CONSTRUCTION SERVICES PROVIDED TO INLAND WATERWAYS AUTHORITY OF INDIA (IWAI) IS TAXABLE @18% AND NOT @12%
(ITD cementation India Pvt Ltd)
Facts of the case:
- The Applicant is supplying works contract service. He has entered into an agreement with Inland Waterways Authority of India (hereinafter the IWAI) for construction of a multi-modal IWT terminal at Haldia on EPC basis.
- The Applicant submits that construction of the Multi-modal IWT Terminal amounts to composite supply of works contract service. The contractee is a Government Entity, being a statutory body established under the Inland Waterways Authority of India Act, 1985 (hereinafter the IWAI Act, 1985), and functions under the administrative control of the Ministry of Shipping, Government of India. The supply is, therefore taxable @ 12% under the GST Act in terms of Serial No. 3(vi) of the Rate Notification, as mentioned below.
- Applicant also draws attention to Notification No. 31/2017 – CTR dated 13/10/2017, amending the Rate Notification, and says, “The status of IWAI vis-à-vis the definition of ‘Government Entity’ as explained at para 4(x) of Notification No. 31/2017 – CTR dated 13/10/2017 may be examined. It is to further add that consequent upon to this amendment, the composite supply of works contract to Government Entity by way of construction, erection, etc would attract GST @ 12%.”
“Notification No. 24/2017 – CT (Rate) dated 21/09/2017 and 31/2017 – CT (Rate) dated13/10/2017 have amended Notification No. 11/2017 – CT (Rate) dated 28/06/2017”
As a result, Serial No. 3(vi) of the Rate Notification, post such amendments, stands as below.
|Heading||Description of the service||Rate||Condition
|3||9954||(vi) Composite supply of works contract as defined in
clause (119) of section 2 of the Central Goods and Service Tax Act, 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) a civil structure or any other original work meant predominantly for use other than for commerce, industry, or any other business or profession:
(b) a structure meant predominantly for use as (i) an
educational, (ii) a clinical, or (iii) an art or cultural
(c) 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 Central Goods and Service Tax Act, 2017.
where the services
are supplied to a
they should have
been procured by
the said entity in
relation to a work
entrusted to it by
territory or local
authority, as the
case may be.
- The Applicant seeks a ruling on applicability of Notification No. 24/2017-CT (Rate) dated 21/09/2017 and 31/2017 – CT (Rate) dated 13/10/2017. More specifically, he wants a ruling on what should be the rate at which GST should be charged on the works contract service to be supplied for construction of the above terminal.
Authority has considered following points:
- Authority has gone through above notification & Notification No. 17/2018 – CT (Rate) dated 26/07/2018 appends an Explanation to the above entry. It clarifies that for purposes of the above entry, the term ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities. This Explanation does not include within it ambit a Governmental Authority or a Government Entity.
- According to the objects and reasons of the IWAI Act, 1985, the IWAI is an Authority set up for “the regulation and development of inland waterways for the purpose of shipping and navigation and for matters connected therewith or incidental thereto.” The Central Government appoints and removes members of the IWAI, provides grants and loans, sanctions projects, gives directions, makes rules, and can supersede the Authority if required. The IWAI is thus a statutory authority under direct control of the Central Government. It is, therefore, a ‘Government Entity’ in terms of para 4(x) of Notification
- Section 14(1)(b) of the IWAI Act, 1985 empowers IWAI to set up infrastructural facilities for national waterways. No such projects, however, can be undertaken without approval from the Central Government unless the amount involved is below a threshold
- Therefore, construction of multi-modal IWT Terminal is a project undertaken within the functional authority entrusted to IWAI and with Govt sanction, satisfying the condition under column (5) of the Serial No. 3(vi) of the Rate Notification.
- Predominant use of the infrastructure so created is, for facilitating commerce and business. According to letter submitted to GST council ,IWAI may, levy and collect fees and charges from the users of the infrastructural facilities being created.
- The IWAI is clearly not the Government of India, but a Government Entity having no sovereign authority to collect Government revenue. It is, therefore, evident that the Applicant is supplying works contract service for an original work that is meant for commerce and business. It does not, therefore, satisfy the conditions laid down under Serial No. 3(vi)(a) of the Rate Notification. The Applicant’s supply of works contract service for construction of the Multi-modal IWT Terminal at Haldia, therefore, attracts GST at 18% rate under Serial No. 3(xii) of the Rate Notification.