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PJ/Case Law/2018-2019/3500

GST rate on the works contract services to be supplied for construction of multi-modal IWT terminal.
 
 
Case:ITD CEMENTATION INDIA LTD.
Citation:33/WBAAR/2018-19 dated 08.01.2019
Issue:GST rate on the works contract services to be supplied for construction of multi-modal IWT terminal. 
Brief facts: The Applicant is stated to be 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 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 multi modal IWT terminal.
Appellant’s contention:The Applicant submits that construction of the Multi-modal IWT Terminal amounts to composite supply of works contract service. The contractor 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 above. In support of his argument the Applicant refers to letter no. 198/Representation/MOF/GST Council/2017/2899 dated 14/03/2018 of the GST Council to the contractee. In the said letter the Council 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. 31/2017-CT (Rate) dated 13/10/2017 defines the terms 'Governmental Authority' and 'Government Entity' under para 4(ix) and (x) respectively. Both refer interalia to an authority set up by an Act of Parliament or a State Legislature with 90% or more participation by way of equity or control. The Governmental Authority, however, is established to carry out functions entrusted to a Municipality or Panchayat under Art 243 W or 243 G of the Constitution respectively: whereas, a Government Entity is set up to carry out any function entrusted by the Central Government, State Government, Union Territory or local authority.
Respondent’s Contention and Reasoning of Judgement:Appellant contended that the IWAI is a statutory authority under direct control of the Central Government. It is, therefore, a 'Government Entity' in terms of para 4(x) of Notification No. 31/2017-CT (Rate) dated 13/10/2017. Letter of the GST Council highlights this status of the IWAI. GST is payable @ 12% on supply of works contract service to a Government Entity, which is pointed out in the Council's above-mentioned letter.
However, the concession under Serial No. 3 (vi) of the Rate Notification is contract specific. The recipient Government Entity should procure the works contract service in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority, as the case may be. If it is not covered under Serial No. 3(vi) (b) or 3(vi) (c ), it should be a civil structure or an original work meant predominantly for use other than for commerce, industry, or any other business or profession [Serial No. 3(vi)(a)].
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 [2nd proviso to section 13 and section 14(4) of the IWAI Act, 1985]. Therefore, construction of multi-modal IWT Terminal, involving Rs 517.36 crore, if lawfully contracted, 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.It is clearly an original work and involves construction of civil structures.
However, it is amply clear from the very nature of the project that it creates infrastructure for commercial utilization of the national waterway.
IWAI may, as indicated in its letter to the GST Council referred to above, levy and collect fees and charges from the users of the infrastructural facilities being created. All such fees and charges received are credited to the Consolidated Fund of India. The Applicant argues that the very fact of such credit to the Consolidated Fund of India clearly establishes that the fees so collected are not proceeds from business.
The Applicant's argument, therefore, implies that the user fees collected by IWAI are not proceeds from business but revenues collected by the Government of India.
Section 10 of the IWAI Act, 1985 mandates it to act on business principles while discharging its functions. Section 14(1)(k) even allows IWAI to set up joint ventures with equity participation for the purpose of inland shipping. Therefore, unless proceeds from such activities, including user fees and charges, are credited to the Consolidated Fund of India, they must be construed as proceeds from commerce and business.
Section 17(1) of the IWAI Act, 1985 empowers IWAI to collect user fees with previous approval of the Central Government. All such fees and charges are credited to the Inland Waterways Authority of India Fund, constituted under section 19(1) of the IWAI Act, 1985 and not to the Consolidated Fund of India.
The IWAI is clearly not the Government of India, but a Government Entity having no sovereign authority to collect Government revenue.
Moreover, contrary to what the Applicant claims, the user fees that IWAI collects is not credited to the Consolidated Fund of India and is, therefore, not revenue but proceeds from business as defined under section 2(17) of the GST Act. Therefore, the applicable rate of GST on such activities is 18%.
Decision:  Application disposed of
Comment:  The kernel of case that is 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.
 
Prepared by:Pushpa choudhary
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