A2Z Infra Engineering Ltd., In re
Date: July 19, 2018
Court: Authority for Advance Ruling
Bench: Chhattisgarh
Type: Advance Ruling
Subject Matter
Works contract services provided to Chhattisgarh State Power Distribution Company being predominantly for commercial use, the said services attract 18% GST
Summary
The applicant supplies works contract services involving the supply of goods and services to Chhattisgarh State Power Distribution Company Ltd. (CSPDCL).The applicant filed an application before the Authority for Advance Ruling requesting advance ruling as regards levy of CGST and Chhattisgarh GST at the rate of 6 per cent each instead of 9 per cent each on the composite supply of works contract services provided to CSPDCL by it.The primary issue that needs decision here so as to arrive at applicability or otherwise of the benefit of Exemption Notification No. 24/2017- Central Tax (Rate), dated 21-9-2017 and Notification No. 31/2017-Central Tax (Rate), dated 13-10-2017 in the context of the advance ruling sought by the applicant revolves around the following two vital aspects:
1. Whether the CSPDCL is a Government authority/Government entity. If so,
2. Whether the works contract services provided by the applicant to CSPDCL qualify being the work predominantly for use other than for commerce, industry or any other business or profession
Close scrutiny of the balance sheet of CSPDCL as on 31-3-2016 reveals that 100 per cent equity of CSPDCL is held by the Chhattisgarh State Power Distribution Holding Company Limited and 100 per cent of equity of CSPDHL is being held by the Government of Chhattisgarh. Now is to be seen if the services being provided by the Applicant to CSPDCL by way of construction erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works must predominantly be for use other than for commerce, industry, or any other business or profession. On going through the main/ancillary objectives as enumerated in Memorandum of Association of CSPDCL, there hardly remains any doubt regarding the principal/primary and foremost aim of CSPDCL being predominantly commercial in nature. Therefore the said services provided by the Applicant to CSPDCL, attracts CGST and SGST each @ 9% respectively.
The applicant M/s. A2Z Infra Engineering Ltd., B-18, Amrapali Society Raipur, GSTIN 22AAECA1203A1ZX has filed the application U/s 97 of the Chhattisgarh Goods & Services Tax Act, 2017 requesting advance ruling as regards levy of CGST & SGST @ 6% each instead of 9% each on the composite supply of work contract services provided to Chhattisgarh State Power Distribution Company Ltd. (CSPDCL) by A2Z Infra Engineering Ltd., Raipur.
2. Facts of the case :—
| I. | M/s. A2Z Infra Engineering Ltd., Raipur (hereinafter referred to as 'A2Z' or the company') is a fully integrated Electrical Business Group in India engaged in providing maintenance and engineering services. | |
| II. | Government of India has launched Integrated Power Development Scheme (IPDS) for the urban/semi- urban areas for |
| a. | Strengthening of sub-transmission and distribution networks in the urban areas; | |
| b. | Metering of distribution transformers/feeders/consumers in the urban areas; | |
| c. | Rooftop Solar Projects, Installation of solar panels and smart/net meters as a mandatory component under IPDS; | |
| d. | Counting IT enablement of distribution sector and strengthening of distribution network. |
| III. | Chhattisgarh State Power Distribution Company Limited (hereinafter referred to as 'CSPDCL') have been entrusted to execute the Project i.e. Implementation of IPDS scheme for |
| a. | Strengthening and augmentation for sub-transmission & distribution infrastructure and | |
| b. | Electrification Work in 15 Circles (through eight packages) in Chhattisgarh State on behalf of Government of Chhattisgarh. |
| IV. | CSPDCL had floated a tender to award the aforesaid specified scope of work and after successful bidding M/s. A2Z has been awarded the work contract services from CSPDCL. |
3. Contention of the Applicant :
| (i) | that, since the services provided by it are in the nature of composite supply of work contract involving supply of goods and services therefore the services provided will be subjected to GST @ 12% instead of 18% in terms of Notification No. 24/2017-Central Tax (Rate), dated 13-10-2017. This Notification provides that the services provided to the Central Government, State Government, Union Territory, a local authority, a Government 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 works meant predominantly for use other than for commerce, industry, or any other business or profession will be subjected to CGST @ 6% and SGST @ 6% and provided that where the services are 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. | |
| (ii) | that, on the basis of Notification No. 11/2017, Notification No. 24/2017, dated 21-9-2017 and Notification No. 31/2017, dated 13-10-2017 the services 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 works meant predominantly for use other than for commerce industry, or any other business or profession will be subjected to CGST @ 6% and SGST@ 6% provided that where the services are 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. | |
