2025 (4) TMI 1003 - AAR - GST

Classification and GST Rate applicable to the work undertaken by the applicant of Reconstruction Maintenance housekeeping and security at Kalamboli Goods Shed near Panvel for 90% proportion of Terminal charges a consideration - entitlement of Central Railway to claim ITC (Input tax Credit for the GST payable on the payment made to the Applicant for the said work. Classification and applicable GST rate on the services undertaken by the applicant namely Reconstruction Maintenance Housekeeping and Security at Kalamboli Goods Shed near Panvel for which the applicant receives 90% proportion of Terminal Charges as consideration - HELD THAT - The service of housekeeping and security services can be and is normally provided separately by various agencies or is more often looked after by in-house employees. Such services are not handed over to the person who undertakes the construction or repairs and maintenance of any immovable property ordinary in the course of business. They cannot be treated as naturally bundled in the ordinary course of business - in the ordinary course of business the construction is done by one entity and the maintenance is provided by some other entity or by the owner himself. It is not naturally expected in the line of business that the work of construction maintenance housekeeping and security is naturally supplied by one person in one package. Therefore the services provided by the applicant of reconstruction repairs and maintenance housekeeping and security of the Kalamboli goods shed to the Central Railway would not qualify as a composite supply of service. Earthwork is the process of moving a portion of the earth s surface from one location to another. Earth movement also includes transforming the earth s material into a new desired shape and physical condition. It is commonly known as Earthwork excavation. Earthwork should not be confused with soil only; the engineering processes involving unformed rocks are also termed as earthwork. For the construction of foundations and trenches earthwork is needed which includes excavation and backfilling of soil to a required depth. To optimise the operation and avoid safety concerns excavation and backfilling must be done correctly. While excavating several soil strata may be encountered which require different types of operations. Because excavation costs make up a significant portion of the foundation accurate measurement of excavation and backfilling is necessary. From the details of the work submitted by the applicant and as can be inferred from the contract it is seen that the major portion of the work involves cement concreting of rail level platform cement concreting of approach roads provision of drainage system water supply system and hoarding structure in addition to the maintenance of the said structures. This work would involve some amount of earthwork but by the very nature of the work involved it would be far-fetched to arrive at a conclusion that 75% of the value of the works contract would be earth work - the works contract services supplied by the applicant would not be eligible for the benefit of Sr.No.3(vii) of Notification No. 11/2017 Central (Rate) dated 28.6.2017 as amended from time to time. The applicant is providing supply of services such as works contract service repairs and maintenance housekeeping services and security services to the Central Railway which can be considered as a supply of mixed service with works contract (repairs and maintenance) having the highest rate of tax of 18%. In terms of Section 8 of the CGST Act 2017 the said services are appropriately classifiable under Heading 995419 and chargeable to tax at the rate of 18%. Entitlement of Central Railway to claim ITC (Input tax Credit for the GST payable on the payment made to the Applicant for the said work - HELD THAT - The applicant in this case has raised question regarding admissibility of input tax credit for this recipient which is not covered by the scope of Section 97. Further Section 103 (1) provides that the advance ruling pronounced by the Authority or the Appellate Authority shall be binding only on the applicant and the concerned officer or jurisdictional officer in respect of the applicant. Thus the ruling in this case would not be binding upon the recipient of the applicant. Hence such a ruling that affects the recipient but would not be binding on him is not expected under the provisions of section 97, 98 and 103 of the Act. Further Section 100 provides that an appeal against any advance ruling can be filed by the concerned officer the jurisdictional officer or applicant. If an advance ruling order is made on issue which affects the recipient of the applicant he would not be able to file an appeal against the said order as per the provisions of section 100. Hence the provisions of law do not allow a ruling in respect of any other person but the Applicant - the question of admissibility of ITC to the recipient of the applicant i.e. Central Railway is not answered. Conclusion - i) The services provided by the applicant will be classified as mixed supply with works contract (repairs and maintenance) services classifiable under Heading 995419 having the highest rate of tax of 18%. Hence this supply of reconstruction maintenance housekeeping and security will be liable to tax at the rate of 18% as mixed supply. ii) The question of ITC entitlement of Central Railway is outside the scope of advance ruling and remains unanswered.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

