TMI Blog2022 (10) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the cost of construction and maintenance for 15 years through bi-annual annuity as fixed by the agreement, the road is transferred to the Government - it is evident that the services provided by the applicant as per the concession agreement are covered under the definition of works contract under Section 2 (119) of the CGST Act, 2019 and the bi-annual annuity received by the applicant as per the concession agreement can be considered as the consideration for the works contract services supplied by the applicant given the definition of consideration in Section 2 (31) of the CGST Act, 2017. The service rendered by the applicant as per the concession agreement is a continuous supply of works contract services and the annuity is in sum and substance the consideration for the works contract services rendered. Since the cost of construction is initially financed by the applicant the applicant is granted a concession to operate and maintain the roads for 15 years during which the entire consideration is paid to the applicant and on completion of the concession period the road is transferred to the Government. Therefore, the transfer of goods involved in the execution of the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le) as per entry No. 23A of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017? 2. The establishment is eligible for an early completion bonus as the construction is completed before the scheduled date. Whether this bonus will also be exempted as it is the part and parcel of the principal project. 4. Contentions of the Applicant: 4.1. The applicant submits that the total project is for 17 years which includes 2-year construction and 15-year maintenance. The company is eligible for annuity payments as a consideration after the period of construction. The construction was completed in December 2017 and now it is under operation and maintenance. 4.2. The service by way of access to a road or a bridge on payment of annuity is exempted from GST in terms of Entry No. 23A of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. The notification is applicable in their case also. The annuity consists of both construction and O M annuity which are inseparable as per terms of the engagement. Since the majority of the annuity is attributable to the construction part, the whole amount received as the annuity is exempted from the purview of GST. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and 15 years of maintenance. The construction was completed in December 2017 and is now under the phase of operation and maintenance. The consideration for the project is received as annuity spread across 15 years after the construction. The first annuity was due on 01.03.2018. The Annuity of the Project is recognised as per Article 8 of the Concession Contract Agreement. The said Annuity is a combined consideration for both construction and maintenance. The relevant portion of Article 8 is attached as Annexure - 1. 6.2.3. The department has issued Circular No. 150/06/2021 GST on 17.06.2021 stating that Entry 23A of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 does not exempt GST on annuity (deferred payments) paid for the construction of roads. The annuity was classified under entry 23A before the above circular and regarding that, the National Highways Authority of India had also issued a circular dated 23.10.2017 regarding the applicability of GST on annuity payments. The Circular is attached as Annexure- 2. An advance ruling regarding the annuity for construction of roads was also seen where the annuity was classified under entry 23A of Notification. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KVAT return are attached as Annexure - 4. 6.2.7. During the construction period an amount of Rs. 6,29,10,902/- was paid as VAT to the Government for the execution of the works contract for an amount of Rs.157,27,72,500/- and the balance of the work for an amount of Rs. 32,98,41,750/- has been executed in GST period and 12% GST has been paid by the sub-contractor. 6.2.8. The consideration for the project will be received as biannual instalments for 15 years during the period of the GST regime. As per Circular No. 150/06/2021 GST, the annuity amount is taxable as per provisions of the GST Act. A proportional tax is payable to the Government only once as per the provisions of the applicable laws relating to the execution of works contract. In their case as the commencement of operations was during the KVAT period and consideration is received in the GST period they are forced to pay double taxes as tax paid as VAT cannot be proportionately reduced in GST. If the entire construction work of the main contract had been carried out during the GST period, the GST amount on the sub-contract bill could have been calculated as IPT credit and paid the taxes. However, the total amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned is the classification, taxability and the rate of GST applicable on the services supplied by the applicant as per the Concession Agreement dated 22.07.2015. 7.3. As per the terms and conditions of the concession agreement, the applicant as the concessionaire is designing, constructing, operating and maintaining the roads under Phase 1 (A) of the KCRIP during the concession period and transferring it to the Government on completion of the concession period. The entire project is financed by the applicant and the cost of the construction, operation and maintenance is recovered by the applicant by way of bi-annual annuity payments as per the terms and conditions of the concession agreement for 15 years. On completion of the payment of the cost of construction and maintenance for 15 years through bi-annual annuity as fixed by the agreement, the road is transferred to the Government. The services of construction, operation and maintenance of roads on a Design, Build, Finance, Operate, Maintain and Transfer [DBFOT] basis is a composite supply as defined under clause (30) of Section 2 of the CGST Act, 2017 which reads as under; (30) composite supply means a supply made by a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the works contract services supplied by the applicant. 7.4. As per the Explanatory Notes to the Scheme of Classification of Services notified as Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 the Heading 9954 pertains to Construction services; the Group 99542 pertains to General construction services of civil engineering works and the Service Code 995421 pertain to General construction services of highways, streets, roads, railways and airfield runways, bridges and tunnels. Accordingly, the services supplied by the applicant as per the concession agreement are appropriately classifiable under SAC 995421. 7.5. Having decided the classification of the services, the time of supply of the services is to be determined as per Section 13 of the CGST Act, 2017 the relevant portion of which re ads as follows; 13. (1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section. (2) The time of supply of services shall be the earliest of the following dates, namely - (a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the supply of such services as the Government may, subject to such conditions, as it may, by notification, specify. 7.4. As per the Explanatory Notes to the Scheme of Classification of Services notified as Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 the Heading 9954 pertains to Construction services; the Group 99542 pertains to General construction services of civil engineering works and the Service Code 995421 pertain to General construction services of highways, streets, roads, railways and airfield runways, bridges and tunnels. Accordingly, the services supplied by the applicant as per the concession agreement are appropriately classifiable under SAC 995421. 7.5. Having decided the classification of the services, the time of supply of the services is to be determined as per Section 13 of the CGST Act, 2017 the relevant portion of which reads as follows; 13. (1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section. (2) The time of supply of services shall be the earliest of the following dates, namely:- (a) the date of issue of invoice by the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing three months with periodic payment obligations and includes the supply of such services as the Government may, subject to such conditions, as it may, by notification, specify. 7.8. On a conjoint reading of the above provisions of the CGST Act, 2017 it is evident that the service rendered by the applicant as per the concession agreement is a continuous supply of works contract services and the annuity is in sum and substance the consideration for the works contract services rendered. Since the cost of construction is initially financed by the applicant the applicant is granted a concession to operate and maintain the roads for 15 years during which the entire consideration is paid to the applicant and on completion of the concession period the road is transferred to the Government. Therefore, the transfer of goods involved in the execution of the works contract happens at the time of transfer of the roads to the Government as per the concession agreement and accordingly the completion of the work contract service takes place on the date of transfer of the roads to the Government. Given the provisions of sub-section (5) of Section 31 and the Explanation (i) to sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