| (iii) | that, CSPDCL is a Government entity which came into existence w.e.f. 1-1-2009 as one of the company when erstwhile Chhattisgarh State Electricity Board (CSEB) was reorganized into 5 companies by Government of Chhattisgarh in accordance with the provisions contained in Sections 131-134 of Electricity Act, 2003. CSPDCL is the electricity generation company of Government of Chhattisgarh in India and was formed by issuance of notification in official gazette dated 31-12-2008, Thus, condition No. 1 is satisfied that CSPDCL is a Government entity. Further 100% holding is of Chhattisgarh Sate Government. | |
| (iv) | that, CSPDCL is implementing this work on behalf of Government of Chhattisgarh. This IPDS scheme has been sanctioned by Ministry of power vide office memorandum no 26-1-2014 - APDRP to be implemented in all the States of India. So to implement this policy in Chhattisgarh, the Government of Chhattisgarh has provided the work to CSPDCL. | |
| (v) | that, the work contract services provided by the Applicant to CSPDCL is meant predominantly for use other than for commerce industry, or any other business or profession. The IPDS scheme has been formulated to keep pace with the increase demand of electricity as electricity is the most important factor in the economic growth of any country and the most critical segment of power sector chain including Generation, Transmission and Distribution, is the Distribution Sector. | |
| The funds for IPDS scheme are provided by Central Government to Chhattisgarh Government in the form Of subsidy and by Chhattisgarh Government by arranging loan from FIs/Bank. Further, that even after completion of this project no recovery will be made from any consumer as this IPDS scheme is not for earning any profit or gain but for the benefit of India as a whole so that electricity reaches each and every corner of India. | ||
| (vi) | Thus on the basis of above, the Applicant contends that the said work contract services involving the supply of goods and services to CSPDCL is liable for GST @ reduced rate of 12% instead of 18%. |
4. Personal Hearing :—
In keeping with the established principles of natural justice, personal hearing in the matter was extended to the authorized person of the Applicant and accordingly, Shri Malvinder Singh Bhatia (Advocate) along with Shri Mohit Gupta (CA Intern), appeared before us for hearing on 22-6-2018 and reiterated their contention. They also furnished a written submission dated 22-6-2018, which has been taken on record.
5. Thus we find that A2Z, the Applicant is seeking clarity as regards the applicable rates for payment of GST on the aforesaid services rendered by them to CSPDCL„ viz. whether the applicable rates should be @ 12% or 18%, since the services provided by it are in the nature of composite supply of work contract involving supply of goods and services provided by A2Z. This clarification has been sought by the Applicant in the context of Notification No. 24/2017-State Tax (Rate), dated 23-9-2017 and Notification No. 31/2017-State Tax (Rate), dated 13-10-2017, which provides that the services 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 works meant predominantly for use other than for commerce, industry, or any other business or profession will be subjected to CGST @ 6% and SGST @ 6%, provided that where the services are 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.
The Applicant is thus seeking advance ruling on the issue, as according to them the services provided by them are in the nature of composite supply involving supply of goods and services, therefore, they should charge GST at the reduced rate of 12% instead of 18% as per provisions of Notification No. 24/2017-CentraI Tax (Rate), dated 21-9-2017 and Notification No. 31/2017-Central Tax (Rate), dated 13-10-2017.
6. The legal position, Analysis and Discussion :—
6.1 The provisions for implementing the CGST Act and CGGST Act 2017 are similar. Now we sequentially discuss the provisions that are applicable in the present case.
6.2 The primary issue that needs decision here so as to arrive at applicability or otherwise of the benefit of the conditional exemption Notification referred to above, in the context of the advance ruling sought by the applicant M/s. A2Z Infra Engineering Ltd., Raipur revolves around two vital aspects, namely :
| (a) | whether, CSPDCL is a Government authority/Government entity ? and, if so |
| (b) | whether, the works contract services provided by M/s. A2Z Infra Engineering Ltd. Raipur to CSPDCL qualifies being the work predominantly for use other than for commerce, industry or any other business of profession. |
6.3 Close scrutiny of the balance sheet of CSPDCL reveals that 100% equity of CSPDCL as held by CSPDHL (Chhattisgarh State Power Distribution Holding Company Limited) and 100% of equity of CSPDHL is being held by Government of Chhattisgarh as is evident from the balance sheet of CSPDHL as on 31st March, 2016.