(a) The classification and applicable GST rate on the services undertaken by the applicant, namely "Reconstruction, Maintenance, Housekeeping and Security at Kalamboli Goods Shed near Panvel" for which the applicant receives 90% proportion of Terminal Charges as consideration;

(b) Whether the services rendered by the applicant qualify as a composite supply, works contract, or freight service, and the corresponding GST rates as per relevant notifications;

(c) Whether the applicant's services could be classified under the concessional GST rate for works contracts involving predominantly earthwork;

(d) Whether the Central Railway, as the recipient of the services, is entitled to claim Input Tax Credit (ITC) on the GST paid to the applicant for these services.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification and GST Rate applicable to the services rendered by the applicant

Relevant Legal Framework and Precedents:

The GST Act defines key terms relevant to classification:

• "Composite supply" (Section 2(30) CGST Act): a supply consisting of two or more taxable supplies naturally bundled with a principal supply;
• "Principal supply" (Section 2(90) CGST Act): the predominant element of a composite supply;
• "Works contract" (Clause 119 of Section 2 CGST Act): a contract involving building, construction, fabrication, maintenance, repair, or similar services with transfer of property in goods involved;

Notification No. 11/2017-Central (Rate) dated 28/06/2017 (as amended) prescribes GST rates:

• Sr. No. 3(vii): Composite supply of works contract involving predominantly earthwork provided to Central/State Government attracts 12% GST (6% CGST + 6% SGST);
• Sr. No. 9(i): Transport of goods by rail attracts 5% GST (2.5% CGST + 2.5% SGST);
• Works contract services other than those qualifying for concessional rate attract 18% GST.

The Supreme Court ruling in CIT, Bangalore vs. Venkateswara Hatcheries (1999) permits reliance on dictionary meanings when terms are undefined in the statute.

Court's Interpretation and Reasoning:

The applicant's contract involved reconstruction, maintenance, housekeeping, and security services at a goods shed for 10 years, receiving 90% of terminal charges as consideration. The applicant argued that the supply constituted a composite supply of works contract services eligible for a concessional 12% GST rate, or alternatively, as freight services taxable at 5% GST.

The jurisdictional officer contended that the contract was a composite supply involving goods and services, attracting 18% GST under works contract heading.

The AAR examined the nature of the services and the contract terms, noting that the applicant undertakes construction, maintenance, housekeeping, and security, with the goods shed becoming the property of the railway at the end of the contract. The applicant's work involved cement concreting of platforms and approach roads, drainage and water supply systems, and upkeep of infrastructure.

Applying the definition of works contract, the AAR held that the services qualify as works contract services due to the involvement of construction, maintenance, and transfer of immovable property.

Regarding whether the supply was a composite supply, the AAR noted that while construction and maintenance could be naturally bundled, housekeeping and security services are typically provided separately and are not naturally bundled with construction or maintenance in the ordinary course of business. Therefore, the overall supply was not a composite supply but a mixed supply of various services.

Under Section 8 of the CGST Act, mixed supplies are taxed at the highest rate applicable to any of the individual supplies. The highest rate among the services was 18% for works contract (repairs and maintenance).

Regarding the concessional rate for works contracts involving predominantly earthwork, the AAR referred to the absence of a statutory definition of "earthwork" and relied on dictionary meanings and engineering principles. Earthwork involves excavation, earth movement, and related activities. The applicant's work primarily involved cement concreting and construction activities post-earthwork, with no evidence that earthwork constituted over 75% of the contract value. Hence, the concessional rate was not applicable.

On the question of classification as freight services taxable at 5%, the AAR found that the applicant was not providing transportation services but infrastructure and maintenance services. The terminal charges collected by the railway and shared with the applicant do not convert the applicant's services into freight services.

Key Evidence and Findings:

• Contract agreement detailing scope of work including reconstruction, maintenance, housekeeping, security;
• Nature of services involving immovable property and transfer thereof;
• Absence of evidence that earthwork predominated the contract value;
• Industry practice and statutory definitions regarding composite and mixed supplies;
• GST notifications prescribing rates for works contract, freight services, and composite supplies.

