TMI Blog2023 (4) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... t the cables are enclosed in such RCC pipes which are kept under the ground at a certain depth and then the entire pipes with the enclosed cables are covered back with filling to make the road as it is. This clearly satisfies the condition of being attached to earth. The work schedule submitted by the applicant also indicates that their work involves shifting of HT LT Overhead line cable through underground. The contract for shifting of cables and replacing with underground cables can be classified as contract for building, construction, fabrication, completion, erection, fitting out, improvement, modification, etc., of immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. Hence, there is no hesitation in holding that the applicant is supplying Works Contract Services. It is also apparent that the nature of the works undertaken by the applicant are not in the nature of Original Works and is to be classified as works contract service. The applicant is not eligible for exemption available against Sl.No. 3 of the Notification ibid and the services are liable to classified as works co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate the service rendered to SCR where the service rendered was for construction of certain transformers for the purpose of extending the power supply including certain telecommunication work. The Services provided by TS Transco (Appellant) to SCR are classifiable as Works Contract Service falling under Chapter 99, Group 99542 as per the Scheme of Classification of Services provided under Annexure to Notification No. 11/2017- CT(Rate) dated 28.06.2017 as amended and are taxable @ 18% in terms of Serial No. 3(xii) of Notification No. 11/2017- CT(Rate) dated 28.06.2017 as amended. Appeal disposed off. - AAAR.COM/03/2021, AAAR/01/2023 - - - Dated:- 4-4-2023 - NEETU PRASAD AND B.V. SIVA NAGA KUMARI, MEMBER (Passed under Section 101 (1) of the Telangana Goods and Services Tax Act, 2017) Preamble 1. In terms of Section 102 of the Telangana Goods and Services Tax Act, 2017 (TGST Act, 2017 or the Act), this Order may be amended by the Appellate authority so as to rectify any error apparent on the face of the record, if such error is noticed by the Appellate authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application seeking Advance Ruling with regard to HSN Codes and rate of tax in respect of the following: 1. The Classification of supplies made by TS TRANSCO in terms of HSN and applicable rate of tax; 2. The Classification of supplies procured by TS TRANSCO and eligibility to obtain services at reduced rate of 12% as per entry 3(iv) of Notification 11/2017 CTR dated 28 June 2017; 2. Vide the impugned order, the Advance Ruling Authority had given the following advance rulings: Serial No Question raised Advance Ruling 1 Eligibility to exemption from tax on the supply of works contract services by the applicant to GHMC Taxable @ 18% 2 Tax liability with respect to works contract services procured by the applicant from a 3 rd party for supplying same services to GHMC Taxable @ 18% 3 Eligibility to exemption from tax on supply of works contract services by the applicant to I CAD department Exempt to the extent of grants received a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Telangana under Section 39 of the Electricity Act, 2003. As a STU, TS TRANSCO, is required to construct, operate and maintain integrated transmission networks to ensure smooth transmission of electricity across the state. For this purpose, TS TRANSCO undertakes contracts for construction, erection, installation and commissioning of networks which may vary from sub-stations, lines, transformers depending on transmission needs. The transmission assets need to be owned, operated and maintained by the Appellant only (though the cost is recovered) which is represented in the books of accounts as Deposit Contribution Works (DC Works) . The plant and machinery or equipment used in execution of contracts are shown as deferred consumer contributions towards property, plant, and equipment under non-current liabilities, as such the asset belongs to TS TRANSCO. 7. DC Works are undertaken to meet the requirements of Department of State Government (such as Irrigation CAD department, Road Building Department), Local authorities (such as GHMC), Government Authorities/entities and Industrial Consumers. These DC works are undertaken based upon a request received from the consumers. The es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advance Ruling issued Appellant s contentions before AAAR 1. Eligibility to exemption from tax on the supply of services by the appellant to Greater Hyderabad Municipal Corporation (GHMC). Taxable @ 18% Exempt under entry 3 of Notification 12/2017 CT(R) dated June 28, 2017. 2. Tax liability with respect to works contract service procured by the appellant from a 3 rd party for providing same services to GHMC. Taxable @ 18% Taxable @ 12% under entry 3(vi) of Notification 11/2017 CT(R) dated June 28, 2017. 3. Eligibility to exemption from tax on the supply of services by the appellant to I CAD department. Exempt to the extent of grants are received. We agree with the decision of the AAR no appeal is preferred. 