget in advance for the next year and place it before the State Government for its approval. After sanction is granted by the....
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....E ORIGINAL WORKS D.1 It's submitted that contracts undertaken by the applicant are in the nature of original works as defined under the relevant Notification issued under the Act. It is submitted that the term original works has not been defined in GST Act. Therefore, reliance is placed on the definition as provided under clause 2(zs) to the Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017 as amended from time to time. D.2 In types of addition "original works means"-all new constructions- i. All type of additions and alterations to abandoned or damaged structures o land that are required to make them workable; and ii. Erection, commissioning or installation or plant, machinery or equipment or structures, whether pre-fabricated or otherwise. D.3 Taking into consideration the nature of contacts it is submitted that the Rural Electrification and setting up of electricity distribution work on turnkey basis and laying of high tension wires and erection of distribution transformers on turnkey basis are original works as it is new additions and installation work. D.4 In this regard, the Applicant refers to the recent GST Advance Ruling given b....
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....eeders/consumers in the urban areas. iii. IT enablement of distribution sector and strengthening of distribution network under R-ADRP to IPDS, iv. Scheme for Enterprise Resource Planning (ERP) and IT enablement of balance urban towns are also included under KPDS Scope of IT enablement has been extended to all 4041 towns as per Census 2011. E.6 The Monitoring Committee of the Ministry of Power has approved the projects under IPDS for the State of Karnataka amounting to Rs. 1,197.66 crores. The details of cost approved for the electricity companies viz., BESCOM, MESCOM and HESCOM are given thereunder: Sl. No. Name of Company No. of towns DPR Cost Approved by MoP (Amount in Rs. Crores) 1. BESCOM 45 459.45 2. MESCOM 29 168.44 3. HESCOM 73 206.38 Total 147 834.27 E.7 The Ministry of Power, Government of India has launched the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) on 20.11.2014, The main component of the scheme are as follows: i. Separation of agriculture and non-agriculture feeders facilitating judicious rostering of supply to agricultural and non-agricultural consumers in the ru....
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.... same is undertaken for a consideration not in the nature of statutory fee/levy then in such cases, Service Tax would be leviable, if the activity undertaken falls within the ambit of a Taxable Service." E.11 In Commr. of C. Ex., Nashik v. Maharashtra Industrial Devl.Corpn. [2018 (9) G.S.T.L. 372 (Bom.)] = 2018 (2) TMI 1498 - BOMBAY HIGH COURT, the Hon'ble High Court inter alia held that the activities performed by sovereign or public authorities under the provisions of law pare in the nature of statutory obligations. The Hon'ble High Court relied upon the above Circular dated 18.12.2006 to hold that only if the authority performs service which is not in the nature of statutory fee, Service Tax would be leviable if the activity undertaken otherwise falls within the ambit of Taxable Service. E.12. It is submitted that the electrically distribution companies viz: VESCOM, MESCOM and HESCOM are performing the statutory function entrusted to them under the Electricity Act, 2013. It is further submitted that the electricity distribution companies are formed and established by the State Government of Karnataka with 99.99% participation by way of equity or control to carry ou....
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....ding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity. Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto." F.7 In this regard, reference is made to Section 2(67) of the Electricity Act, in terms of which, "State Transmission Utility" means the Board or the Government Company specified as such by the State Government under sub-section (1) of Section 39. In terms of Section 39(1) the State Government may notify the Board or a Government Company as the State Transmission Utility. F.8 In terms of second proviso to Section 39(1) of the Electricity Act, the State Government may transfer, and vest any property, interest in property, rights and liability connected with, and personnel involved in transmission of electricity, of such State Transmission Utility, to a company or companies to be incorporated under the Companies Act,1956 to function as transmission licensee through a transfer scheme to be effected in the manner specified under Part XIII and such company or companies shall be deemed to be transmission licensees under this Act. F.9 In....
