The Uttar Pradesh Authority for Advance Ruling (AAR) recently ruled that Goods and Services Tax (GST) is payable on the procurement of materials and installation of electricity distribution systems when done by a electricity distribution company (DISCOM) in light of a works contract between the DISCOM and consumers/intending agencies.
The Application for Advance Ruling was filed by Pashchimanchal Vidyut Vitran Nigam Limited, a subsidiary company of the state-owned Public Sector Undertaking Uttar Pradesh Power Corporation Ltd. based in Meerut, Uttar Pradesh.
The instant DISCOMs are distributors licensed through the Electricity Act, 2003 and are involved in the development, maintenance and operation of distribution systems in the State of UP. Additionally, the DISCOMs also undertake ‘deposit works’ including providing assistance in the development of electricity infrastructure as requested by consumers or intending agencies, in accordance with the provisions of Section 40 of the Electricity Act, 2003 and Clause 4 of the Electricity Supply Code, 2005.
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The present Application, among other issues, queries the GST payable on the method of Deposit Work where entire material and installation is arranged and supervised by the Applicant on behalf of the consumers/ intending agencies. Further, the DISCOM also inquired about their eligibility to avail Input Tax Credit (ITC) of GST on material, labour, installation and other overheads.
The two-member Bench of the Uttar Pradesh Authority for Advance Ruling comprising Amit Kumar, Central Tax Member and Harilal Prajapati, State Tax Member observed that in the present method of proposed deposit work, the work done by the Applicant is a “Works Contract” as per Section 2(119) of the Central Goods and Services Tax Act, 2017 (CGST Act).
AAR further pronounced that since the ownership of structure is vested with the Applicant and used in the furtherance of the Applicant’s business, they shall be eligible to avail ITC on the material, labour, installation and other overheads accrued in the process of establishment of the structure.
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In light of the findings, the AAR ruled that the GST payable shall be determined on the value of material and cost of execution work reimbursed on cost basis by the Consumer to the Applicant.
Furthermore, the AAR ruled that the Applicant is eligible to avail ITC of GST on material, labour, installation and other overheads subject to conditions of Section 17(5)(c) and (d) of the CGST Act, 2017 and allied rules.
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