4. Tax liability with respect to works contract service procured by the appellant from a 3 rd party for providing same services to I CAD. Taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; e. On the Basis of this definition, the following can be concluded to be essential elements to render a service as Works contract service : i. The contract should be for construction, fabrication, completion, erection, installation, fitting out, improvement, modification repair, maintenance, renovation, alteration or commissioning; ii. The above activities should be of an immovable property; iii. There should be use of goods in the execution of the said contract; iv. There should be transfer of property in the said goods used in the execution of the contract. f. In case of TS TRANSCO, the conditions (i) to (iii) are satisfied as follows: i. TS TRANSCO is engaged for construction, erection, installation and commissioning of transmission assets; ii. These transmission assets such as sub-stations, transformers, bays and lines are embedded into the surface of the earth permanently and are immovable in nature. iii. In the course of construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h underground cables which is for the purposes of the construction of an elevated corridor (road) by GHMC. The said activity is in the nature of DC works and does not involve transfer of any ownership in the goods thereby constituting pure services and satisfying the 1st condition for the eligibility to the exemption. l. The said services are provided to GHMC, which is a Local authority even as per the definition contained in Section 2(69) of the CGST Act and also as per The Greater Hyderabad Municipal Corporation Act, 1955 and thus satisfying the 2nd condition of providing services to local authority for the eligibility to the exemption. m. Article 243G of the constitution has to be read with Schedule XI at Entry 13 has listed inter-alia functions in relation to Roads, culverts, bridges, ferries, waterways and other means of communication. Also, Article 243W of the constitution has to be read with Schedule XII at Entry 4 has as listed inter-alia functions in relation to Roads and Bridges therefore the services provided are in relation to the functions enumerated under Article 243G read with Schedule XI and Article 243W read with Schedule XII of the Constitution of India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to examine the definition of original works before arriving at this conclusion. The term Original Works isset-out in the Clause (zs) of Paragraph 2 of Notification 12/2017-CT dated 28 June, 2017 Original Works means- i. All new constructions; ii. All types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; iii. Erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise; 12. Thus, the construction of transmission assets undertaken by turnkey vendors to TS TRANSCO qualify to be original works since these involve civil structures which are new constructions. a. The appellant submits that the expression other than business or commerce in entry 3 (vi) of the notification should be given full effect. In this regard it is brought to the kind notice of the AAR that the intended predominant use of such original works shall have to be determined necessarily with reference to the activity for which the structure or original works is intended to be used pre-dominantly and in determining the intended pre-dominant use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scitur a sociis to the effect that the true meaning of the expression business is known by its associates. In this connection, the appellant placed reliance on judgement of Supreme Court in Rohit Pulp Paper Mills Vs. CCE, Baroda (1991) AAR 754 1990 SCR (2) 797 and has also submitted a copy of this case law before the AAR. e. It has been held by the Hon ble Tribunal that the mere fact that a fee is collected will not render the activity as commercial in the case of B.G Shirke Construction Technology Private Limited Vs. CCE Pune 2014 (33) S.T.R 77 (Tri-Mum). Further, it follows from the order of the CESTAT in Noble Hospital Research Centre Vs. CCE, Aurangabad 2017 (5) G.S.T.L 408 (Tri-Mumbai) that the character of the activity namely, commercial or otherwise is not determine by the Entity providing the service but by the activity itself just as in case of renting of immovable property by a Trust which is a non-commercial entity has been held to be a commercial activity. Service procured by the Appellant in the process of providing services by way of replacement of overhead cables with underground cables at the behest of the Local authority as a Public Authority, the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 28, 2017 as amended from time to time and are taxable @ 9% under CGST/SGST Acts. a. The Appellant has submitted that though the contract is a pure supply of service to Central Government (SCR), the exemption mentioned in Entry 3 of Notification 12/2017 CT dated June 28, 2017 may not apply since the civil structures and original works in this case are for the use and purport of a business or commerce activity and is taxable @ 18%. b. Though the authority has stated that these service are taxable @ 18% it has mentioned that these services are works contract service with which we don t accord since these services are pure services and not works contract service as mentioned in Point I above. 14. The Appellant therefore, submits that since the civil structures of RTSS are meant for electricity transmission and though for the use of SCR in the course of its business of transporting goods and passengers across the country the property in these assets is not transferred to the appellant and therefore is a taxable outward supply in the nature of General construction services of long-distance underground/overland/submarine pipelines, communication and electric power lines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way. The appellant filed an appeal before the Appellate Authority in respect of four issues. We have gone through the written submissions, their contentions and also case laws cited in their support. 