2025 (6) TMI 579 - AAR - GST

Applicability of Goods and Services Tax (GST) on various works undertaken by a State Electricity Transmission Utility for Dedicated Consumers. Supply or not - Shifting/height raising of transmission towers/lines belonging to the applicant through a contractor on request of Dedicated Consumers - HELD THAT - The said services are neither services of transmission of electricity or any service incidental or ancillary to the said service. In fact this service is not even provided to the actual consumers or users of the electricity. It is a service of shifting of transmission lines so that there is no hindrance for the various persons such as National Highway Authority Railways etc. in widening of roads giving right of way etc. For the said shifting of the transmission lines which come in the way of their work these customers approach the applicant requesting them to shift the transmission towers or raise the height of the transmission lines or towers for which they offer compensation which includes the cost of the said work along with 15% Supervisory Charges. Since these services are not covered under S.No.25 and S.No. 25A of the Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017 the said services are taxable services. The said services are in the nature of agreeing to do an act for a consideration. As per Circular No. 178/10/2022-GST dated 3.8.2022 agreeing to do an act is nothing but a contractual agreement. In the said agreement there are two parties and where one party agrees to do something and the other party agrees to pay consideration to the first party for doing the said thing. In the instant case the applicant is agreeing to shift the transmission towers/ raise the height of the transmission lines/towers and for this purpose consideration is paid by the customer - the said services provide by the applicant would be aptly Hovered under the service of agreeing to do an act for a consideration and therefore such services would be classifiable under 999792. What shall be the time of supply? - HELD THAT - Since no specific contract details are available it is found that in general the time of supply shall be the time prescribed under Section 13 of the CGST Act 2017. What shall be the HSN/SAC Code and rate of GST for such supplies ? - HELD THAT - The service would be covered under the services of agreeing to do an act for a consideration and would be classifiable under Heading 999792 and chargeable to 18% GST. Whether ITC on the running bills received from the contractor can be claimed by MSETCL? If ITC can be claimed by MSETCL then whether ITC can be claimed in the period in which the running bill is received or on the receipt of the final invoice/completion of entire work? - HELD THAT - In the instant case for a generic question it is not possible to decide whether any structure is a plant and machinery without going into the facts and details in a particular case. Therefore it is not possible to come to a conclusion whether in the generic situation mentioned by the applicant the service provided by the sub-contractors to the applicant for construction of an immovable property can be covered under the definition of plant or machinery. Under the circumstances it would not be possible to give any decision as to whether the input tax credit would be available to the applicant. However on the basis of general understanding if the activity of construction is in respect of plant and machinery input tax credit would be available. If the activity of construction is in respect of any immovable property that does not satisfy the definition of plant and machinery laid down in the Explanation under Section 17 of the CGST Act 2017 no input tax credit would be available to the applicant. If input tax credit can be availed it will be on the basis of the running bills raised by the sub-contractors. What shall be the value of supply at a particular moment when consideration is received? - HELD THAT - The dedicated users of the electricity approach the applicant for supply of electricity and in order to provide uninterrupted and dedicated supply of electricity the applicant proposes that EHV Substations/lines have to be constructed and for the said construction a contract is entered into with the dedicated user who provides for the cost of construction of the substation in addition to 15% Supervision charges to the applicant. The applicant in turn enters into contract with sub-contractors who do the actual construction of the EHV Sub Station/EHV Lines under the supervision of the applicant. After completion of the Construction the EHV Sub Station/ EHV Line so created is capitalized in the books of the applicant as an asset. The services provided by the applicant of setting up of infrastructure for transmission of electricity are more akin to managing the construction of infrastructure for provision of supply of electricity by providing skills of engineering project management and supervision of the actual construction. Supply has been defined under the CGST Act under Section 7 as all forms of supply of goods or services or both such as sale transfer barter exchange license rental lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of business. In the instant case the applicant is providing a service to the customer for a consideration in the course of furtherance of their business. Therefore the activity of managing a project of setting up a substation on behalf of the customer for providing dedicated and uninterrupted supply of electricity would be a supply in terms of the CGST Act 2017. Conclusion - i) Shifting/Height raising of Transmission Towers/Lines belonging to MSETCL through a contractor on the request of the Dedicated Consumers such as railways National Highway Authority of India etc. on receipt of payment of consideration in the form of adjustable deposit constitutes supply. ii) Time of Supply shall be the time prescribed under Section 13 of the CGST Act 2017. iii) The service would be covered under the services of agreeing to do an act for a consideration and would be classifiable under Heading 999792 and chargeable to 18% GST. iv) Value of supply shall be the value determined under Section 15 of the CGST Act 2017. v) Construction of EHV Substations and EHV Lines for dedicated user of Dedicated Consumers by MSETCL through a contractor on the request of the end users on receipt of payment of consideration in the form of adjustable deposit constitutes supply.

