15% GST applicable only on Supervision Charge Fee when value of materials and Cost of Work Execution borne by Service Recipient: AAR [Read Order]

In a recent ruling, the Uttar Pradesh Authority For Advance Ruling ( AAR ) ruled that 15% Goods and Service Tax ( GST ) is applicable only on supervision charge fees when the value of materials and cost of execution of work was borne by the service recipient.

M/s Madhvanchal Vidyut Vitran Nigam Ltd., the applicant applied for Advance Ruling. It was submitted that there are two methods of installing the line, the entire work with material and installation is arranged by MVVNL on behalf of the customer and is carried out under the supervision of MVVNL. The entire cost of material and labour incurred by MVVNL is reimbursed by the customer on cost to cost basis and accordingly, the net income charged by the MVVNL is supervision fee only.

 In the second mode the entire work with material is arranged by the customers and installation work is done by the contractors hired by the customers. In this case, the role of the MVVNL is limited to supervision only for which it charges a supervision fee. The supervision fee is charged @15% of the cost of material. The applicant seeks clarification on the applicability of GST on the construction/shifting of lines under the second method. The applicant seeks clarification as to whether GST would apply only to the supervision fee, or GST would be applicable to the entire amount including material and labour.

It was evident that MVVNL is not a supplier of goods and services as per provisions of section 2(105) of CGST Act, 2017 as the work is being undertaken by the customer itself. There is no relationship between the customer and MVVNL which can be categorized as that of supplier and recipient except for the services of the supervising the whole work.

A two-member authority comprising Amit Kumar and Harilal Prajapati viewed that no consideration comes under the purview of section 2(31) of the CGST Act, 2017. All the payments are being made by the customer directly to the vendor and contractors and no payment is being made to MVVNL except supervision charge for the work. 

The work contract services supplied in the course of construction/ dislocation/shifting are neither supplied by nor the consideration for the same has been received by MVVNL hence there is no supply of works contract services by the MVVNL.

The authority observed that “where the value of materials and cost of execution of work for installation of electric lines are borne by the recipient of service and the applicant charges supervision fees only, the value of materials and cost of installation shall not be included in the value of supply for determination of taxable value under GST and the applicant shall be liable to pay GST only on the supervision charges.”

Further held that 15% GST is chargeable on supervision fee as in the second mode the entire work with material is arranged by the customers and installation work is done by the contractors hired by the customers.

To Read the full text of the Order CLICK HERE

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