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July 13, 2022

Organization running on business model cannot avail concession GST rate benefit

by CA Shivam Jaiswal in GST Circular Notification

Organization running on business model cannot avail concession GST rate benefit

Facts and Issues of the case

The applicant, M/s. KPC Projects Limited entered into a contract with Andhra Pradesh Industrial Infrastructure Corporation Ltd., (APIIC) for supply of works contract services. APIIC, a Government of Andhra Pradesh undertaking had floated online global open e-tenders for construction of ready built factory (“RBF”) sheds 1, 2, 3 & 4 at YSR Electronic Manufacturing cluster, Kopparthy, YSR Kadapa District, Andhra Pradesh. The applicant, being the successful bidder, had entered into a contract with APIIC vide agreement No.XXXXXXX dated 03.12.2020 with the Chief Engineer of APIIC for providing the following work, “Construction of RBF 1, 2, 3 & 4 at YSR Electronic Manufacturing cluster at kopparthy, YSR Kadapa District, “Andhra Pradesh”.

It is the applicant’s interpretation that the rate of tax is 12% for the above works with reference to Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017, as amended by Notification No.24/2017- Central Tax (Rate) dated 21.09.2017.

The applicant had filed an application in form GST ARA-01 dated 13.03.2021 by paying required amount of fee for seeking Advance Ruling on the following issues, as mentioned below:

Observations by the Court

The Court has examined the issues raised in the application, in light of records submitted and submissions made by the applicant at the time of hearing. It is evident that the activities of Mis APIIC are business activities and not otherwise. The applicant claims that the works involved in the contract i.e., the RBF sheds are used by none other than the organization (APIIC) itself. But a detailed examination of the activities of APIIC prove that the organization runs on a business model as it would pass on any costs involved in its transactions to the end client. This would be sufficient enough to come to a conclusion that the said construction is for use of APIIC for conducting its activities, which are essentially business oriented and hence not eligible for concessional rate of 12% ( 6% CGST + 6% SGST) available under Notification No.24/2017 – CT (Rate).

Hence, the contract entered by the applicant is classifiable under SAC heading No. 9954 under construction services, with entry no (ii) of serial No.3 of notification no. 11/2017 Central Tax (Rate) dated i.e., Composite Supply of Works Contract as defined in clause 119 of Section 2 of Central Goods and Services Act, 2017 and the applicable rate of tax is 18% (9% under Central Tax and 9% State Tax).

Conclusion

Question: In view of the construction services provided by the applicant to APIIC, whether the applicant eligible to avail the concessional rate of GST at 12% as prescribed in of S.No.3 (VI) the Notification no. 11/2017- Central Tax (Rate), as amended by?

Answer: Negative.

Question If not, what is the appropriate rate and classification of GST to be charged by the applicant?

Answer: Classifiable under SAC heading No. 9954 construction services,

With entry no (ii) of serial No.3 of notification no. 11/2017 Central Tax (Rate) as amended and the applicable rate of tax is 18% (9% Central Tax + 9% State Tax).

In-re-KPC-Projects-Limited-GST-AAR-Andhra-Pradesh-Advance-Ruling-No.-AAR-No.-22APGST2021

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