This being the case, there is no ambiguity as regards CSPDCL, being a Government entity in view of the definition of 'Government Authority' as stipulated under Notification No. 31/2017-Central Tax (Rate), dated 13-10-2017.
6.4 Now, moving on to the second aspect regarding the nature of activities being under taken by the applicant i.e. whether the same can be treated as the work predominantly for use other than for commerce, industry or any other business of profession or not, it is seen that :
| (i) | As per, Section 2(119) of Chhattisgarh Goods and Services Tax Act 2017, Work Contract means a contract for building, construction fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. | |
| (ii) | Notification No. 24/2017-State Tax (Rate), dated 23-9-2017 and thereafter Notification No. 31/2017-State Tax (Rate), dated 13-10-2017 amended Notification No. 11/2017-State Tax (Rate), dated the 28th June, 2017, Of Chhattisgarh State Government, Commercial Tax Department, published in the Gazette (Extraordinary) of Chhattisgarh, No. 252, dated the 29th June, 2017. Notification No. 24/2017 supra reads as under : |
Naya Raipur, the 23rd September, 2017
NOTIFICATION
No. 24/2017-State Tax (Rate)
| No. F-10-74/2017/CT/V(126). - In exercise of the powers conferred by sub-section (1) of Section 9, sub-section (1) of Section II, sub-section (5) of Section 15 and subsection (1) of Section 16 of the Chhattisgarh Goods and Services Tax Act, 2017 (7 of 2017), the State Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby makes the following amendments in the notification of the State Government, in the Commercial Tax Department, No. 11/2017-State Tax (Rate) Notification No. F-IO43/2017/CT/V(79), dated the 28th June, 2017 published in the Gazette (Extraordinary) of Chhattisgarh, No. 252, dated the 29th June, 2017, namely :— | |
| In the said notification, in the Table, against serial number 3, for item (vi) in column (3) and the entries relating thereto, in columns (3), (4) and (5), the following shall be substituted namely :— |
| (3) | 4 | 5 | ||||||
"(vi) Services provided to the Central Government; State Government Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair. Maintenance, renovation, or alteration of —
| 6 | - | ||||||
| (vii) Construction services other than (i), (ii), (iii), (iv), (v) and (vi) above." | 9 | - |
| 2. This notification shall be deemed to have come into force with effect from 21-9-2017. | ||
| (iii) | Similarly the principal Notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 was amended vide Notification No. 24/2017-Central Tax (Rate), dated 23rd September, 2017, which was further amended vide Notification No. 31/2017-Central Tax (Rate), dated 13th October, 2017. | |
| (iv) | Thus for availing the benefit of exemption Notification No. 24/2017State Tax (Rate), dated 23-9-2017, the pre-condition is that the services being provided by the Applicant to CSPDCL by way of construction erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works must predominantly be for use other than for commerce, industry, or any other business or profession. This effectively means that for availing the aforesaid benefit of reduced tax rate, it is of paramount importance that the services under taken/work done by the Applicant for CSPDCL must necessarily for use which is non-commercial in nature. | |
| (v) | Now to ascertain the constitution of CSPDCL i.e. whether it has been incorporated for commercial aim or otherwise, it is seen that CSPDCL is a company incorporated under the Companies Act 1956, earlier known as Mahanadi Power Development Company Limited (Company Registration No. 1015822, dated 19-5-2003) and is a company limited by share. Further it is also in public domain that the main Objects of CSPDCL, as enumerated in its Memorandum of Association are as under : — |
MEMORANDUM OF ASSOCIATION OF CHHAITISGARH STATE POWER DISTRIBUTION COMPANY LIMITED
MAIN OBJECTS A. Main Objects to be pursued by the company on its incorporation | ||
| 2. Manufacture, trading, coordination | To carry on the business of purchasing, importing, exporting, producing, trading, manufacturing or otherwise dealing in Electric Power and to coordinate, aid and advise on the activities of other companies and concerns including subsidiaries, associates, affiliates engaged in the generation, distribution or trading of power on all matters concerning the operation and maintenance of Electric generation stations, associate lines and in the production, generation, use, storage and measurement, distribution and supply of electric power. | |
| 3. Investigate and prepare project reports | To study, investigate, collect information and data, review operations, plan, research, design, prepare feasibility reports, prepare project reports, diagnose operational difficulties and weaknesses, and advise on the remedial measures to improve and modernize existing stations and facilitate and to undertake for and on behalf of others the setting up of Electric power plants and generally work for the efficient and economics management of the resources available. | |
