GST Update on GST rate for Earthwork services 53/2020-21

Recently Rajasthan AAR has pronounced a ruling vide No. RAJ/AAR/201-20/20 in the case of M/s Ashok Kumar Choudhary, on the classification of service being provided by the applicant and determination of the liability to pay tax.

Let us have a brief look into the facts of the case. The applicant is a proprietorship concern engaged in providing works contract services. They have been awarded a sub-contract for earthwork in relation to construction of access controlled Nagpur-Mumbai Super Communication Expressway (Maharashtra Samruddhi Mahamarg). Further Sadbhav Engineering Limited (SEL) was awarded the contract for such construction as principal contractor who Sub-contracted the work of Earth Works including Roadway-Clearing and Grubbing, Excavation in Soil, Hard Rock, Embankment and Subgrade etc to M/s Potaliya Enterprises. Potaliya Enterprises further sub-let the above work to the applicant.

The question that arises here is that whether the said transaction shall be treated as supply of service as composite supply of works contract as defined under clause 2(119) of the CGST Act 2017 supplied by way of supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a road under entry number 3(iv) of the Notification No 11/2017-CT (Rate) dated 28.06.2017 and is taxable at the rate of 12%. So the applicant has put forward before the authority the following questions

“What shall be rate of GST on activity of sub-contract for earthwork in relation to construction of access controlled Nagpur-Mumbai Super Communication Expressway (Maharashtra Samruddhi Mahamarg)?”

With respect to answering above question, the AAR has gone through the scope of work as stated in the agreement and has formed an opinion that supply made by the applicant falls under supply of construction service for Earth Work and related work and is of independent nature, and cannot be categorised as construction of road as classified under Entry number 3(iv) of the Notification No 11/2017-CT (Rate) dated 28.6.2017. After discussing the definitions of Composite supply, Principal supply and Works contract service, it has concluded that the said activity does not fall under either Composite Supply or Mixed Supply. Further, as there is no involvement of transfer of property in goods in the above said activity; it cannot be classified under Works Contract Services also.

The AAR concluded that the activity falls under the heading “Site formation and clearance services including preparation services to make sites ready for subsequent construction work, test drilling and boring and core extraction, digging of trenches” and is classifiable under SAC 995432 attracting GST @ 18%.

This is solely for educational purpose.

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GST Update on GST rate for Earthwork services 53/2020-21

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