Road and Bridge Construction Contracts with KSTP Taxable at 12% Before July 18, 2022, and 18% Thereafter: AAR [Read Order]

The Kerala Authority for Advance Ruling ( AAR ) has provided much-needed clarity on the Goods and Services Tax ( GST ) rates applicable to road and bridge construction contracts awarded by the Kerala State Transport Project ( KSTP ). The ruling addresses the uncertainty faced by contractors, including M/s. Sreedhanya Construction Company, regarding the applicable tax rates for such contracts.

M/s. Sreedhanya Construction Company, a registered taxpayer under the GST Act, 2017, approached the AAR seeking an advance ruling on the status of KSTP under GST and the applicable GST rate on works contract services provided to KSTP. The company executes various infrastructure projects, including roads and bridges, awarded by government departments and public entities such as KSTP.

The applicant, represented by Shri. Shinu Sasidharan highlighted the confusion surrounding the tax rate for works contract services provided to KSTP, particularly after the Central Tax Notification No. 13/2021, dated November 18, 2021, which increased the tax rate for services provided to governmental authorities and entities from 12% to 18% effective January 1, 2022.

The primary concern of the applicant was whether KSTP should be classified as a government department, government authority, or government entity, as this classification directly impacts the applicable GST rate.

The AAR first addressed the question of KSTP’s status under GST. It concluded that determining whether KSTP is a government authority, government entity, or government department is outside the purview of matters covered under sub-section (2) of Section 97 of the CGST Act. Therefore, the AAR refrained from pronouncing a ruling on this matter.

The AAR then proceeded to address the second question concerning the applicable GST rate on works contract services provided to KSTP. The ruling noted that as per entry no. 3(iv) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, the GST rate for works contract services related to the construction of roads and bridges for public use was initially set at 12% (CGST 6% + SGST 6%). This rate was applicable until July 17, 2022.

However, an amendment introduced through Notification No. 03/2022-Central Tax (Rate) dated July 13, 2022, effective from July 18, 2022, revised the GST rate for these services to 18% (CGST 9% + SGST 9%).

The two-member authority comprising Smt. Gayathri P.G. IRS (CGST Member) and Shri. Abdul Latheef K (SGST Member) emphasised that the critical factor determining the applicable GST rate is the time of supply as defined under Section 14 of the CGST Act.

The AAR explained that for works contract services provided to KSTP, if the time of supply, as determined in accordance with Section 14, falls before July 18, 2022, the applicable GST rate would be 12%. Conversely, if the time of supply falls on or after July 18, 2022, the applicable GST rate would be 18%. This ruling provides essential guidance for contractors working with KSTP and other similar government projects, ensuring compliance with the correct GST rates. This decision by the AAR also resolves the ambiguities surrounding the GST rates for works contract services in Kerala.

To Read the full text of the Order CLICK HERE

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