| 6. Purchase and sale of Electrical energy and co-ordinate with other companies | - To carry on the business of purchasing, selling, importing, exporting, wheeling and trading of power including finalization of tariff, billing and collection thereof. - To execute Power Purchase Agreements with Transmission Companies, Generating Companies, Central and State generating stations. Regional Electricity Boards, other State, Companies and Persons. - To execute agreements for sale of Power of other distribution or trading companies and other persons and to coordinate, aid and advise on the activities of other companies and concerns, including subsidiaries, associates and affiliates engaged in generation, transmission, distribution, supply and wheeling of electrical energy. | |
| B. Objects incidental or ancillary to the attainment of the main objects : | ||
| 4. Borrowing power | Subjects to the provision of Section 58A of the Companies Act, 1956 and the rules framed thereunder to borrow money or to receive money or deposits for the purpose of financing the business off the Company as may be thought fit, including by the issue of Debentures perpetual or otherwise, Debenture stock and as security for any such debentures issued, to mortgage, pledge or charge the whole or any part of the property and assets of the Company both present and future including its uncalled capital by special assignment or otherwise to transfer and convey the same absolutely or in trust and to give the lenders powers as may seem expedient, and to purchase redeem or pay off such securities and borrowings. | |
| 23. To carry on convenient business | Generally to do all such other things as may be deemed incidental or conductive to the attainment Of the above objects or any of them and to carry on any business which may be conveniently carried on in connection with any of the Company's objects or are directly or indirectly calculated to enhance the value of or render profitable any of the Company's property or rights. | |
| C. Others Objects | ||
| 8. To carry on the business of electrical and electronic equipment's etc. | To carry on the business of manufacturing, assembling, repairing, servicing, selling, purchasing importing, exporting, of electrical and electronics equipments like, transformers, motors, switch gears, pumps, threshers, starters, electric fans coolers, air conditioners, televisions, telephones, epabx, audio and video equipments used in factories, homes, mills, workshop business offices, hotels, and other type of electrical, electronics, solar equipments and machineries of Domestics, Industrial, Communication. Defence, Research applications. To carry on the business of repairing, renovating, conditioning, altering, of the above machineries and equipments on Job-work basis. | |
| (vi) | Thus on going through the main/ancillary objectives as enumerated in Memorandum of Association of CSPDCL, there hardly remains any doubt regarding the principal/primary and foremost aim of CSPDCL being predominantly commercial in nature and that on completion of IPDS projects the benefits would extend to all commercial users and more over CSPDCL generally works for the efficient and economic management of Electric power and optimum utilization of available resources which it receives from Central Government under IPDS scheme, to invest in urban/semi-urban areas. | |
| (vii) | The principal/primary role of CSPDCL is limited to providing of capital funds obtained from Central Government for installation and erection of infrastructure under IPDS scheme, whereas the role of M/s. A2Z Infra Engineering Ltd., Raipur is completion of the work of installation and erection of infrastructure including supply of materials like substation, conductor, meters, other structure ete. to be used predominantly for commercial purpose, at concessional and reasonable rates as per the awarded contract. Thus the nature of activities of CSPDCL being principally and predominantly, being commercial in nature, as per their (CSPDCLs) Memorandum of Association itself, we come to the considered conclusion that the works contract services provided by the applicant M/s. A2Z Infra Engineering Ltd., Raipur to CSPDCL is liable for CGST and SGST @ 9% each. |
7. In view of the deliberations and discussions as above, we pass the following order :
ORDER
8. In view of the discussions held above, the ruling sought by the Applicant is answered as under :—
9. In the light of Notification No. 11/2017-State Tax (Rate), dated 28-6-2017 read with amendment Notification No. 24/2017-State Tax (Rate), dated 23-9-2017 and as the nature of works contract services provided by the Applicant. M/s. A2Z Infra Engineering Ltd., Raipur to Chhattisgarh State Power Distribution Company Ltd. (CSPDCL) being predominantly for commercial use by CSPDCL, the said services provided by the Applicant to CSPDCL, attracts CGST and SGST each @ 9% respectively.