The Maharashtra Authority of Advance Ruling has held that GST is applicable on a total of the escalated value plus the original value of the contract.
The applicant M/s. B. P. Sangle Construction Pvt. Ltd., is engaged in the construction of public roads for the Government authorities and also provides construction services for Private parties. The applicant has been awarded a tender from NHAI for the construction of roads for a certain amount. There is a clause in the tender according to which, in case there is a change in the rates of labor, steel, cement, plant, machinery, spares, bitumen, lubricants, etc. the contract price shall increase or decrease as per the formula provided in the tender notice. In the event of such escalation of value, the same shall be recovered in addition to tender value from NHAI. Applicant approached advance ruling authority to clarify whether the escalated value shall be added to taxable value under section 15 of the GST Act.
The applicant submitted that before the GST regime NHAI invited proposals for the work development, maintenance, and management of the National Highway. The activity to construct roads for the public was exempted from payment of service tax under Sr. No. 13(a) of Notification No: 25/2012-ST under the Erstwhile Service Tax laws. When the contract was awarded only Maharashtra VAT was applicable and hence taken into consideration and the said contract price was including of VAT at the rate of 5% only.
The advance ruling authority has observed that there was no supply during the pre-GST period and no invoice was also raised during the said period. The service was provided entirely during the GST period and therefore in view of section 13, the time of supply is during the GST era, and for ascertaining the value of service the relevant provisions of CGST Act 2017 shall apply.
It was further observed by the authority that section 15(1) says that the value of supply of goods or services or both shall be the transaction value and the transaction value in the subject case will also include the escalating value, which is being recovered from NHAI by the applicant. Therefore such escalated value or price which is added to contract price shall be liable for payment of GST as per the provisions of section 15of the Act.
The Coram of Sri Rajiv Magoo, Member and Sri T. R. Ramnani has held that “the escalated value shall be added to the original value of the contract and the total of the escalated value plus the original value of the contract will be the transaction /taxable value u/s 15 of the Act on which GST must be discharged by the applicant”
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