17. The appellants vide their letter dated 08.12.2021 submitted relevant documents as discussed during the course of personal hearing conducted on 02.12.2021. We have gone through the synopsis, copies of contracts, and additional submissions made by them. 18. We have carefully considered the facts on record, the relevant entries in Notification No.11/2017 Central Tax (Rate) dated 28.06.2017, Notification No.12/2017 Central Tax (Rate) dated 28.06.2017, as amended, the impugned order passed by Advance Ruling Authority, the appellant s grounds of appeal and submissions during personal hearing. 19. We find that the following issues are for determination in the subject appeal: 1. exemption of tax on the services provided by TS Transco to GHMC. 2. Tax liability for supply of works contract service by the applicant to South Central Railway. 3. Rate of Tax applicable to services procured by the appellant from 3rd party contractor in providing services to GHMC and I CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em are exempt from tax as per Entry 3 of notification no 12/2017 CT(R) date June 28 2017. Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. 25. As per the present contract the service provided by applicant is agreeing to do an act and there is no supply of goods involved (neither there is a transfer of title in goods or nor there is a transfer of right in goods). Therefore, it cannot be termed a works contract service or other composite supplies involving supply of any goods. Hence, this contract is a pure service as per entry no 3 of notification no 12/2017 CT(R) date June 28 2017. 26. As per section 2(62) (b) of the CGST Act Local authority includes a Municipality as defined in clause (e) of article 243P of the Constitution. GHMC Greater Hyderabad Municipal Corporation is Municipa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty by way of any activity in relation to any function entrusted to a panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243G of the Constitution . 32. From plain reading of the above definition, what can be construed is that if the supplies are not in the nature of works contract service or other composite supplies involving supply of any goods, when rendered to authorities mentioned above, would get exempted from payment of tax. However, in the present case, as can be seen from the abstract of estimates, the value of material is significant and more than the value of labour. The abstract of estimate also includes GST @18% on all the charges including gross estimate value. Hence, the services rendered cannot be classified as Pure Services and exemption thereof could not be available. 33. As the Advance Authority Ruling has classified the above activity as Works Contract Service, the basic issue i.e. whether the activity can be classified as supply of Works Contract or not is to be decided. 34. GST Schedule-II clearly mentions that the following are supply of services: - (a) construction of a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erhead line with 132 Kv DC UG cable and 132 Kv Erragadda Shivarampally SC UG cable for GHMC for construction of elevation corridor from road No. 45 to Durgam Cheruvu. 39. It is evident from the abstract of estimate that they are supplying and erecting cables, OH line and Stainless Steel (SS) during the course of the work. Therefore, the implication is that the cables are enclosed in such RCC pipes which are kept under the ground at a certain depth and then the entire pipes with the enclosed cables are covered back with filling to make the road as it is. This clearly satisfies the condition of being attached to earth. The pipes are fixed underneath the ground level underground, covered with filling and in such case, it is clear that the said pipes are meant to be affixed permanently underneath the ground and therefore cannot be considered as movable property. TS TRANSCO is engaged for construction, erection, installation and commissioning of transmission assets. These transmission assets such as sub-stations, transformers, bays, and lines are embedded into the surface of the earth permanently and are immovable in nature. In the course of construction of these said assets, TS TR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keeping in view the changes and activities of businesses and discussions/decisions of GST Council. As such the serial numbers of relevant entries mentioned in notifications have changed. For ease of reference, the same are reproduced as per the latest amendments, as under: Notification No. 11/2017-CT (R) dated 28.06.2017 as amended: Sl.No. Chapter, Section, Heading, Group or service code Description of Service Rate (per cent) Condition (1) (2) (3) (4) (5) 1 Chapter 99 All Services 2 Section 5 Construction Services 3 Heading 9954 (Construction services) vi) Composite supply of works contract as defined in clause (119) of Section 2 of the CGST Act, 2017, other than that covered by items (i), (ia), (ib), (ic), (id),(ie) and (if) above, provided to the Central Government, Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) read with the explanation provided therein. The appellants emphasized that the expression other than business or commerce in entry 3(vi) of the notification should be given full effect. They relied on Circular No.152/08/2021-GST dated 17.06.2021 and averred that the test of intended pre-dominant usage has to be with reference to the civil structure created in terms of works entrusted by local authority. They contest that the local authority undertakes the activity as a public authority, the activity shall continue to be so even if it is executed through a Government entity. 