Summary

Issues Presented and Considered

The core legal questions considered by the Authority for Advance Ruling (AAR) pertain to the applicability of Goods and Services Tax (GST) on various works undertaken by a State Electricity Transmission Utility for Dedicated Consumers. Specifically, the issues are:

1. Whether the following works undertaken by the applicant can be termed as "supply" under GST to the Dedicated Consumers:

• Shifting/height raising of transmission towers/lines belonging to the applicant through a contractor on request of Dedicated Consumers;
• Construction of Extra High Voltage (EHV) substations and EHV lines for dedicated users by the applicant through a contractor;
• Construction of new transmission bay/express feeder for dedicated use of consumers by the applicant;
• Allotment of spare existing assets (like express feeders, bays) to Dedicated Consumers for dedicated use on payment for a specified duration.

2. If these works are considered "supply," then:

• a. What is the time of supply?
• b. What is the applicable HSN/SAC code and GST rate for such supplies?
• c. Whether Input Tax Credit (ITC) on running bills from contractors can be claimed by the applicant, and if so, when?
• d. What is the value of supply at the moment consideration is received?

3. Whether credit can be claimed for GST liability when deposits obtained from end users become excess and are refunded after completion of work (often after 2-3 years).

4. Whether the applicant is liable to pay GST on amounts recovered from end users when deposits fall short on final completion, and what is the time of supply in such cases.

Issue-wise Detailed Analysis

Issue 1: Whether the specified works constitute "supply" under GST

Relevant Legal Framework and Precedents: The definition of "supply" under Section 7 of the CGST Act, 2017 includes all forms of supply of goods or services or both for consideration in the course or furtherance of business. Exemptions are provided under Notification No. 12/2017-Central Tax (Rate) dated 28.6.2017, including the exemption of transmission of electricity services (S.No. 25) and ancillary services (S.No. 25A as amended in 2024).

Court's Interpretation and Reasoning: The AAR examined the nature of each transaction separately:

• Transaction 1 (Shifting/Height raising of transmission towers/lines): This involves services rendered to Dedicated Consumers such as Railways or NHAI for shifting or raising transmission towers/lines to facilitate their projects. The service is not transmission of electricity or ancillary thereto, but an independent contractual service of "agreeing to do an act." The AAR relied on Circular No. 178/10/2022-GST which clarifies that "agreeing to do an act" for consideration is a supply. Hence, this transaction is a taxable supply under GST.
• Transaction 2 (Construction of EHV Substations and Lines): The applicant constructs EHV substations and lines for dedicated consumers, who pay deposits and supervision charges. The constructed assets remain the property of the applicant and are capitalized in its books. The AAR found these works are core infrastructural activities essential for transmission, not incidental or ancillary services exempted under Notification No. 12/2017 (S.No. 25A). Therefore, these are taxable supplies involving project management and engineering services under heading 998339.
• Transaction 3 (Construction of new transmission bay/express feeder): Similar to Transaction 2, this involves major infrastructural construction for dedicated consumers. The activity is a primary function of the transmission utility, not incidental or ancillary. Hence, it is a taxable supply under heading 998339.
• Transaction 4 (Allotment of spare existing assets): The applicant allots existing assets like feeder bays to Dedicated Consumers for specified durations for consideration. This is akin to renting immovable property and is a taxable supply under heading 997212.

Key Evidence and Findings: The AAR analyzed contracts, the nature of assets, capitalization practices, and statutory notifications. It emphasized that transmission of electricity is exempt but construction or allotment of infrastructure assets is not exempt. The assets are immovable and capitalized by the applicant, indicating ownership and not mere agency.

Application of Law to Facts: The AAR applied the definition of supply, exemption notifications, and GST classification rules. It distinguished between exempt transmission services and taxable construction or rental services. It rejected the applicant's contention that these works are incidental or ancillary to transmission.

Treatment of Competing Arguments: The applicant argued that some services might be exempt as incidental or ancillary to transmission or that it acted as a pure agent recovering only costs. The AAR rejected these contentions, finding that the services are core activities and the applicant holds title to the assets, thus not qualifying as a pure agent under Rule 33 of CGST Rules.

Conclusions: All four types of works are taxable supplies under GST.

Issue 2: Time of supply, HSN/SAC code, GST rate, and ITC applicability for each transaction

Time of Supply: The time of supply for all transactions is governed by Section 13 of the CGST Act, 2017, generally the earliest of issue of invoice or receipt of payment (including advances). Advance receipt triggers GST liability.

