18% GST Applicable on Services supplied by Sub-sub Contractor to Sub Contractor : Gujarat AAAR

In a recent ruling, the Gujarat Appellate Authority for Advance Ruling (GAAAR) ruled that 18% Goods and Services Tax (GST) is applicable on the services supplied by the sub-sub-contractor to sub-contractors.

The appellant, M/s Shreeji Earth Movers (sub-sub-contracor), a work contractor and executes and undertake composite supply of works contract as defined in Section 2(119) of Central Goods and Services Tax, 2017 and was awarded a sub-contract by another works contractor to execute the original work of civil construction works supply to the Irrigation department of Gujarat

M/s. JSIW Infrastructure Pvt. Ltd (Contractor/original contractor), received the original contract from the irrigation department for the construction of the pumping station and supplying and laying MS pipeline with all allied works..etc and maintenance of the commissioned project for l0 years.

Further, M/s. JSIW Infrastructure executed the same contract with M/s. Radhe Construction (Sub contractor). The sub-contractor executed the same contract with the appellant. Therefore there is no doubt that the appellant got the contract from a sub-contractor who got the main contract from the original contractor.

In the instant case the appellant has referred to Sr. No (iii) of Notification No.20/2017- CT (Rate) dated 22.08.2017 to submit that the rate applicable to them is l2%.

The bench observed that the entry No. 3(iii) of the subject Notification provides fbr rate of tax at l2% if any taxable person is providing composite supply of works contract as defined in section 2(119) of CGST Act, 2017 to Central Government, State Government, Union Territory, a local authority or a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of:

1. a historical monument. archaeological site or remains of national importance, archaeological excavation. or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act. 1958 (24 of 1958);
2. canal, dam or other irrigation works;
3. pipeline, conduit or plant for (i) water supply (ii) water treatment. or (iii) sewerage treatment or disposal.

However, it is found that the appellant don’t have any work order issued in their favour by any of the aforesaid Governmental authorities.

The appellant additionally argued that the rate of GST applicable to the primary contractor should be collected from subcontractors as stated in the press release of the 25th meeting of the GST council held on January 18, 2018.

The benefit of the lower GST rate only applies to the principal contractor’s subcontractors; the second level subcontractors are not eligible, according to the press release.

After reviewing the arguments, the bench of Samir Vakil and Vivek Ranjan concluded that the appellant is subject to tax discharge at a rate of 18% under Entry No. 3(ii) of Notification No. ll/2017-CT(R) of June 28, 2017, as subsequently revised by Entry No. 3(xii) of the aforementioned Notification.

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