46. The appellant s inference that industry and commerce necessarily imply profit motive and accordingly only that business which has a profit element is covered by the entry is a logical fallacy, in the context of the Judgment rendered by the Hon ble Supreme Court in the case of Bangalore Water-Supply Vs. R. Rajappa Others, 1978 AIR 548, wherein it was held that: If any principle can be said to be settled law in this vexed field it is this: the twin consideration of profit motive and capital investment is irrelevant for determining whether an activity is an industry. This judgment also deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, if the Government entity (Appellant) is running with or without generating any surplus as long as the activity undertaken has commercial implication. In this context, the rulings and the judgements referred to by the appellant are not applicable to the facts of the present case. 50. Further, the circular issued by CBIC vide No.152/08/2021-GST dated 17-06-2021 also supports this view. A similar issue was clarified through the circular, on whether or not the works contract service provided to the Government Entity by way of construction of rope way, falls under entry 3(vi) of Notification 11/2017. It was clarified that the works contract service provided to a Government Entity is taxable @ 18% and is not eligible for 12% rate under entry 3(vi) of Notification 11/2017, the relevant portion of circular is extracted hereunder: 2. According to entry No. 3(vi) of notification No. 11/2017-CT (R) dated 28.06.2017, GST rate of 12% is applicable, inter alia, on- (vi) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, (other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above) pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to get re-constructed the civil structure to ensure that there is no hindrance to smooth transmission of electricity. 52. Beyond all other consideration, the applicant appears to have misinterpreted the words Use as Purpose . Purpose is the reason for doing an act, while Use is the act of usage. The verbatim used in the construction of the said entry is meant predominantly for use . In this context, the purpose for which the Local authority has entrusted this work has no relevance. Therefore, the purpose for which the work was entrusted will not be the determining factor as to whether the activity falls within the scope of entry, instead, the intended usage of the civil structure/original work so constructed will be the deciding factor. The same was re-affirmed through the CBEC Circular. 53. The applicant has issued contracts to third parties for purpose of installation and erection of electric equipment and transmission lines. The resultant civil structure is thus being used by the applicant for transmission of electricity and for supply of power to various customers for a consideration, meant pre-dominantly for the purpose of business. 54. As discussed at paras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld on the issue. III. Tax liability for supply of works contract service by the applicant to South Central Railway. (Hereinafter referred to as SCR ) 57. At the outset, the appellant has claimed the services provided by the appellant to South Central Railway to be Pure Services . 58. The phrase Pure Service has not been defined under the Act (CGST/SGST), as such it has to be understood in the context of intent for which the phrase has been used in the CGST/SGST Act and notifications issued there under. As a general understanding, any supply which is either deemed as services under Schedule II of CGST Act or which is not covered under the definition of goods shall be categorized as pure services. That is to say, Services without involving any supply of goods would be treated as supply of 'pure services'. In the context of the language used in the notification, supply of services without involving any supply of goods would be treated as supply of 'pure services'. 59. Works Contract has been defined under Section 2 (119) of the CGST Act, 2017: works contract means a contract of building, construction, fabrication, completion, erection, install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts and are amortized after relevant periods. Therefore, the appellant contended that the essential factor of transfer of property in goods has not been satisfied so as to classify the service as works contract service . 63. The applicant was issued with contracts of installation and erection of electric equipment and transmission lines. The resultant civil structure is thus being used by the applicant for transmission of electricity and for supply of power to various customers for a consideration, meant pre-dominantly for the purpose of business. 64. Thus, the work contract executed by the applicant is meant for the purpose of business. Thus, the facts of the case are analogous to the circular issued by CBIC vide No.152/08/2021-GST dated 17-06-2021. Hence, works contract service provided by M/s TRANSCO by way of construction of the said civil structure meant predominantly for the purpose of business is not covered under Entry 3(vi) of Notification No. 11/2017-CT(R). 65. The documents furnished indicate the service rendered to SCR where the service rendered was for construction of certain transformers for the purpose of extending the power supply including c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 than for commerce, industry, or any other business or profession; (b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or (c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017. Explanation . - For the purposes of this item, the term business shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities . 6 Provided that where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority, as the case may be 66. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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