HSN/SAC Code and GST Rate:

• Transaction 1: Classified under "agreeing to do an act" service, SAC 999792, GST rate 18% (9% CGST + 9% SGST).
• Transactions 2 and 3: Classified under project management and engineering services, heading 998339, GST rate 18%.
• Transaction 4: Classified as renting of industrial immovable property, heading 997212, GST rate 18%.

Input Tax Credit (ITC): The applicant may claim ITC subject to conditions in Sections 16 and 17 of the CGST Act. However, ITC on works contract services for construction of immovable property (other than plant and machinery) is generally disallowed under Section 17(5)(d). Whether an asset qualifies as plant and machinery depends on facts; the AAR could not conclusively decide this on generic facts. If the asset qualifies as plant and machinery, ITC is available; if not, ITC is disallowed. ITC can be claimed on running bills as they are received, subject to fulfillment of conditions. For Transaction 4 (rental), ITC on running bills is not applicable.

Value of Supply: Determined as per Section 15 of the CGST Act, 2017, which includes consideration received for the supply. For works contracts involving immovable property, valuation may exclude value of land or undivided share of land as per the Act.

Issue 3: Refund of excess deposits and GST credit

When deposits collected in advance exceed the actual cost on completion, and the excess is refunded to Dedicated Consumers, the applicant must issue a credit note as per Section 34(1) and (2) of the CGST Act. Only upon issuance of credit note and fulfillment of conditions can the applicant adjust or claim credit for GST liability on the refunded amount. Without such credit notes, credit cannot be claimed.

Issue 4: Recovery of shortfall in deposits and GST liability

If deposits fall short and additional amounts are recovered from Dedicated Consumers after completion, the applicant must issue a debit note or supplementary invoice as per Section 34(3) and (4) of the CGST Act. GST liability arises on such additional consideration, and the time of supply is the time the additional payment is received.

Additional Issue: Whether the applicant acts as a pure agent

The applicant argued it acts as a pure agent recovering only costs from Dedicated Consumers. The AAR analyzed Rule 33 of CGST Rules, 2017, which defines conditions for pure agent treatment:

• The supplier must act as a pure agent under contractual agreement;
• Must not hold title to goods or services procured;
• Must not use goods or services for own interest;
• Must recover only actual amount incurred in addition to own supply.

The AAR found that the applicant does not satisfy these conditions because:

• The applicant assumes full responsibility for the work;
• The applicant holds title to constructed assets (capitalized in books);
• The assets are used by the applicant for transmission services;
• The contracts are cost-plus with supervisory charges, not mere reimbursement.

Therefore, the applicant is not a pure agent and cannot exclude costs from value of supply.

Significant Holdings

"The said services are in the nature of agreeing to do an act for a consideration... Such services would be classifiable under 999792 and chargeable to 18% GST."

"Setting up of EHV Sub Station and EHV Lines are major works of creating an asset for the purpose of transmission of electricity... such activity would not qualify as incidental or ancillary and therefore would not be covered under exemption notification."

"The service provided by the applicant is in the nature of assuming overall responsibility for the successful completion of a construction project on behalf of a client... falling under Heading 998339 and chargeable to 18% GST."

"Allotment of feeder bay to dedicated consumer for a specified period is in the nature of renting of immovable property... classifiable under heading 997212 and chargeable to 18% GST."

"The applicant does not fulfill the conditions laid down for a pure agent under Rule 33 of CGST Rules, 2017 and therefore would not be treated as a pure agent."

"Time of supply shall be the time prescribed under Section 13 of the CGST Act, 2017, generally the earliest of invoice issuance or receipt of payment."

"ITC on works contract services for construction of immovable property (other than plant and machinery) is not admissible under Section 17(5)(d) of the CGST Act, 2017; eligibility depends on whether the asset qualifies as plant and machinery."

"Credit notes must be issued for refund of excess deposits to claim credit adjustment; debit notes must be issued for recovery of shortfall amounts with GST payable accordingly."

Final Determinations

1. All four types of works undertaken by the applicant for Dedicated Consumers constitute taxable supplies under GST.
2. Time of supply for all transactions is as per Section 13 of the CGST Act, 2017.
3. Applicable GST rates are 18% (9% CGST + 9% SGST) with classification as follows:
   • Transaction 1: SAC 999792 (agreeing to do an act);
   • Transactions 2 and 3: Heading 998339 (project management/construction services not involving transfer of property);
   • Transaction 4: Heading 997212 (renting of industrial immovable property).
4. Input Tax Credit eligibility depends on whether the constructed assets qualify as plant and machinery; no generic ruling possible.
5. The applicant does not qualify as a pure agent under Rule 33 of CGST Rules.
6. Refund of excess deposits requires issuance of credit notes; recovery of shortfall requires issuance of debit notes or supplementary invoices, with GST liability accordingly.