IIT Bhubaneshwar qualified as a ‘Government Entity’ under GST law: Odisha AAR
Introduction of GST is considered to be a significant step in the reform of indirect taxation in India. Amalgamating of various Central and State taxes into a single tax would help mitigate the double taxation, cascading, multiplicity of taxes, classification issues, taxable event, and etc., and leading to a common national market.
The Central Government, on the recommendations of the GST Council has notified that the GST rate, on the intra-State supply of certain services in Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017. In Sl No 3 of the said notification, construction services which are mentioned below shall be charged at 18% GST:
- Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
- composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017.
- construction services other than the one’s mentioned above.
Let us refer to the case of NBCC (INDIA) Limited (GST AAR Odisha), where the issue under consideration pertained to classification of the service and the rate of GST applicable on supply of such service, particularly the applicability of concessional rate of tax in terms of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017.
Facts of the Case:
- The applicant had entered into Agreement with Indian Institute of Technology, Bhubaneswar for Project Management Consultancy (PMC) works.
- The scope of the work as per the agreement includedand not limited to providing and laying Sewerage & STP for residential cum academic campus, 800 seater boys hostel, 200 seater girls hostel, Construction of lecture hall complex, Construction of Student Activity Centre, Dispensary, Construction of 1000 capacity Auditorium, Construction of Directors Bungalow, 40 nos. staff Quarters, 84 nos Faculty Quarters, Construction of Central Research & Instrumentation facilities, Construction of Central Workshop, Landscaping and allied works for academic area, construction of water works, Roof top solar PV power plants, Play grounds, Electricity, Substation DG set and fire safety measures etc.
- The applicant would also carry out surveying and soil investigation of the plot of IIT BBS.
- The applicant would finalize the Architectural Plans with the approval of IIT BBS.
- The applicant would prepare tender documents required for execution of the Project after giving technical sanction of the concernedwork.
- The work would be executed as per architectural drawings and specifications approved by ‘TIT BBS’ and to the full satisfaction of ‘HT BBS’ through contractors(s) to be engaged by the applicant.
- Further the applicant shall carry out the work on turnkey basis which includes planning, designing, supervision/construction, furnishing, equipping and handing over the building(s) and other works to ‘HT BBS’ in ready to use /condition.
- Further, the applicant Shall follow competitive tendering process for selection of agencies for planning, designing and execution of works of the project, as per their procedure.
- The applicant shall be paid the actual cost of work plus the agency charges of 5.5% plus service tax and other taxes as applicable from time to time.
- The applicant appointed various agencies/ contractors to carry out the project towards its desire completion.
- In this regard the applicant was awarded work for construction of various buildings, infra facilities, educational blocks to various parties/sub-contractors as per the tender/ BOQ specifications, based on the CPWD Code and practices.
Observations of AAR on whether the services provided fell under composite supply or not
- It was argued by the applicant, that the impugned supply was a composite supply of works contract service which was being supplied to IIT, Bhubaneswar a Government entity/Governmental Authority/Government and accordingly the same would merit entitlement for concessional rate of GST @ 12% [CGST @ 6% + SGST @ 6%] in terms of Serial Number 3(vi) (a) & (b) of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 (as amended).
- AAR observed that there were a number of works entrusted to the applicant under a single contract/agreement.
- IIT, Bhubaneswar had engaged the applicant as a “Project Management Consultant”. In order to execute the project, the applicant has engaged contractors through different competitive tender process.
- The applicant had awarded different types of works to various agencies/contractors with categorical mention of individual works to be carried out by them with specific remuneration for each such work.
- Hence, it was a supply having distinctly identifiable components with distinct value attributable to each of the components.
- AAR, however, did not agree with the contention of the applicant for the reasons that the items covered under the ‘Scope of Work’ were disjoint in character and could be supplied in conjunction with each other in the ordinary course of business.
- Hence, AAR were unable to subscribe to the views of the applicant that the supply of services and goods encompassed in the subject work order/contract were naturally bundled.
- Mere fact that a number of tasks were entrusted to the applicant would not make it entitled to be categorized as ‘composite supply’ under GST.
Observations of AAR on the legal status of IIT, Bhubaneswar
- The Applicant has stated that IIT, Bhubaneswar was established by the Government.
- All the institutions of the Indian Institutes of Technology were established by the Government of India, Ministry of Human Resource Development.
- Further, IIT’s under the ‘All India Council of Technical Education(AICTE)’were the institutions controlled and owned by the Ministry of Human Resource Development.
- That being the stated position, IIT, Bhubaneswar was entitled to be termed as ‘Government Entity’ in terms of Explanation to Notification No. 11/2017-C.T. (Rate), and also as per Notification No. 31/2017- C.T. (Rate), dated 13-10-2017.
