GST UPDATE ON TAX RATE ON SERVICES PROVIDED TO NCBS 58/2020-21

GST UPDATE ON TAX RATE ON SERVICES PROVIDED TO NCBS

The entry providing benefit of concessional rate of tax is to be strictly interpreted as it has been held by Courts time and again that exemption notifications are to be strictly read. In the present update, we wish to discuss the applicability of concessional rate of tax on works contract services provided by the applicant M/s Hombale Constructions And Estates Private Limited.

The applicant entered into a works contract agreement with National Centre for Biological Sciences for construction of Hostel building at NCBS Campus in Bangalore. The National Centre for Biological Sciences (NCBS) began as a separate centre of Tata Institute of Fundamental Research (TIFR) which receives grants from the Department of Atomic Energy, Government of India. The question on which advance ruling is sought by the applicant is as follows

“Whether GST @12 % should be charged for service provided to NCBS as per Notification No 24/2017 Central Tax (Rate) dated 21-09- 2017”
The above ruling is being sought as the applicant being the contractor who is of the opinion that the composite supply of works contract shall be chargeable at the rate of 18% under residual entry as the nature of service provided by him to the contractee is not covered specifically in Notification No. 11/2017 dated 28.06.2017. However, the contractee does not agree with the contention of the applicant and states that since it is a fully funded aided institute administratively controlled by the Department of Atomic Energy (DAE), Government of India and the activities of NCBS are related to the educational research , so 12% rate is applicable as per the Serial No.3 of item no.(vi) of Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017 as amended by Notification No 24/2017 Central Tax (Rate) dated 21-09-2017. The applicant also contends that the services rendered to contractee is not to the recipient as mentioned in the notification being Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity”. Hence it does not come under the purview of the Notification No 24/2017 Central Tax (Rate) dated 21-09-2017.
Hence, the authority of advance ruling had to examine whether the NCBS is covered under any one of the categories “Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity”.

It is clear at the outset that NCBS is not Central Government or State Government or Union Territory or a local authority or a Governmental Authority. In order to ascertain whether it is a Government Entity or not, the definition of Government Entity is discussed below:-

“‘(x) Government Entity” means an authority or a board or any others body including a society, trust, corporation,
(i) set up by an Act of Parliament or State Legislature; or
(ii) established by any Government,
with 90 per cent. 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.”

On examination of facts, since NCBS were not set up by an Act of Parliament or were not established by any Government, and moreover, comprised of only 4 members from the government, none of the criteria of the definition were fulfilled. Hence, it is clear that NCBS is not covered under the definition of Government Entity. Therefore, it was concluded that the service supplied by the applicant is not covered under clause (vi) of Serial No.3 of Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time and hence is not taxable at 6% CGST and 6% KGST. Consequently, it is taxable at 9% CGST and 9% KGST under the residual item no. (xii) of Serial No.3 of Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017 as amended from time to time.

It is rightly held by various courts that strict interpretation is to be adopted for exemption notifications. If the criteria of the entry are not satisfied, the benefit of concession is not available to the assessees. Furthermore, we have discussed in our earlier updates that exemption given to principal contractor is not available to the sub-contractor if the exemption is recipient specific. In the present ruling, the applicant did not provided services to the specified service recipients and so the benefit of concession was not available to them.

This is solely for educational purpose.

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GST UPDATE ON TAX RATE ON SERVICES PROVIDED TO NCBS 58/2020-21

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