18% GST on Construction of New Transmission Bay/Express Feeder of Maharashtra Electricity Co.: AAR [Read Order]

An application was filed before the AAR by MSETCL, a wholly owned enterprise of the Maharashtra Government seeking clarity on the applicability of GST on the construction of a new transmission bay or an express feeder for individual beneficiaries such as industries, housing complexes or infrastructure developers.

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The works are generally carried out at the request of dedicated users who make advance payments to MSETCL in the form of an adjustable deposit, along with supervision charges.

The Applicant, represented by Chartered Accountant Arpit Jain, contended that the construction of a new bay or feeder is a component of MSETCL’s larger statutory transmission function and the infrastructure is ultimately owned and operated by MSETCL.

He further submitted that since the services are integral to the transmission and distribution of electricity, they should qualify for exemption under Entry 25 of Notification No. 12/2017-Central Tax (Rate), which grants GST exemption for transmission and distribution services.

Meanwhile the Revenue was represented by Deputy Commissioner of SGST Sudarshana J. Patil.

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The AAR Bench, comprising Shri D.P. Gojamgunde, Joint Commissioner of State Tax, and Ms. Priya Jadhav, Joint Commissioner of Central Tax, observed that the exemption under Entry 25 is confined to the supply of electricity transmission services to distribution licensees or consumers of electricity.

In the present case, the construction of a dedicated bay or feeder for a specific user would not constitute such supply and was instead, deemed as a contractual agreement to perform construction work for a consideration paid by the beneficiary.

Relying on Circular No. 178/10/2022-GST dated August 3, 2022, the Bench categorised the service under SAC 9954 (construction services) and held that it attracts GST at the standard rate of 18%. The Authority further noted that MSETCL’s ownership of the asset post-construction does not alter the nature of the service rendered, as the initial contractual obligation was to construct a facility for a specific end-user.

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In such circumstances, the AAR ruled that the construction of a new transmission bay or express feeder by MSETCL for a dedicated beneficiary through a contractor constitutes a taxable supply of service, attracting 18% GST.The construction was deemed consequent to a contractual agreement to perform construction work for a consideration paid by the beneficiary.

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