The Uttar Pradesh Authority for Advance Rulings ( AAR ) clarified that GST is applicable only on supervision fees when the materials and installation costs are borne by the recipient. The ruling was made in the case of Uttar Pradesh Power Transmission Corporation Ltd.
The two member bench of the tribunal comprising Harilal Prajapathi ( Member of AAR ) and Amit Kumar (Member of AAR) has observed that value of material and cost of execution work for installation of lines will be included in the value of supply for determination of taxable value under GST where all such cost are born by the recipient of service and the applicant charge only supervision charges
In terms of Section 40 of the Electricity Act, 2003 and Clause 4 of the Electricity Supply Code, 2005 (‘ES Code’), the exclusive right to carry out deposit works remains with the UPPTCL, as per the technical standards of operation and maintenance of distribution/transmission lines specified by the Central Electricity Authority / Central Electricity Regulatory Commission. The deposit works is carried out at the behest of the consumer via two modes:-
First, where entire works with material are arranged by customer and the installation work is done by contractor hired by the customers. The applicant’s role is to supervise the work, for which they charge 15% towards their fee. Entire cost is incurred by the UPPTCL and such cost including applicable GST is recovered from the consumer. As per the current practice, the UPPTCL is computing GST on the total estimate of expenditure.
In the second method, entire material and installation work is arranged by the applicant and work is carried out by the vendors under the supervision of the applicant and such cost including GST is recovered from the consumer.
That the applicant being an electricity transmission company has an expertise in the area of installation/supervision of electricity lines
In the present case, the cost of work was directly borne by the consumer. Regardless, the applicant is exclusively liable and responsible for modification alteration of the transmission infrastructure as per the Electricity Act, so as to comply with the ES Code and it is for this reason that the deposit work was to be mandatorily executed under the supervision of the UPPTCL. Now, provisions regarding valuation under the CGST Act and Central Goods and Services Tax Rules, 2017 (CGST Rules) are relevant in order to determine the consideration for the instant supply.
As per Section 15(1) of the CGST Act, value of supply shall be the transaction value, price actually paid or payable for the said supply, where the supplier and the recipient are not related, and price is the sole consideration. In the said mode of execution of deposit works, price is not the sole consideration, as the handover of infrastructure so created under deposit work by the consumer to the UPPTCL is the non-monetary consideration to the applicant. Since benefit thereof accrues to the applicant. Thus, Section 15(1) shall not apply.
Section 15(4) stipulates that if the value of the supply of goods or services cannot be determined under Section 15(1), it shall be determined as prescribed by Rule 27 to 31 of the CGST Rules.
In this case the consideration for works contract services is fully paid by the concerned party and there is no shared / part payment by the same. In such cases it was not feasible to have two considerations for a single supply.
Accordingly, the authority bench noted that in the facts and circumstances, 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.
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