- “Government Entity” was defined in the Notification No.11/2017-Central Tax rate vide clause 4(x).
- According to the said definition, “Government Entity” meant an authority or a board or any other body including a ‘society, trust, corporation:
- set up by an Act of Parliament or State Legislature; or
- established by any Government, with 90%, or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government. Union Territory or a local authority.
- AARfound that Government of India, Ministry of Human Resource Development was exercising full control over the activities of IIT’s all over the country.
- Therefore, IIT Bhubaneswar qualified to be called and termed as a ‘Government Entity’ for the purpose of GST law, as it fulfilled the necessary and sufficient conditions laid down under notification supra.
Observations of AAR on the rate of GST applicable
- AAR observed that the Entry No. 3(vi) to the Notification No. 11/2017-C.T. (R) covered a wide spectrum of Construction Services as composite supply
- To be more specific the entry covered, composite supply of works contract as defined inSection 2(119) of the CGST, 2017, provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity by way of Construction, erection, commissioning, installation, completion, fitting out, repair maintenance, renovation or alteration of:
- a civil structure or any other original work meant predominantly for use other than for commerce, industry or any other business or profession;
- a structure meant predominantly for use as (i) and educational, (ii) a clinical or (iii) an art or cultural establishment; or
- a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule-III of the CGST Act, 2017.
- The above-mentioned Serial No. 3(vi) provides a concessional rate of GST @ 12% subject to the condition that where the services were supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union Territory or local Authority, as the case may be.
- AAR found that the applicant was engaged as a PMC to execute the contract for carrying out different specified works for IIT, Bhubaneswar which includes erection, commissioning, installation, etc.
- AAR also found that for executing the project, the applicant shall be paid agency charges of 5.5% in addition to the actual cost of work.
- The agency charges were type of commission or remuneration for rendering ‘consulting service’ to IIT, Bhubaneswar.
- There were certain items of supply made to IIT, Bhubaneswar including, but not limited to, ‘supply of consulting services’ which definitely did not find place in the ambit of Sr. No. 3(vi) to the Notification No. 11/2017-C.T. (Rate).
- Such supply would not qualify for exemption as envisaged under Sr. No. 3(vi) to the Notification No. 11/2017-C.T. (Rate), inasmuch as the said supply is a “Pure Service” and not in the nature of works contract service.
- The works entrusted to the Applicant were within the purview of sub-clause (b) of Clause (vi) of SI No.3 (heading 9954) of Notification No. 11/2017-C.T. (Rate), and hence merited exemption where the applicable tax rate was 12% (6% under CGST & 6% under OGST Act, 2017).
- The works contract so executed by the applicant included Sewerage disposal (Sewerage & STP) unit & construction of water works were covered vide Sl No. (iii) (c) to the said notification and merit exemption where the applicable tax rate is 12% (6% under CGST & 6% under OGST Act, 2017).
Observations of AARon the issue of construction of Directors Bungalow and construction of staff/faculty quarters
- AAR saw that the applicant was awarded construction of Directors Bungalow, 40 nos. staff Quarters, 84 no’s Faculty Quarters in the IIT Campus, Bhubaneswar.
- AAR observed that the civil construction of residential quarters was not the primary work entrusted to IIT, Bhubaneswar.
- Accordingly, AAR failed to understand as to why the benefit of concessional rate @ 12% GST should be available to this particular works contract awarded to the applicant?
- The intention of the Legislature was to allow concessional rate to such work which was entrusted to a Government entity for public interest in general, but extrapolating and extending this concessional rate to any or all activities of IIT, Bhubaneswar would not only be unwarranted but also defeat the very purpose of concessional rate.
- Hence, AAR held that construction of Directors Bungalow and construction of staff/faculty quarters was out of purview of exemption provided under Notification No. 11/2017-C.T. (Rate), dated 28-6-2017 and would attract GST @ 18% (9% CGST + 9% SGST).
Therefore, AAR held that the works entrusted to the Applicant by IIT, Bhubaneswar under contract/agreement could not be termed as composite supply and thus entire work under the said contract would not be entitled to concessional rate in terms of Notification No. 11/2017-C.T. (R), dated 28-6-2017.
However, AAR also held that the supply of goods and/or services or both which squarely fell within the ambit of scope of work entrusted to HT, Bhubaneswar by Government of India would be entitled for concessional rate under Sr. No. 3(vi) to Notification No. 11/2017-C.T. (R). Accordingly, each and every supply under the subject contract shall be treated separately for determining the rate of tax under the CGST Act, 2017 read with the provisions of GST Tariff and respective exemption notifications.