TMI Blog2020 (5) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant is regarding Electrical utility shifting / erection of 11 KV lines and is of independent nature. Further, such cost will be borne separately by the Authority or the utility owning entity. Hence, the payment of the above said work which will be made to the concessionaire (Main Contractor) is not part of the/main contract (concession agreement) which also indicates the work is of independent nature. The entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017allows concessional rate in case of works contract is for construction of road, bridge, tunnel or terminal for road transportation for use by general public - in the present case the proposed activity carried out by the applicant is of shifting /erection of 11 KV lines only and the same cannot be categorised as construction of road as classified under Entry number 3 (iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 (as amended). Since such cost of the above said activity will be borne by the Authority or by the entity owning such utility therefore such payment of above mentioned activity is not the part of the main contract i.e. construction of road as awarded to main cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the GST Act . The issue raised by Gaurish Sharma, (M/s G K Enterprises), A-3, Adarsh Nagar, Jaipur, Rajasthan 302004 (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) (b) given as under: - (a) Classification of any goods or services or both; (b) Applicability of a notification issued under the provisions of this act; Further, the applicant being a registered person (GSTIN is 08ARNPS7996R1Z3 as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling. 1. SUBMISSION AND INTERPRETATION OF THE APPLICANT: The National Highway Authority of India ( NHAI ) is an agency of the government which carries out the function of construction of roads and matters incidental thereto. The task of development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification No. 11/2017- Central Tax (Rate) dated 28.06.2017 as amended from time to time ( Rate Notification ). That under the above-mentioned Rate Notification, the rate of GST applicable in relation to construction services with respect to construction of roads has been given in Heading 9954 (iv) as 6% Similar rates have been prescribed under Rajasthan Goods and Services Tax Act, 2017 ( RGST Act ). On a combined reading of notifications issued under CGST Act and RGST Act, the effective rate of tax comes to 12% on construction of roads. The Rate Notification also notifies the applicable rate of GST for various kinds of construction services. As per the said Rate Notification, the rate of tax for civil structures or any other original works has been specified at the rate of 6% under Heading 9954(vi), and the effective rate of tax comes to 12%. That the Applicant has filed the present application in order to determine whether Entry (iv) of Heading 9954 of the Rate Notification would be applicable to them for the contract proposed to be undertaken. The relevant text of the notification is reproduced as below: Chapter, Section or Heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 3 of Transfer of Property Act, 1882 immovable property does not include standing timber, growing crops or grass., immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. That in the present case, the construction at the site of the highway project including utilities like cables and wires are fastened to the earth by using cement and concrete or by using nuts and bolts and if in case they are required to be shifted from one location to another then they are first dismantled and then re-erected at another site. The scope of work of the Applicant also involves activities like drilling through the ground to lay down such new electrical lines. That within the scope of work, the Applicant will also have to erect lattice towers , which are structures commonly used for transmission of power through electrical conductors on which conductors and electric wires can be affixed at a suitable height above the ground. Structurally these towers are required to be able to resist loads such as wind load, snow load and self-weight. In order to erect these structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he construction, operation or maintenance of the Project. The cost of such shifting shall be borne by the Authority or by the entity owning such utility, If the Authority so directs, and in the event of any delay in shifting thereof, the Concessionaire shall be excused for failure to perform any of its obligations hereunder if such failure is a direct consequence of delay on the part of the entity owning such electric lines, water pipes or telephone cables, as the case may be. ❖ That on a reading of Article II and V it is clear that each component of the scope of work as listed in the Agreement has to be carried out by the contractor in order for the Agreement to be fulfilled. Since the Agreement includes the obligations as given in Article XI of the Agreement as well, it is evident that carrying out the work as prescribed therein is a part of the process and a vital component of the work of construction of a four-lane highway to be carried out by the main Contractor in order to carry out the highway development project. Thus, it is submitted that the work proposed to be carried out by the Applicant in the present case is nothing more than the obligations of the main Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST, their sub-contractor would also liable @ 5%. On a reading of the above, it is clear that the purpose or object of the GST Council is to extend benefit to the last chain of said supply and reason for the same is to provide equal opportunities and equal level playing fields to business entities and avoid discrimination. Based on this reason, as well as the interpretation of the notification as explained above, it is submitted that the rate that should be applicable on the Applicant should be the same as that of the main contractor for providing the service of construction of civil works through a works contract. That this intent of the GST Council has also been recognised by the Maharashtra AAR in the case of Shree Constructions [2018 (17) G.S.T.L. 504 (A.A.R. - GST)] = 2018 (9) TMI 854 - AUTHORITY FOR ADVANCE RULING, MAHARASHTR A, which has been upheld by the Appellate Authority as well [2019 (23) G.S.T.L. 473 (App. A.A.R. - GST)] = 2019 (3) TMI 1567 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA . The relevant text of the Maharashtra AAAR is reproduced below for reference: It is very much clear that any supply of works contract pertaining to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as part of a road, and thus should be considered to be covered under Entry (iv). ISSUE 2: ALTERNATIVELY, WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, DOES THE ACTIVITY CARRIED OUT BY THE APPLICANT FALL UNDER ENTRY NO. (IX) OF NOTIFICATION NO. 11/2017-CIYR)? That alternatively, and without prejudice to the above, the contract proposed to be undertaken should be considered as a contract covered under entry (ix) of Heading 9954 under sub-clause (a). which relates to sub-contracting of construction services. The Rate Notification entry has been reproduced below: Chapter, Section or Heading Description of Service Rate (per cent) Condition Heading 9954 (Construction Services) (ix) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017 provided by a sub-contractor to the main contractor providing services specified in item (Hi) or item (vi) above to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty -Should be by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration -Should be of a civil structure or any other original works -Should be meant predominantly for use other than for commerce, industry, or any other business or profession. That the main contract is a works contract in terms of Section 2(119) of the CGST Act since it the contract is for development and four-laning of a highway, which includes construction of the road, flyover, bridges and project facilities as specified in Schedule C of the Agreement. Since the main contract does not relate to the construction of any residential or commercial apartment in any manner, it is clear that the same will not be covered under the items listed in items (i), (ia), (ib), (ic), (id), (ie) and (if) of Heading 9954. ❖ That Government Entity has been defined in the Rate Notification and the same reads as reproduced under: Government 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 State Legislature; or (ii) established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Jodhpur Ring Road for better road access and transportation of the residents of the country. Reliance can also be placed on a notification issued under service tax read with the National Road Traffic Act, the relevant extract of which is reproduced below: That the said road will be a national highway constructed for the purpose of providing better road connectivity on the Jodhpur Ring Road, and thus by no means can it be construed for the purpose of commerce, industry, or any other business or profession. A perusal of the above notification and statute indicates that roads are for use by general public. That based on the above discussion it is also clear that the main contract is for construction of the road, flyover, bridges, grade separators and project facilities as described in Schedule C of the Agreement. Additionally, the Agreement also includes dismantling and then constructing, erecting and installing electric cables, both underground and overhead, along with all the necessary structures to Support such cables. Thus, the main contract will clearly fall within the, definition of civil structure . That from the above discussion it is evident that the main c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of civil works through a works contract. Thus, the Applicant will qualify under Entry (xi) of Heading 9954 of the Rate Notification and the said services shall attract GST @ 12% (6% SGST + 6% CGST). In light of the above cited law and interpretation, it is humbly submitted that the activity proposed to be undertaken by the Applicant should be held to be falling under Entry (ix) of Heading 9954 in the Rate Notification, since the Applicant is a sub-contractor proposing to undertake an activity where the main contractor is has been given the activity of development of four-lane highway, along with flyovers, bridges, grade separators and project facilities as per Schedule C of the Agreement, and such activity is covered by Entry (vi). Moreover, the supply is being made by the Contractor to NHAI, which is a government entity and task of construction of roads has been conferred on NHAI in the capacity of an agency of the government. 2 QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT Whether in the facts and circumstances of the case, does the activity carried out by the Applicant falls under Entry No. (iv)(a) of Notification No. 11/ 2017-CT(R)? Alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.2.1 The Concessionaire shall, subject to Applicable Laws and with assistance of the Authority, undertake shifting of any utility including electric lines, water pipes and telephone cables, to an appropriate location or alignment within or outside the Site if and only f such utility causes or shall cause a material adverse effect on the construction, operation or maintenance of the Project. The cost of such shifting shall be borne by the Authority or by the entity owning such utility, If the Authority so directs, and in the event of any delay in shifting thereof, the Concessionaire shall be excused for failure to perform any of its obligations hereunder if such failure is a direct consequence of delay on the part of the entity owning such electric lines, water pipes or telephone cables, as the case may be. During the personal hearing the authorized representative of the applicant submitted a letter dated 5.12.2019, issued by M/s Sadbhav (main contractor), addressed to the applicant, in which description of activities to be undertaken has been stipulated as under-: Electrical utility shifting / erection of 11 KV LT lines (due to road widening) for completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for use by general public; (b) *** 6 - We observe that entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017allows concessional rate in case of works contract is for construction of road, bridge, tunnel or terminal for road transportation for use by general public. We observe that in the present case the proposed activity carried out by the applicant is of shifting /erection of 11 KV lines only and the same cannot be categorised as construction of road as classified under Entry number 3 (iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 (as amended). We further, observe that since such cost of the above said activity will be borne by the Authority or by the entity owning such utility therefore such payment of above mentioned activity is not the part of the main contract i.e. construction of road as awarded to main contractor by NHAI. Thus, there establish no nexus between the main contract awarded for construction of road by the NHAI and the work proposed to be undertaken by the applicant. Therefore, the question of covering the activity under entry number 3(iv)(a) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h payment of above mentioned activity is not the part of the main contract which is evident from the lines The cost of such shifting shall be borne by the Authority or by the entity owning such utility written in the Article XI of the main contract (concession agreement) awarded to main contractor by NHAI. Thus, there establish no nexus between the main contract awarded for construction of road by the NHAI and the work proposed to be undertaken by the applicant. As already discussed above the activity to be undertaken by the applicant cannot be treated as a part of main contract of NHAI thus the applicant who is supposed to execute an independent work cannot be treated as sub-contractor of the main contractor. Hence the conditions mentioned in entry No. (ix) of the Notification No.11/2017-CT (Rate) dated 28.6.2017 are not fulfilled. In view of the foregoing, we rule as follows: - RULING a. The activity proposed to be undertaken by the applicant does not fall under entry no. (iv)(a) of the Notification No. 11/2017- CT(R) dated 28.6.2017. b. The activity proposed to be undertaken by the applicant does not fall under entry no. (ix) of the Notification No. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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