Application of Law to Facts:

The services were classified as mixed supply involving works contract (repairs and maintenance), housekeeping, and security services. Since housekeeping and security are not naturally bundled with construction in the ordinary course of business, the supply is mixed and taxed at the highest applicable rate, i.e., 18% GST.

Treatment of Competing Arguments:

The applicant's contention for concessional 12% GST rate for composite supply involving earthwork was rejected due to lack of evidence of predominance of earthwork. The claim for classification as freight services at 5% GST was rejected as the applicant did not provide transportation services. The jurisdictional officer's view favoring 18% GST on works contract services was accepted.

Conclusion:

The services rendered by the applicant are a mixed supply with works contract (repairs and maintenance) as the principal service, taxable at 18% GST.

Issue 2: Entitlement of Central Railway to claim Input Tax Credit (ITC) on GST paid to the applicant

Relevant Legal Framework:

Section 97 of the CGST Act provides for advance rulings on issues including admissibility of input tax credit but only in respect of the applicant. Section 103(1) states that advance rulings are binding only on the applicant and the jurisdictional officer in respect of the applicant. Section 100 provides for appeals against advance rulings by the applicant or concerned officer.

Court's Interpretation and Reasoning:

The applicant sought a ruling on whether Central Railway could claim ITC on GST paid to the applicant. The AAR noted that the advance ruling mechanism under Sections 97, 98, 100, and 103 is designed to address queries relating to the applicant's own tax liabilities and credits.

Since the question relates to the recipient of the services (Central Railway), not the applicant, it falls outside the scope of advance ruling. The ruling would not be binding on the recipient, who also cannot file an appeal under Section 100. Therefore, the AAR declined to answer the question on ITC eligibility of Central Railway.

Key Evidence and Findings:

• Statutory provisions limiting advance rulings to applicant's issues;
• Absence of jurisdiction to rule on recipient's ITC entitlement;
• Practical implications of binding effect and appeal rights under the Act.

Application of Law to Facts:

The question on Central Railway's ITC entitlement was not entertained as it lies outside the ambit of advance ruling applicable only to the applicant.

Treatment of Competing Arguments:

The applicant's request was acknowledged but legally disallowed due to procedural and jurisdictional constraints.

Conclusion:

The question on ITC entitlement of Central Railway was not answered.

3. SIGNIFICANT HOLDINGS

"We find that the services provided by the applicant of reconstruction, repairs and maintenance, housekeeping and security of the Kalamboli goods shed to the Central Railway would not qualify as a composite supply of service. It would rather be treated as a mixed supply of service involving supply of various services which can be individually classified as under..."

"In order to constitute a composite supply, the services provided by the applicant should be naturally bundled in the ordinary course of business. The service of housekeeping and security services can be and is normally provided separately by various agencies or is more often looked after by in-house employees. Such services are not handed over to the person who undertakes the construction or repairs and maintenance of any immovable property ordinarily in the course of business."

"Accordingly, we hold that the services provided by the applicant would be considered as a mixed supply and the same shall be treated as supply of works contract service (repairs and maintenance) under Chapter 995419 which attracts the highest rate of tax of 18% (9% CGST + 9% SGST)."

"The works contract services supplied by the applicant would not be eligible for the benefit of Sr.No.3(vii) of Notification No. 11/2017 Central (Rate) dated 28.6.2017, as amended, from time to time, as the contract does not predominantly involve earthwork constituting more than 75% of the value of the works contract."

"The applicant is not providing any service of transportation of goods by rail. It is the Central Railway which is providing the said service. Therefore, the benefit of Sr.No.9(i) of Notification No. 11/2017 Central (Rate) dated 28.6.2017 would not be available to the applicant."

"The question of admissibility of ITC to the recipient of the applicant i.e. Central Railway is not answered as it is outside the scope of Section 97 of the CGST Act."

Final determinations:

• The applicant's services are classified as mixed supply with works contract (repairs and maintenance) as principal supply, taxable at 18% GST (9% CGST + 9% SGST).
• The concessional GST rate of 12% for works contracts involving predominantly earthwork is not applicable.
• The classification as freight service taxable at 5% GST is not applicable.
• The question of ITC entitlement of Central Railway is outside the scope of advance ruling and remains unanswered.