Summary of case:
The applicant states that they are contractors with South Western Railway, Bangalore and they have been awarded contract which includes new works, repair works, additions and alterations to existing structures.
The applicant has sought advance ruling in respect of the following question:-
Applicability of GST rates for works contract services for original works with south western railways.
In the given case it was observed that the applicant is executing two types of works wherein, in one set of work the applicant is executing works contract for construction of new buildings and in the second set of work, the applicant is executing works contracts not involving new construction. Thus the issue is basically divided into two categories. One that results in the new buildings and the other repair and reconstruction of the old structures.
The entry 3(v) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 amended the rate of tax applicable is 6% under CGST on the following description of service :
“Composite supply of works contract as defined in section 2(119) of the CGST Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to, –
(a) Railways, ….
(b) … .”
This entry is related to works contract services supplied to railways which is construction or erection or commissioning or installation of original works. Thus the activity of new construction would fall under the “original works” as there is no structure exists before. But in case of constructions which are made where the structures already existed, the same can be classified under:
(a) where the additions and alterations are made to the abandoned structures on land or damaged structures on land to make them workable
(b) repairs of already existing structures which are in working condition and
(c) construction services on structures not on land
It is pertinent to note that only those works contract services covered under (a) above are to be treated as “original works” and not those that are covered under (b) and (c).
Further the entry 3(vi) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 amended is as under:-
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) a civil structure or any other original works 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 establishment; or
(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 CGST Act, 2017
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 Railways Department is a Central Government Department and hence it is clear that the services provided to them, if for a purpose other than for business, then the same would be covered under entry 3(vi). Since the Railways is undertaking the transportation services of goods and passenger, the services provided cannot be covered under entry 3(vi)(a). However, the services of repairs, maintenance, renovation and alterations of residential complex meant for use of the Railway employees are covered under entry 3(vi) of the Notification and hence eligible for tax at 6% CGST.
So far as the question of rate of tax is concerned, it was observed that the same cannot be a composite supply of works contracts as there is no principal supply and the works are not naturally bundled. It cannot be a mixed supply also because the valuations of each of the supply of works are valued separately and there is no common price for all the contracts. Hence it can be safely decided that each of the works mentioned in a schedule is a separate contract in itself and this is bolstered by the fact that the works are not in the same place and also are different in nature.
CRUX: 1. The new constructions involved in the contract are liable to tax at 12% (6% CGST and 6% SGST) as per entry no.3(v) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017as amended by Notification No. 20/2017 – Central Tax (Rate) dated 22.08.2017.
2. The services of repairs, maintenance, renovation and alterations of residential complex meant for use of the Railway employees are covered under entry 3(vi) of the Notification and hence eligible for tax at 6% CGST and 6% SGST.
3. Other repair works of old construction involved in the contract are liable to tax at 18% (9% CGST and 9% SGST) as per entry no. 3 (xii) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 as amended from time to time.