Works contract service to State power distribution Co. for its commercial use attract 18% GST: AAR

Fact: M/s. A2Z Infra Engineering Ltd (“the applicant”) is engaged in a fully integrated Electrical Business Group in India, providing maintenance and engineering services. The applicant supplies works contract services involving the supply of goods and services to Chhattisgarh State Power Distribution Company Ltd. (CSPDCL). The CSPDCL has been entrusted to execute the Integrated Power Development Scheme (IPDS) for the urban/semi- urban areas, which has been launched by the Government of India.

Issues involved:  The applicant has sought advance ruling in respect of the following questions:

Whether the CSPDCL is a Government authority/Government entity?

Whether the works contract services provided by the applicant to CSPDCL qualify being the work predominantly for use other than for commerce, industry or any other business or profession?

Applicant Interpretation of Law: The applicant contended that the services provided by them are in the nature of composite supply of work contract involving supply of goods and services therefore the services provided will be subjected to GST @ 12% instead of 18% in terms of Notification No. 24/2017-Central Tax (Rate), dated 13-10-2017. Which further provides 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 work contract services provided by the Applicant to CSPDCL is meant predominantly for use other than for commerce industry, or any other business or profession. The IPDS scheme has been formulated to keep pace with the increase demand of electricity as electricity is the most important factor in the economic growth of any country and the most critical segment of power sector chain including Generation, Transmission and Distribution, is the Distribution Sector. Thus, on the basis of above, the Applicant contends that the said work contract services involving the supply of goods and services to CSPDCL is liable for GST @ reduced rate of 12% instead of 18%.

Held: The Hon’ble AAR of Chhattisgarh vide Advance Ruling no. STC/AAR/03/2018 dated July 19, 2018 stated that with reference to Notification No. 11/2017-State Tax (Rate), dated June 28, 2017 read with amendment Notification No. 24/2017-State Tax (Rate), dated September 23, 2017 clarified that as the nature of works contract services provided by the Applicant to CSPDCL being predominantly for commercial use by CSPDCL,. Therefore, the said services provided by the Applicant to CSPDCL, attracts CGST and Chhattisgarh GST each at the rate of 9 per cent respectively.