In a recent ruling by the Kerala Authority for Advance Ruling ( AAR ) held that polymer protective coating services on bridges falls under painting services under Composite Supply of Works Contract. It was determined that the relevant SAC code is 995473, which falls under the category of “painting services.”
S & G Engineering, the applicant firm, engaged in providing works contract services for the application of polymer protective coating on bridges, sought clarity on the appropriate Service Accounting Code (SAC) and tax implications under Notifications 11/2017 and 12/2017. The applicant is involved in applying polymer protective coatings to bridges as part of their works contract services. They requested the AAR to confirm the correct SAC code for this service.
The applicant was granted an opportunity for personal hearing on 20/12/2023. Shri. Unnikrishnan. M, Chartered Accountant represented the applicant for personal hearing, which was conducted virtually. The representative reiterated the contentions made in the application and requested to issue the ruling on the basis of the submissions made in the application and oral submissions made while virtual hearing which were taken on record.
Get a Copy of GST Appeals & Appellate Procedures, Click here
The applicant provides the said service as a principal contractor as well as in the capacity of a sub-contractor to various entities such as Government, Governmental Authorities and Government entities. The applicant submits that works contract services provided by them are in relation to bridges for general use by the public and are covered vide entry no. 3(iv) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended from time to time, which attracts tax at the rate of 12% (CGST @ 6% and SGST @ 6%).
It was contended that the entry is independent in nature and service specific and not conditional on the nature of service recipient, or whether the supplier stands in the shoes of the principal contractor or sub-contractor. 7.6. Section 2(119) of the CGST Act, 2017 defines “Works Contract” as follows; Works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
From the definition it reveals that the term works contract under GST is restricted to any works undertaken for an ‘immovable property’ wherein transfer of property in goods whether as goods or in some other form is involved.
Get a Copy of GST Appeals & Appellate Procedures, Click here
It was observed that for a contract to qualify as a works contract, it must be a composite supply, involving both goods and services, resulting in the construction, repair, maintenance, renovation, or improvement of an immovable property. As per para 6(a) of Schedule II of the CGST Act, 2017 works contract is treated as supply of services, regardless of whether the principal supply is goods or services.
It was viewed that a polymer coating is a thin layered coating or paint made with polymers that provide superior adherence and protection from corrosion. Therefore the activity of polymer coating comes under the activity of improvement of immovable property wherein transfer of goods in the form of paint included and hence squarely falls under the definition of “works contract” as defined in section 2(119) of the CGST Act.
As per Notification No 11/2017 dated 28-06-2017, works contract is classifiable under SAC 9954. Under this heading, the Service Code (Tariff) 995473 includes painting services for building interiors, exteriors, railings, gratings, doors, windows, and other engineering structures, as well as paint removal services. As per the explanatory notes to the scheme of classification of services, Service Code (Tariff) 995473-painting services includes; i. painting services (principally decorative) of building interiors and similar services (e.g., application of coatings, lacquer, etc.); ii. painting services of building exteriors (principally for protection); iii. painting services of railings, gratings, doors and window frames of buildings, etc; iv. painting services of other engineering structures; v. paint removal services.
Get a Copy of GST Appeals & Appellate Procedures, Click here
The AAR determined that the relevant SAC code is 995473, which falls under the category of “painting services.” This classification includes services related to: Painting services for building interiors and exteriors Coatings and lacquer application Protection and painting of engineering structures, including bridges The ruling establishes that the polymer coating services provided by the applicant are classified under the SAC 995473 due to their nature of improving and protecting immovable property, which aligns with the definition of works contracts under Section 2(119) of the CGST Act.
The ruling clarified that the tax rate varies based on the period in which the service was provided: 01-07-2017 to 21-08-2017: Services were taxable at 18% (CGST @ 9% and SGST @ 9%). 22-08-2017 to 17-07-2022: The rate was reduced to 12% (CGST @ 6% and SGST @ 6%). 18-07-2022 onwards: The tax rate increased back to 18% (CGST @ 9% and SGST @ 9%). This progression reflects the changes made in the tax rate as per the amendments in Notification 11/2017 over time.
The applicant also inquired about the eligibility for exemptions under Notification 12/2017. The AAR ruled that since the classification and tax rates under Notification 11/2017 were clear, the question of exemption under Notification 12/2017 was deemed irrelevant. This is because the specific notification in question did not provide additional exemptions beyond the rate adjustments specified.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