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.... Utility, to a company or companies to be incorporated under the Companies Act,1956 to function as transmission licensee through a transfer scheme to be effected in the manner specified under Part XIII and such company or companies shall be deemed to be transmission licensees under this Act. F.9 In terms of Section 39(2) of the Electricity Act, the functions of the State Transmission Utility shall be- a) to undertake transmission of electricity through intra-State transmission system; b) to discharge all functions of planning and co-ordination relating to intra- State transmission system with- i. Central Transmission Utility; ii. State Governments; iii. Generating companies; iv. Regional Power Committees; v. Authority; vi. Licensees; vii. Any other person notified by the State Government in this behalf; c) To ensure development of an efficient, co-ordinated and economical system of intra-State transmission lines for smooth flow of electricity from a generating station to the load centres; d) To provide non-discriminatory open access to its transmission system for use by- G....
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....closed respectively. F.20 In view of the above, it is submitted that MESCOM and other companies are State in terms of Article 12 of the Constitution. F.21 It also submitted that as per Section 2(h) of the Right to Information Act,2005 (hereinafter, the "RTI Act") a "public authority" means any authority or body or institution of self-government established or constituted: a) by or under the Constitution; b) by any other law made by Parliament; c) by any other law made by State Legislature; d) by notification issued or order made by the appropriate Government, and includes any- i. body owned, controlled or substantially financed; ii. non-Government organization substantially financed, directly or indirectly by funds provided by the appropriate Government. F.22 It is submitted that the electricity distribution companies are body owned, controlled and financed by Government of Karnataka and therefore, they squarely fall under the meaning of public authority as provided under the RTI Act. F.23 In this regard reliance is placed on the decision of the Central Information Commission in the case of Shri Nisar Ahmed Shaikh & ....
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....ices under consideration are supplied by the Applicant to the electricity distribution companies being Government entities, are procured by them in relation to a work entrusted to them by the Central Government, State Government, Union territory or local authority. G.5 In view of the above, it is submitted that the Applicant is eligible to for reduced rate of GST @ 12% for works contract services provided to electrically distribution companies under entry 3 [(vij(a) to Notification No.8 /2017,-Integrated Tax (Rate) dated 28.06.2017 PERSONAL HEARING: / PROCEEDINGS HELD ON 27.03.2019 10. Sn Ravi Raghavan, Advocate, authorized representatives of the applicant appeared for personal hearing proceedings held on 27.03.2019 & reiterated the facts narrated in their application. 11. FINDINGS & DISCUSSION: 11.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by Sri Ravi Raghavan, Advocate and authorized representative, during personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts. 11.2 The issue for consideration is w....
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.... Municipality under article 243G of the Constitution or to a Panchayat under article 243G of the Constitution." "(ix) "Governmental Entity" means an authority or a board or any other body including a society, trust, corporation, - (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government, with 9O per cent. or more participation by way of equity or control, to carry out any function entrusted by the Central Government, State Government, Union Territory or a local authority." The term "original works" has not been defined under the said Notification, but it is defined in the context of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 which also can be used in the context of this Notification as both deals with taxation of services and the same reads as under: "(zs) "original works" means all new constructions: (i) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (ii) erection, commissioning or installation of plant, machinery or equipment or Structures, whether pre-fabricated or otherwise;" 11....
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....are Government Entities, the second condition is also satisfied. 11.7 The Electricity Distribution Companies are procuring these services from the applicant in relation to a work entrusted to it by the State Government, which is supply of electricity to consumers and the fifth condition is also satisfied. 11.8 The contract is for construction, erection, commissioning, installation, completion of original works. The contract is a new construction involving erection, commissioning or installation of plant, machinery or equipment or structures and hence the third condition is also satisfied. 11.9 The issue under detailed discussion is whether the works are meant predominantly for use other than for commerce, industry, or any other business or profession. The Electricity Distribution Companies are involved in selling of electricity to the consumers and are collecting consideration and electrical energy is considered as "goods". Hence the Electricity Distribution Companies are involved in the sale of goods or in general, supply of goods to the consumers for consideration. The Explanation clause inserted which reads as under: "For the purposes of this item, the term 'bu....