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November 18, 2023

The GST exemption granted to a construction contractor does not apply to his purchase

The GST exemption granted to a construction contractor does not apply to his purchase

Fact and issue of the case

M/s. Immense Construction Company, Plot No.105, Sunrise Homes Colony, Upperpally, Rajender Nagar, Ranga Reddy, Telangana – 500048 (36ADZPG2112K1ZD) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules.

At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further, for the purposes of this Advance Ruling, the expression ‘GST Act’ would be a common reference to both CGST Act and TGST Act.

It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- under SGST and Rs. 5,000/- under CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided nor are pending before any authority under any provisions of the CGST/TGST Act’2017. The application is, therefore, admitted after examining it and the records called for and after hearing the applicant as per section 98(2) of TGST Act’2017.


The Applicant M/s Immense Construction Company is a Firm registered under the Goods and Services Tax Act, 2017;

It undertakes Contracts/ Sub-Contracts of the entire work for. Operation and Maintenance of Water Supply Projects / Sewerage Projects/Facilities;

The Applicant has been awarded a contract by M/s. THE INDIAN HUME PIPE COMPANY LTD. (herein after referred to as “Principal Contractor”) vide Letter No. IHP-HIM/ Balkonda: TDWSP/O&M/Amendment-1/2022-23 dated 23 May, 2022;

The Contract so awarded as mentioned above, is a sub-contract awarded by the Principal Contractor out of the Original Contract as received by them from State of Telangana, Mission Bhagiratha.

As per the Contract dated 13/01/2023 awarded by Mission Bhagiratha the Principal Contractor shall undertake Operation and Maintenance Contract with the State Government of Telangana in respect of water pipe lines meant for providing drinking water to Balkonda, Armoor, Nizamabad, Kamareddy and part of Yellareddy Constituencies from SRSP reservoir, Nizamabad district including

1) CPWSS to Armoor & Other habitations

2) CPWS to Balkonda& other habitations

3) CPWS to Kamareddy& other habitations of SRSP Balkonda segment for Financial Year 2021-2022. Copy of the agreement is attached herewith and marked as Annexure-1

The sub contract agreement as carved out of the Principal Contract clearly indicates scope of the work to be undertaken and obligations of such sub-contractor. Further, the conditions of sub- contract provides that sub-contract agreement is liable to termination if the work is not executed and maintained as per Guidelines of Mission Bhagiratha, as agreed by client viz State Government of Telangana.

In the Contract so executed by the Principal Contractor, total value of supply of Goods constitutes not more than 25% of the Sub- Contracted value (as can be verified from the Contract so awarded) and therefore exempted from payment of GST in terms of entry 3A in Notification No 12/2017 Central Tax (Rate) dated 28/06/2017 as amended by Notification No. 2/2018 Central Tax (Rate) dated 25/01/2018; and

Further, the Sub Contract so executed between the Applicant and the Principal Contractor, is only for supply of Man Power – which is Pure Service and hence exempted from payment of GST in terms of Entry 3 in Notification No 12/2017 Central Tax (Rate) dated 28/06/2017 as amended by Notification No. 2/2018 Central Tax (Rate) dated 25/01/2018.

Observation of the court

Thus the issues identified by the AAR to be addressed at the beginning of the discussion are answered as follows:

Whether the supply of works contract services by a contractor and his procurement works contract services constitute two independent taxable events under the CGST Act. Under the scheme of the CGST Act there are two independent taxable events, one between the sub-contractor and the main contractor and the next between the main contractor and the contractee.

Whether an exemption extended to a contractor supplying works contract services is applicable to his procurement of works contract. As the exemption notification have to be strictly construed, the exemption extended to a works contractor is not applicable for his procurement of works contract. Therefore in sum and substance the exemption extended to a works contractor supplying the works contract services to Government or local bodies is not extendable to a taxable person who is supplying services to such works contractor in absence of any entry or notification under Sec11 (1) of the CGST Act.

Read the full order from here


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