18% GST for Services provided to Electricity Supply Companies: AAR [Read Order]

AAR - Services - Taxscan

The Authority for Advance Rulings (AAR) in Karnataka has held that Services provided to Electricity Supply Companies, an undertaking wholly owned by the Karnataka State Government by way of construction, erection, commissioning, installation, completion, etc. are not covered under Entry 3(vi)(a) of the Notification No. 12/2017 – Central Tax (Rate) dated 28-06-2017, and consequentially, they are not eligible to be taxed at a lower rate of 12%. The bench clarified that these services are liable to be taxed at 18%GST.

The contention of the Appellant, M/S. Manipal Energy & Infratech Ltd., Manipal, that only 12% GST may be levied, is dismissed on all accounts by the Division Bench consisting of Members Sri. HarishDharnia, and Dr. Ravi Prasad M.P.

Going through the Facts of the case, the Appellant Company M/s.Manipal Energy and Infratech Ltd. is a Company, registered under the GST Act, 2017, engaged in the activity of undertaking civil construction, mechanical structural work, erection of equipment, electrical infrastructure including substations, etc. They filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 & Section 97 of the KGST Act 2017, in FORM GSTARA-01 discharging the fee of Rs.5,000/- each under the CGST Act & the KGST Act. The applicant had participated in the tenders floated the electricity distribution companies based in Karnataka i.e., Hubli Electricity Supply Company Limited (HESCOM), Mangalore Electricity Supply Company Limited (MESCOM) and Bangalore Electricity supply company Limited (BESCOM). The applicant, upon participation in the tender, has been awarded various contracts by all 3 of them.

The issue before the bench was to determine the rate of tax applicable on supply of services to Electricity supply Companies (wholly owned Government of Karnataka undertakings) by way of construction, erection, commissioning, installation services in the nature of original works.

After hearing the contentions from both the sides, the bench held that the Services provided by the Applicant to Electricity Distribution Companies are Composite supply of works contract as defined under Clause (119) of Section 2 of the CGST Act, 2017 as it satisfies the conditions provided under the provision.

It was found that contracts are undertaken by the applicant are in the nature of original works based on the definition as provided under clause 2(zs) to the Notification NO. 12/2017- Central Tax (Rate) dated 28-06-2017 as amended from time to time. The contract is a new construction involving erection, commissioning or installation of plant, machinery or equipment or structures.

“Electricity Distribution Companies are involved in the selling of electricity to the consumers and are collecting consideration and electrical energy is considered as”goods”. Hence the Electricity Distribution Companies are involved in the sale of goods or in general, the supply of goods to the consumers for consideration. From the definition of business provided under clause (17) of section 2 of the CGST Act, any activity of trade, commerce, manufacture, etc or any other similar activity is included in the definition of business and it is immaterial whether it is done for a pecuniary benefit, and any activity done in connection with or incidental or ancillary to such activity is also included in the scope of “business”,” the bench said.

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